Wells Fargo’s Doug Mazer Talks Competition and the Bank’s Path Forward

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Mazer, a 53-year-old father of three who lives with his wife and high school-age son in Short Hills, N.J.—an older daughter and son attend Northwestern University and Yale University, respectively—is friendly and unpretentious: For a guy whose team closed almost a billion dollars in loans per month last year, he’s downright carefree. But McShane and Mazer’s success has also coincided with persistently negative headlines that have tarnished other businesses under the Wells Fargo brand since news broke two years ago of widespread fraud in the bank’s consumer branch. Faced with high-pressure sales targets, the bank’s employees opened millions of dummy accounts without customers’ permission. More recently, a separate investigation revealed the bank’s auto-lending division forced customers to pay for insurance they didn’t actually need. In all, the bank has been hit with at last $1 billion in federal fines.

Wells’ skyline-level offices in Midtown Manhattan occupy the upper floors of 150 East 42nd Street, where a conference room’s north-facing windows offer an intimate perspective of the glittering Art Deco gargoyles that adorn the Chrysler Building across the street. CO sat down with Mazer to talk about his career, commercial real estate’s competitive lending tussle and Wells Fargo’s path forward after the massive consumer fraud scandal.

Commercial Observer: You grew up in Bergen County, N.J. Where’d you go to college, and is that where you got interested in real estate?

Doug Mazer: No, it wasn’t that early. I went to college at Northwestern University in Evanston, Ill., and I studied communications and economics. I worked [near] there for about three years in marketing, but I decided that I really wanted more education, and I settled on law school.

Where was law school?

I went to Syracuse University, and I actually got interested in real estate there. I took the first-year property course that every law student takes and fell in love with it. I practiced law for about three years here in New York in the real estate finance space, and I always knew that I wanted to get onto the business side. It was a little tricky because the firm I worked for [Thacher Proffit & Wood] represented just about every real estate finance shop on the street, except for one. That was the one I applied for, and got a job with.

So it wasn’t straightforward to cross over?

Correct. It’s very difficult as an associate to apply for a job with your clients!

What was the one company that you managed to get a job at?

I went into an in-house counsel role at Nomura. That was in 1995.

And you were there until 2002, when you moved to Wells?

No! In this business, it would be pretty surprising if someone had just one—or even two—stops along the way. After Nomura, I went to [former French government bank] Caisse des Depots, which is today Natixis. From there, I went to J.P. Morgan for about three years and survived the [2000] merger [with Chase Manhattan]. I decided to go to Wells Fargo after that, in 2002.

Does your law background still play a role in leading the Wells Fargo capital markets team?

Absolutely. I think that, once you’re trained as a lawyer, that’s always in your mind. For me, it’s been extremely helpful, first of all with writing. Today, if you’re composing emails, I think writing is extremely important, and legal training is very focused on writing effectively.

Being a precise writer is important to your work?

Very much so. Of course, I’m looking at transaction documents as well, and legal training helps there too. Just as important is negotiation. You learn that in law school, but probably even more in practice. Between writing and negotiation, [legal training] has served me well.

What’s your role in the negotiations for your capital markets deals?

I run the real estate capital markets group, and we have a team of about 150 people. I’ve got bankers all around the country doing myriad deals. Very often, issues will be raised to me by my team during negotiations, whether it’s to sign up a new deal, or during a deal [that we’ve executed]. I’ll have to get involved in those at a higher level, advising bankers on how they need to proceed.

You shared the top spot on our latest Power 50 list with Kara McShane, whose title is head of commercial real estate capital markets and finance at Wells Fargo. How are your portfolios divided?

It’s pretty clear, actually. My team is focused on the originating, underwriting and closing of mortgage loans for Wells Fargo’s balance sheet as well as CMBS. Kara’s team is focused on distribution of CMBS, as well as CLOs [collateralized loan obligations]. She also heads the repurchase-agreement team. So her team is in the Wells Fargo securities group—part of the broker-dealer [section of the bank].

What is your role in working with her to establish a pipeline of mortgages for securitization?

We’re tied at the hip. We’re very integrated. We’re constantly in communication with respect to loans, pipeline and warehouse. It, effectively, is one team, but we have a dividing line when it comes to origination and distribution.

Do her team’s strategies and initiatives affect the kinds of deals you’re looking for, or vice versa?

I really look at it as one team. We look at everything together with the same strategy in mind. It’s a very cohesive structure.

How do you and borrowers determine whether they should go for a balance-sheet or a CMBS loan?

Wells Fargo is very unique in that we have the ability to offer both balance-sheet and CMBS loans in the same group. We actually don’t make those decisions—we leave that to our customers. We’re agnostic in terms of which way they want to go. The decision is usually based on the borrower’s business plan, how long a term they want and the prepayment flexibility they want. That will, basically, help make the decision easy for the sponsor.

How does that split originations’ ebb and flow?

In any given year, at the end of the year, we look at our statistics. In some years we are heavier in terms of balance-sheet origination, and in others, we’re heavier in CMBS. When the markets are volatile, our borrowers tend to look to our balance sheet. When they’re healthy, they tend to look for CMBS. It’s really a function of those issues.

