Bubble boy: Verrone's securitization deals helped inflate the commercial real estate market Michael Edwards
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Robert Verrone is standing on the roof of an office building in midtown Manhattan. In his hand is a list of commercial properties, almost all of which he financed through securitization, the now-infamous process through which debt is minced and extruded into bonds that can be bought and sold by Wall Street traders. During the real estate boom, Verrone was head of Wachovia Bank's large loan group, and on this August afternoon he has come up to the roof to point out some of his biggest deals.
"I'm not sure where I should start," he says. He walks over to the east side of the building. "How about that one?" Verrone points to a lovely glass tower just across the street—650 Madison Avenue—for which he arranged a $100 million second mortgage two years ago. He gestures through the forest of skyscrapers to a boxy one on Park Avenue. That was his, too. Wachovia wrote the building's $430 million mortgage in 2006.
Verrone, 42, looks and sounds like a thinner James Gandolfini, so when he gets revved up on the roof, it's as if Tony Soprano himself were holding forth, smiling and waving a hand toward the high-end residential district just east of Central Park. "We made deals all through that corridor," he says. "I don't know how many." He gestures toward Central Park South. "We did the land under the Ritz-Carlton." He cranes his neck to look around the corner, down Fifth Avenue, but can't quite manage it. He looks disappointed; he arranged mortgages for 11 buildings on that street alone. And then there are the boutique hotels he did like the Royalton in Times Square, the Wall Street tower he refinanced for Donald Trump, the warehouse in Chelsea where Martha Stewart runs her company, and on and on. "It was a great 14 years," he says later. "I miss it every day."
Specializing in loans of $50 million or more, Verrone helped make Wachovia the No. 1 underwriter of securitized commercial real estate debt between 2002 and 2007, with a total of $69 billion in loans during these years, according to Trepp, a New York research firm. (Verrone won't say how much he made in those days.) His prodigious run came to an end in May 2008. He resigned just months before Wachovia nearly collapsed and was acquired by Wells Fargo (WFC) at the fire sale price of $15.1 billion.
Verrone can't be blamed for Wachovia's near-death. The bank was probably doomed at the peak of the housing market in 2006 when it paid $24 billion for Golden West, a prolific subprime mortgage dispenser. Still, his department's losses were substantial. In 2007 and 2008, according to Foresight Analytics, Wachovia wrote off $771 million in bad commercial real estate loans; Bank of America and Citigroup by comparison, wrote off $565.8 million and $457 million, respectively. In terms of total dollar amounts of delinquent securitized loans today, Wachovia leads the parade with $5.81 billion.
By his own admission, Verrone's methods helped inflate the real estate bubble. He says he lent huge sums to developers such as Harry Macklowe and Jerry Speyer—sometimes via interest-only deals with little money down—so they could buy skyscrapers. Then he carved up the debt, bundling the safest pieces into multibillion-dollar pools and selling them on the bond market. The riskier portions he offered to hedge funds hungry for higher returns. For Wachovia, the beauty of these deals was that the debt vanished from its books, but not before the bank slurped up juicy fees.
"Large Loan" Verrone, as he was known, became an outsize figure in the New York real estate world: the blustery guy who quoted The Godfather during client meetings and threw parties on the rooftop of the Philippe Starck-designed Hudson Hotel. Verrone insists that the image has been exaggerated, though not by much. "Did I use a Godfather quote? I don't know any 42-year-old male that hasn't," he says. "But I never sat at the table quoting The Godfather while we were trying to work out a deal. That's ridiculous. Look, I'm just a guy who works really, really hard."
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