Wells Fargo CRE 2023 Interview

Tell me about yourself:

Originally I'm from Livingston NJ and am now a rising junior at the university of Wisconsin-Madison with a double major in real estate and finance. Growing up in NJ with most of my family in chicago I wanted to experience something different than the environment I grew up in, and i knew the energy, excitement and midwestern hospitality on campus at Wisconsin would make it the perfect school that could challenge me academically, while giving me the resources to succeed professionally.

Before getting on campus I underwent intense leadership training, in which I was one of 10 highschool students in NJ chosen to take part in a combat lifesaver course on Fort Dix where I was chosen squadron captain to lead my team through simulated rescue missions with real army medics.

Once I got on campus I joined Urban Street Group as an intern to get real life experience going to development sites and conducting market research for mixed use projects.

Sophomore year, I joined the TAMID Group, where after getting trained I consulted for an Israeli Real Estate technology company called HomeSketch. Then, January of sophomore year I was elected to be the vice president of fundraising for the TAMID Group.

This summer, I was selected out of 2,000 applicants into the TAMID fellowship: a competitive, 8-week summer internship program in Tel Aviv Israel. Here I am an investment solutions intern at Aulder Capital, a real estate private equity firm based out of the US, where I am helping them with investment viability and market research.

Why Wells Fargo?

My interest in Wells Fargo is a two parter as one aspect stems from my desire to work with the best and brightest minds in real estate and the other comes from the nostalgia my childhood brought me.

First, From my research, I understand that Wells Fargo has a very reputable and wildly successful Commercial Real Estate Division, with it being the #1 commercial real estate lender in the U.S. since 2009. As someone who is passionate about the real estate industry and wants to make a career in it, I think that working for the industry leader will allow me to accumulate more real estate knowledge than at other competitors and eventually move into relationship and portfolio management as that is my end goal and I believe I will be able to accomplish that at Wells Fargo.

I also am really into the program features, as Leah Lidsky, a wisconsin alum who was in tamid and took part on the same fellowship I'm on right now, explained that she as an intern would be able to talk to management after listening in on call to answer questions she had, and even though that is such a small feature of the program, it really highlights that Wells cares about teaching their interns which is an awesome feeling.

On a more personal note, I had an entrepreneurial mindset from a very young age, and at age 12 I started a sneaker reselling company that did over $70,000 in revenue over the next 7 years. I tell you this because around that same age, I got my first debit card from wells fargo, where I was welcomed into my local branch by a nice woman who listened to 13 year old me blab and blab about the sneaker market for over an hour. Wells fargo holds a special place in my heart because it fostered my entrepreneurial spirit since day one, and that is why I thought it was a no brainer to come full circle as I embark on my professional career in real e

Why Commercial Real Estate?

The experience I have had thus far in real estate through work experience and coursework has really fostered my passion for CRE. Growing up having two uncles as commercial real estate developers allowed me to be grateful for making a physical impact and creating value within a community. Going to development sites and seeing people use what you helped create or sustained is an amazing feeling, and that in combination with my interest in math and investing led me to fall in love with CRE.

My professor for my first real estate course at Madison who became my mentor said on my first day of class "champions adapt, and if you aren't ready to force yourself to the forefront of a constantly changing landscape, than you should just leave my class right now". No one left their seats, and that is when I knew I was hooked, that quote embodies my interest for pursuing such a fast paced industry.

A challenge you have faced and overcome:

Freshman year of college was difficult for all kids my age, we had just graduated high school and transitioned to college during a global pandemic, but this period hit me really hard when I found out about my little sister's struggle with depression and suicide attempt.

I had to figure out a way to balance all of the on campus commitments to clubs I made, outperform peers to get grades good enough to get into TAMID, and be there for my deteriorating family all while being a thousand miles away.

The first call i got from her rehabilitation facility really humbled me and taught me to not sweat all the little things, so I made it my mission to do well for her so she can see that if I did she could too. I facetimed her every single day and when I told her that I finished my first semester with a 3.7 she started crying.

I was so confused why she was crying because my never satisfied mentality was disappointed with a gpa so different than the results I acheived in high school.

It took me a second to realize how unaware I was, and than I thanked her for crying, because by me trying to show her she can get through this, she really showed me a new perspective of how to carry myself.

what are your strengths?

I would say I am persistent and ambitious, yet very open-minded to feedback. Whatever I take upon myself to do, I will do to my best ability. Even after I complete the task at hand, I am open-minded to the fact that there is always something to improve on, and I am open to doing it. This can be seen through a prior summer internship as a data analyst intern where I created a surgical video compilation system. After I would complete a mock version, I would meet with my advisor who would further instruct me to make altercations in order to get a better result that can help surgeons save lives better. This strength provides context as to why I am able to quickly learn and adapt, as I constantly strive to outwork my peers while absorbing as much experience as possible.

what are your weaknesses?