What have been the biggest changes in Wells’ commercial real estate group since you started in 2002?

The biggest, obviously, is really the merger with Wachovia, which happened in 2008. That changed everything for our team. We married the Wells Fargo credit culture with the Wachovia securitization technology. It was a very interesting time.

Did you have a lot of confidence then, during the financial crisis, that securitized commercial mortgages would ever make the comeback they have?

That is a great question. The answer, of course, is that it wasn’t a certainty. In 2008, the world was falling apart. People were extremely nervous about everything, let alone CMBS. But we believed there was a future for CMBS, which is why we felt good about the merger with the Wachovia CMBS team. But it did take time, post-merger. It really wasn’t until 2010 or 2011 that the market really started functioning again. It was a two- to three-year period before we were really humming.

How does Wells’ massive servicing operation support your lending business?

We’re the only originator of CMBS that will also service our loans—every one of our loans. We take servicing extremely seriously, and it enables us to take our loans from soup to nuts. No other lender can offer that.

The financing market remains steeply competitive. Has your strategy evolved at all to go up against all the new real estate debt funds?

There’s no doubt that there’s an increase in those types of funds. Luckily for Wells Fargo, given our platform, many of those funds are clients of ours. We might be providing them with financing. So even though they might be perceived as competition, they’re actually clients. Many times, they’ll come to us with a balance-sheet loan and look to lay off an A-note. We can provide very helpful financing terms for those deals and that means that we get a very good loan, the fund will get a good loan from a higher part of the capital stacks, and the buyer gets excellent terms. Kara’s team provides a repo facility to some of those funds as well.

Why does it make sense for you to lend to them so they can lend to landlords, instead of Wells just underwriting the real estate loans itself?

It’s about leverage. Those funds are providing higher-leverage loans to their sponsors; loans we wouldn’t feel comfortable providing as a bank. However, when we’re providing an A-note or a warehouse line, we’re coming at a lower leverage attachment point. For us, to the extent of the leverage we’re willing to go, and it works for the fund, because they can get financing from us that allows them to provide competitive terms.

What kinds of people do you like to hire?

We like to hire all kinds. We’re very focused on diversity—and not just for diversity’s sake. First of all, it’s a core value at Wells Fargo, and it’s also good business. We want to make sure our team is mirroring the communities it serves.

And how far flung are the bankers you oversee?

We have four hubs, one in New York, one in Charlotte, one in L.A. and one in San Francisco. We have a number of satellite offices around the country. And I’m just referring to the capital markets team, by the way. When it comes to the full commercial real estate platform, it’s even larger. All over the country, and not just in major markets.

With its main office in San Francisco, Wells Fargo is the biggest bank with a West Coast headquarters. Is the West Coast an especially important market for you compared with your competitors?

We’re nationally focused—and you have to be, right? For CMBS, you need to provide diversification. Our offices are in all the major markets, and then some. We are really looking to originate all over the country. Do we have a particular expertise in California? Of course we do. But we have equal distribution of team members all across the country.

Would there ever be a deal that Wells wouldn’t want on its balance sheet, but would still agree to securitizing?

It really doesn’t work like that, because it goes back to term. CMBS is most often a 10-year loan. We’re not providing 10-year loans on the balance sheet. So that decision doesn’t even really come into play.

At your scale, is real estate finance a data and analysis business? Or is it still driven by relationships, and by going out and seeing the assets?

Today, it’s a very data-focused and analytical business, but you can’t have one without the other. We also have bankers who have excellent relationships and are very service-oriented. They’re really very connected and incredibly important.

Over the first half of this decade, Wells’ consumer banking business fraudulently created millions of accounts without customers’ permission. Has your team had anything to learn from Wells’ malfeasance in that area?

Of course, everyone on the team knows all about that. The reality is that everyone has learned lessons as we’ve heard about these various issues. We’re doing everything we possibly can within my team to make sure we’re helping to build a better bank. That’s what Wells Fargo is all about right now.

After the bank was indefinitely barred by the Federal Reserve from expanding its balance sheet as a result of the scandal this year, the bank announced that it would cut back in other sectors to preserve lending capability in real estate. How was that decision made?

First of all, you have to back up and look at the big picture. We have $2 trillion of assets on the balance sheet, which allows us the flexibility to make these kinds of decisions. With respect to commercial real estate, we’ve been in this business forever. We have incredible support and expertise from the highest management at Wells Fargo, so there’s a lot of trust in our prudent lending and we have managed to be successful for years and years.

You still managed to make 2017 a remarkably successful year. How is 2018 shaping up at the halfway point?

Last year was an anomaly in terms of volatility in the financial markets. This year started out a lot more volatile out of the gate. That has put a little bit of a pause on borrowers’ appetite for acquisitions. Having said that, that might be a little more middle-market oriented because we’re still seeing a fairly robust amount of acquisition activity in the large-loan space. That’s probably the biggest difference in 2018 compared with 2017.