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Sunday, Jul 14, 2024

Wealthy Home Buyers Treated to First-Class Banking Services

“The wealthy are going to do what the wealthy are going to do when the wealthy are going to do it.”

That is the mantra of Norma Nelson-Wiberg, the prominent branch manager of Private Mortgage Banking for Wells Fargo Home Mortgage in Rancho Santa Fe.

“They are not impacted by what they hear in the media,” she said. “If they plan to buy a house in the summer, they buy a house in the summer. If the market gets soft, they get a better deal. If not, they pay more. If interest rates get high, they have more to write off.”

But wealthy home buyers still need special attention, and this is what the private banker has traditionally done for them.

“Lending industries, like Fannie Mae and Freddie Mac, didn’t have a place for the self-employed, high-end buyer,” said Nelson-Wiberg, part of the bank’s wealth management team. “They were required to fit into a box.”

Michael Taylor, sales agent for Dougherty Taylor Premier Estates , Prudential California Realty, includes among his major markets ultra-posh Rancho Santa Fe and Del Mar. Last year, he said, about 60 percent of his transactions were in the $2 million-plus range.

“At the high-end level, it’s all about quality of personal service,” he said. “It’s like the difference between shopping at Kmart and going to Nordstrom. The private banker does the same thing.”

Trudy Stambook, a partner with downtown-based Centre City Properties, and a luxury real estate home specialist, estimates that she’s handled hundreds of millions of dollars worth of transactions during the course of her 27-year career.

“I’ve only had positive experiences with the banks,” said Stambook, who is a member of Seattle-based LuxuryRealEstate.com, a purveyor of high-end listings. “The banks and lenders that understand the high-end luxury buyer have been fabulous to work with, and have really provided invaluable service, not only to me, but also to home owners to achieve their goals.”

Lenders for the luxury-home buyers don’t only consider personal income, she said, but factor in their entire portfolios.

“For the seller, it’s not significant if the buyer is writing a check or someone is getting financing,” said Stambook. “It’s always cash to the seller in the luxury market. But to buyers, I find it’s their relationship to the lenders that is very important. There are so many programs and loans that can be structured to meet their needs.”

Relationship Banking

Echoing that sentiment is Michael P. Morgan, senior vice president at Wells Fargo’s Wealth Management Group in San Diego, who bills himself as “senior relationship manager” , which he considers to be the essence of private banking.

“It’s the process of sitting down and looking at the total picture of a client,” he explained. “We try, within reason, to meet a client’s needs, to provide flexible pricing and fees, based on that relationship, rather than being product driven.”

In fact, Wells Fargo is so bullish on providing the high-end service, that, “At some point, they would like to see at least 25 percent of revenue generated by wealth management,” said Morgan.

It’s all part of the evolution of banking, he said.

“We don’t consider ourselves a bank, but a financial institution, doing more and more nontraditional banking services, rather than only loans and deposits,” said Morgan.

While regular folks are trying to scrape up that down payment for a two-bedroom tract house, luxury-home buyers usually have long-established relationships with their lenders, and significant assets they can bank on.

The goal of Morgan’s group is to provide a comprehensive package of services, rather than just tending to isolated transactions. This is all based on what he calls the four food groups of his service: First, private banking, covering lending, deposits, cash management, residential mortgages and the like; second, trust and estate planning; third, full-service brokerage; and, fourth, investment management.

“We have found that we can better serve clients by having as much of their business as we can,” he said. “The more business we have with a client, the better we can fill their needs.”

In full agreement is Selwyn Isakow, chairman of the board of San Diego Private Bank, which opened last year.

“True private banking is relationship banking, where someone has a relationship with a senior executive, who can customize the product to meet the client’s specific needs,” said Isakow, who has been involved in this niche market for more than three decades. “Your own private banker figures where the higher and best use of your wealth might be.”

This could mean borrowing as much as possible, and reinvesting in some other high-yielding deal, or only borrowing enough to reap tax benefits.

“We seldom do two loans that are exactly the same in structure, because different people require different structures,” said Isakow. “This is the way private banks control risks. We will do whatever the customer needs, within regulatory requirements and what is prudent.”

Thomas J. Hummer, first vice president and financial adviser with the Hummer Garton Group for Merrill Lynch and Co., said private banking is solution driven as opposed to sales driven.

“We look at both sides of the balance sheet , assets and liability,” he said.

It’s all part of what his company bills as “Total Merrill,” which covers personal wealth management, business credit and financial services, capital markets, transactions and mergers and acquisitions.

Added colleague Jay Sanders, regional director for High Net Worth Lending at Merrill Lynch Global Bank Group in Los Angeles, “We wouldn’t give advice on speculating on the price of real estate. We look at the cash flow and balance sheet and determine the best way to use their borrowing power.”

While both Sanders and Hummer do handle billion-dollar clients, “the sweet spot” usually involves clients with $1 million to $10 million of investable assets.

For Morgan’s group, loans of up to $10 million are not unusual.

“This is driven by the client’s balance sheet,” he said.

That, and what Morgan calls the four D’s of lending: “Don’t do dumb deals.”

“There are only two times when a loan is good,” he explained. “The day it is made, and the day it is paid.”

Choosing Well

Choosing the right customer is key to successful private banking, said Isakow. While San Diego Private Bank doesn’t have strict rules on a client’s minimum net worth, he said, it does employ only senior bankers adept at handling the needs of high-end clients, and “couriers” , professional bankers who make house calls.