I think I can be too critical of myself. A pattern I've noticed throughout my career is that I often feel I could have done more, even if objectively, I've done well. Early on in college, this led to burnout and negative self-talk. One solution I've implemented over the past year especially is to actively pause and celebrate my achievements. Not only has this helped my own self-esteem, but it has also helped me genuinely appreciate and recognize my team.

What is your current skill level with excel?

​​At my job currently, I use Excel every day for various different projects so I would say that I'm becoming pretty experienced in Excel. I can do many of the advanced functions such as pivot tables and financial formulas.

I am also very much looking forward to next semester where I will be taking a real estate excel modeling course and argus course.

financial statement walkthrough:

"The three financial statements are the income statement, balance sheet, and statement of cash flows.

The income statement is a statement that illustrates the profitability of the company. It begins with the revenue line and after subtracting various expenses arrives at net income. The income statement covers a specified period like quarter or year.

Unlike the income statement, the balance sheet does not account for the entire period and rather is a snapshot of the company at a specific point in time such as the end of the quarter or year. The balance sheet shows the company's resources (assets) and funding for those resources (liabilities and stockholder's equity). Assets must always equal the sum of liabilities and equity.

Lastly, the statement of cash flows is a magnification of the cash account on the balance sheet and accounts for the entire period reconciling the beginning of period to end of period cash balance. It typically begins with net income and is then adjusted for various non-cash expenses and non-cash income to arrive at cash from operating. Cash from investing and financing are then added to cash flow from operations to arrive at net change in cash for the year."

Which of the Financial Statements would you use to assess a company's creditworthiness?

My answer is the Cash Flow Statement, because while a Balance Sheet is merely a snapshot, an Income Statement (reference point would likely be EBITDA in a valuation standpoint) does not treat actual costs such as interest, depreciation, and amortization as actual costs.

a Cash Flow Statement shows the firm's inflows and outflows during each recorded period during the fiscal year and allows you to tell the changes in Net Working Capital - which in my opinion is THE most important metric for gauging creditworthiness, as it is the amount of cash on-hand at any given point in time to cover debt servicing.

If you had two identical buildings that were in the same condition and right next to each other, what factors would you look at to determine which property is more valuable?

Since the physical attributes, building quality and location, are the same, I would focus on the cash flows. First, I would want to understand the amount of cash flow. You can determine this by looking at what the average rent rates and occupancy rates are in the buildings. Despite the same location and quality, the management and leasing of each building could be different leading to differences in rents and occupancy. Second, I would want to understand the riskiness of the cash flows. To assess this, I would look at the rent roll to understand the creditworthiness of tenants and the term of leases. The formula for value is NOI / cap rate. NOI will be informed by the amount of cash flow. The cap rate will be informed by the riskiness of the cash flows. The property with high cash flow and less risk will be valued higher.

explain debt/equity financing

equity is the amount of money invested essentially skin in the game while debt is the amount of money leveraged or borrowed. For example if a project had 30% equity than it would have an LTV of 70%. Debt measures risk such as the DSCR (NOI/Debt Service) and Equity measures the expected return such as metrics like cash on cash, equity multiple, IRR

Describe the main real estate investment strategies.

There are 4 common real estate investment strategies: core, core-plus, value-add, and opportunistic

Compare the cap rates and risk profiles for each of the main property types.

From highest cap rate (most risky) to lowest cap rate (least risky) - hotel, retail, office, industrial, multifamily.

CRE Valuation Methods

1. Income Approach (Cap Rate & DCF)

- the Income Capitalization Method, is a process whereby one year's Net Operating Income is divided by a market Capitalization Rate to arrive at an estimated value

- the Discounted Cash Flow method is to calculate the present value of a real estate investment's forecasted future income and reversion value

2. Comparables

3. Replacement Cost

How do you value a building?

So it very much depends on the building. If you're valuing a building that produces income like a multifamily residential property, then you should use the income approach which just simply values the building itself, usually by using a comparable CAP rate for a similar building, and also values the income the building will produce in the future. You can value the future income by running a cash flow analysis and predicting the cash inflows for the next 10 years and then discount those cash flows at the firm's internal rate of return or IRR or even the firm's weighted average cost of capital. Once you value the predicted income, you can then add it to the value of the building itself and have a holistic value for the property.

DCF Method

Discounted Cash flow (tells you that the value of your investment is equal to the sum of you future cash flows discounted at some discount rate. If this value is greater than the purchase price of the investment, then you should buy the investment.) It's a complex method because you have to figure out what the future cash flows will be, but if you can reasonably determine with confidence the future cash flows, then this is definitely a good method to use.

