Gregory Wolkom is the managing director and group head of Wells Fargo Securities’ real estate loan syndications practice and Wells Fargo’s real estate investment trust finance group. Wolkom’s role in overseeing real estate loan syndications for the bank provides him with a broad understanding of not only what Wells Fargo looks for in a deal but also what other lenders are comfortable with. He joined Wells Fargo five years ago from San Francisco-based Kimpton Hotel & Restaurant Group, after getting his start in loan origination and investment banking at Bank of America predecessor companies. Wolkom originally joined Wells Fargo’s hospitality finance group, where he managed a portfolio of balance sheet loans on hotels and worked with publicly traded lodging REITs. In his current role he oversees all commercial real estate asset classes, and shared with Commercial Observer some of his thoughts on how retailers are stepping up their game to keep up with changes in the overall market.
Commercial Observer: How did you get your start in the business?
Wolkom: Wells Fargo has a long, deep history in the commercial real estate business with more than 35 years of lending experience. I, personally, have been in the industry for more than 25 years. I started my career at predecessor companies of Bank of America in real estate lending and investment banking. I joined Wells Fargo’s commercial real estate business in 2011 and led the hospitality finance group’s west coast office and lodging coverage.
What exactly does your role entail at Wells Fargo?
I have a dual role at the company where I lead the commercial real estate’s REIT finance group and Wells Fargo Securities’ (WFS) real estate loan syndications practice. For REIT Finance, I manage a team that provides a comprehensive platform of banking and financial solutions to publicly traded REITs and REIT-like clients. And for WFS, I oversee the syndication of commercial real estate transactions for all asset classes.
What trends are you seeing in the retail lending space?
We haven’t seen a lot of construction [lending]. There isn’t a lot of development financing in the retail space right now. We’ve seen lenders be more selective and increasingly focused on grocery-anchored retail. We’ve also seen some focus on “the last mile.” Internet companies like Amazon are opening stores that are close to residential areas—i.e., the last mile between something being delivered to you from where it originates. Internet companies are finding convenience in having a brick-and-mortar store that’s close to customers. Lastly, we’re seeing some concern in B-malls (malls that are in secondary markets) and also in power centers—which are the centers with the larger retail stores, like Target, Best Buy, etc., that might be more vulnerable to dis-intermediation by online shopping.
How would you describe the penetration of online retailers? How are brick-and-mortar shops changing their business models in response?
We’re seeing more service-oriented tenants entering grocery-anchored retail centers, like restaurants, nail salons and fitness centers, with less emphasis on tenants that could be more susceptible to dis-intermediation, such as clothing, sporting goods and electronics stores.
Is there a particular type of investor seeing opportunity in the retail world? Are REITs more active in that space?
In the REIT world, we have seen consolidation in the mall space. I would anticipate this trend continuing in both the mall and grocery-anchored space. We have also seen several public-to-private transactions, mostly in the grocery-anchored and power center space.
What is driving consolidation and public-to-private transactions?
We have seen consolidation-and-go private transactions across the spectrum of retail offerings. My view is this has been driven by compelling value arbitrage between public and private valuations. The lack of new supply is also a positive trend for long term valuations. Finally, public-to-public transactions, I think, are seen, in part, as a defense against internet disintermediation. Larger companies with more resources might be better positioned to deal with the changing retail landscape. In this regard, I would anticipate this trend continuing in both the mall and grocery-anchored space.
Some folks are saying that a significant amount of the maturity wave is backed by hurting retail and will have trouble refinancing. Do you find that to be true?
We haven’t seen it. The loan maturity “wave” is happening right now, and for the most part we are seeing it get refinanced by bank, life insurance companies or restructured and extended loans.
How are co-tenancy provisions affecting a shopping center when a big anchor tenant leaves? Is that a common issue?
It’s becoming a more recurring issue for lenders as the tenant mix starts to shift. With the recent bankruptcy of Sports Authority, as well as tenants such as J.C. Penney and Sears, closing stores, co-tenancy provisions become a significant factor in underwriting retail loans.