“It doesn’t pay for clients to come to boutique private banks and only require minimum service,” said Isakow.

Sanders agreed that a holistic approach to banking does give the client benefits when fees and pricing are tallied up.

“As a lender, the higher amount of risk you have, the higher cost to the client,” he said. “We can help clients determine what avenue to borrow and what collateral to use, at cheaper costs, while looking at tax benefits.”

Morgan agreed that this big-picture approach does pay off for clients.

“Rather than pricing a residential loan on a walk-off-the-street rate, we can develop pricing parameters and fee structures by looking at the overall relationship, which can justify better fees and pricing.”

Another perk of all this personal service is the ability to turnaround a loan quickly.

“We have done multimillion-dollar loans within 24 hours,” said Isakow. “We can offer 100 percent financing.”

Sanders recalled representing a family in North San Diego last year who was bidding on a $12.5 million home in Del Mar.

“It was a highly competitive situation,” he said. “We were able to give them a line of credit upfront and get ahead of anyone else who wanted to go through traditional financing for the property, which would have taken 30 to 45 days.”

A major deal maker in the luxury home market is K. Ann Brizolis, executive director for Prudential California Realty’s estates division locally.

“We write our offers as though they are cash offers,” she said. “Financing in our market is something that is not a very serious contingency. They call their lender and say, ‘I’m buying a $5 million house,’ and the lender will move the money around.”

Based on their relationship and credit history, she added, the lender will give them the OK on the phone.

“The buyer will show a letter from the lender or banker that says, ‘We want to assure you that they have the assets for the purchase price of the house,’ to give the seller comfort,” said Brizolis. “It takes the concern off the table.”

Brizolis knows her turf. She now has a $50 million property on the Del Mar beachfront in escrow, and is handling a Rancho Santa Fe property listed at $40 million.

But what constitutes high-end real estate is relative, since most luxury homes are priced lower. According to Maxine Gellens, another local star rep for Prudential, luxury home prices range from $2 million to $3 million in La Jolla, $3 million to $4 million in Del Mar, and $4 million to $6 million in Rancho Santa Fe.

Rick Scaramella, senior loan officer and broker in AME Financial’s lending division in Sorrento Valley, mainly handles transactions in the $1 million to $4 million range, noting that most buyers in that market pay cash.

“When you get into multimillion-dollar homes, typically those guys come in with cash,” he said. “They are very wealthy from their stock portfolios. They come from down on the shores of La Jolla, or Rancho Santa Fe, or Qualcomm Inc. people who have sold their stocks.”

Katherine August-deWilde, chief operating officer for San Francisco-based First Republic Bank, recently purchased by Merrill Lynch for $1.8 billion, agrees.

“The dot-com people, we didn’t see those people borrowing that much money,” she said. “They all put down a million or two, and all took out some loans, but not at any highly leveraged amount.”

But, whether or not the wealthy actually need a loan to buy an expensive home may not be the point, added August-deWilde. Being pre-approved by a name bank can go a long way in reassuring a seller that the deal won’t fall through.

Old Money, New Money

Sometimes the age of the client plays a part in borrowing decisions, said Scaramella.

“With older money, you will see (borrowers) paying cash, while the younger generation will get a loan up to $1 million for tax purposes, or they have better avenues to place money at a higher yield,” said Scaramella. “But the older ones are not looking for that investment anymore. They are very conservative.”

The younger generation has time to make more money, said Scaramella.

“They’re thinking, ‘I can buy this beautiful home and use the yield spread difference to earn additional investment on my capital.’ I had a guy with a $12 million home in Rancho Santa Fe with a $4 million loan on it, so he could use his money elsewhere at a higher yield.”

Gellens is currently marketing the sumptuous La Jolla showplace of Prudential founder and Chairman Steve Games, with an asking price of $17 million to $19 million. From her high-end perch, she sees a lot of financing being done.

“We sold a house less than a year ago for a client who went through private banking,” she recalled. “He got 100 percent financing on a house that was priced at over $15 million. We have another big deal going now, and they are definitely getting financing, because they don’t want to tie their cash up.”

A client’s business-savvy often is a determining factor, said Lucy von Buttlar, senior vice president and manager of the Los Angeles-based City National Bank’s Private Banking Services group in San Diego.

“Entrepreneurs who have learned how to manage risk are more likely to use leverage to be sure to have a diversified portfolio, and not take away from any one category in order to buy a residence,” she observed.

Among her bank’s clients are companies that are growing or being sold, entrepreneurs who are high net-worth individuals, and those from the entertainment industry, as well as nonprofits. A lot of clients are not only are buying multimillion-dollar homes, said von Buttlar, but pumping money into their purchases by tearing them down, putting up new homes or adding to them.

Sanders has found that older California money tends to be “a little bit more debt averse. The newer wealth seems to be more opportunistic.”

“Quite a bit of San Diego has inherited wealth,” he said. “They benefit from broader, diversified assets.”

While old-money folks might sport a private jet now and then, said Sanders, for the most part, they tend to be more conservative , while the new-money crowd is more apt to “keep up with the Jones’.”

But, in high-end real estate, there are exceptions to every rule. As Morgan observed, “In our work, there is no ‘general.’ We deal with ‘typical exceptions,’ where some type of creativity is needed. That’s why they come to us.”


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