Definition: net present value of future cash flows and terminal value

1. Project growth rate

2. Calculate Free Cash Flow for each year

3. Sum the FCFs and discount it (using WACC) to get NPV

4. Determine Terminal Value using Gordon Growth or Multiples Method

5. Sum NPV from first 5 years for NPV for terminal value to get enterprise value

if the world supply of oil decreases how will that affect earnings for NYSE: Dis?

Supply decrease --> price increase bc same amount of demand but lower supply --> cost to travel to DW is more expensive and cost to run parks is more expensive --> less people will travel to DW and decrease in revenue and increase in OP expenses = less net income

However more people may decide to stay in and watch disney TV or go see disney movies due to increase in travel expenses so they could see an increase in revenue here which may or may not overcome the loss in net income from the parks

How would you value a pizza place in NYC?

If you can get accurate historical and projected financial statements from management than you should use the DCF method

If you can't get reliable cash flow forecasts, comparable acquisitions is your best bet. Liquidation value is definitely not going to be the best answer because most restaurants do not have much tangible asset value. They usually just have a few stoves, ovens and shit like that plus inventory has no resale value and the building is usually leased

What risk factors should you evaluate when considering whether to issue a loan/take on a new borrower? hint (5 c's of credit)

1. Character - experience, integrity, & credit history

2. Capacity - financial capacity to support debt (DSCR)?

3. Capital - equity/downpayment

4. Collateral - leverage to secure loan and reduce risk

5. Conditions - economic/industry trends

Can you tell me about a time when you had to deal with difficult colleagues?

Tell me about a time you failed and what did you learn from that?

Talk about a time you were a leader

Tell me about a time when you had to adapt to a change in scope

I was put in skis for the first time at 18 months old, and ever since, I have been an avid skier. But now around 35 years ago, my highschool ski club was disbanded and banned ever since from returning because of the choices of a couple misguided students on an overnight trip.

I however wanted more than anything to give the opportunity for students, many of which who could not afford thterm-24e expensive sport, to have the opportunity to learn and ski together. I received various initial rejections with vice principals and the superintendent. However, I decided to persist, and I attended town hall meetings advocating on the club's behalf, and after rallying the majority of town resident's support we got an override on the school's rejection to prove them wrong and build a new reputation.

Over the next three years the club pulled in over 100 active members, two sponsors, built an informational website, and attended more than ten trips.

Cap Rate (Capitalization Rate)

The Cap Rate, or Capitalization Rate, is the percentage derived from a stabilized asset's annual NOI divided by its purchase price.

Formula:

NOI / purchase price

Definition: Return on investment if paid in all cash (not including financing)

NOI (net operating income)

Gross rental receipts

+non rental income

-vacancy

-operating expenses

=NOI

Cash expenses only

NOI must be divided by cap rate to arrive at intrinsic value

(CFAF) Cash Flows after Financing

Formula: NOI - Mortgage Payment

Definition: Income after all expenses including mortgage are accounted for

(CFO) cash flow from operating activities.

Return on Investment (ROI) / Cash-on-Cash Return

Before tax cash flow (BTCF = CFO - Debt Service) divided by the total equity contribution to date, expressed on an annual basis as a percentage.

Cash-on-Cash Return = Before Tax Cash Flow ÷ Total Equity Contribution to Date

Free and Clear Return AKA Unlevered Cash-on-Cash Return

The total unlevered (before debt) pre-tax cash flow of a real estate project divided by the total capital invested, generally expressed as a percentage on an annual basis. To clarify, the numerator is typically total unlevered pre-tax cash flow in a given year, while the denominator contains the total amount of capital invested assuming there is no debt.

Debt Service Coverage Ratio (DSCR)

Calculated by dividing the net operating income by the debt service payment and is often expressed as a multiple (i.e. a DSCR of 1.20x). The DSCR is used by banks to determine the maximum loan amount offered to a borrower and to assess the probability that a borrower might default on the loan.

1.25x is strong, the higher the better

Internal Rate of Return (IRR)

Formula: Use NPV formula and set = to 0; solve for "r"

Definition: discount rate that makes NPV of all cash flows from property = 0; % earned on each $1 invested for each period it is invested

Note: Higher is better

Loan-to-Value Ratio (LTV)

Formula: Loan Amount / Property Value (Sales Price or Appraisal)

Definition: Tells us loan amount for each dollar of property value; makes sure that property is worth more materially than loan amount

Note: Higher LTV = more risky

Loan-to-Cost Ratio (LTC)

Formula: Loan Amount / Total Project Cost

Definition: Tells us % of project lender is willing to finance

Note: Higher LTC = more risky

Debt Yield