On March 31st, 2018, First National began a year of celebrations to mark its 30th anniversary. To commemorate this important milestone, we asked key leaders to share their personal perspectives on the company’s long history of service, innovation and performance. In this interview, Jeremy Wedgbury the Senior Vice President, Commercial Mortgages for First National offers his thoughts on the key drivers of success.
Jeremy, you’ve been with First National for almost half of its existence. How did the company become Canada’s largest commercial mortgage lender?
The entrepreneurship of its founders. It was critical to be entrepreneurial, especially in the early 1990s when real estate markets were very depressed. Stephen and Moray and the early team took the risks and put in the hours to build a great reputation in both residential and commercial financing markets. That wouldn’t have happened if they had played it safe.
What’s the most important lesson you’ve learned from helping to build a successful business?
That it’s possible to remain an entrepreneurial organization while employing a measured, institutional approach to growth. By that, I mean we’ve stayed hungry for opportunity, but we’ve instituted business systems that have allowed us to scale our business and manage our risks. In the past five years, the commercial team has effectively doubled the value of commercial mortgages originated annually, added a number of new customer and funding partner relationships and done so profitably across a wide spectrum of risk and that’s as a result of managed, directed entrepreurialism.
Doubling the business sounds transformative.
It is but surprisingly, we have grown in very managed stages or increments. We probably could have grown faster but we prefer picking up first downs over doing Hail Mary passes.
The results have been impressive and last year included commercial originations of $5.8 billion, a 20% increase over 2016.
It’s all a matter of teamwork and really searching for ways to constantly refine what we do in the name of getting better results. I would use the word ‘tweak’ in describing what we do year to year. Because of the platform we have, it’s not necessary to make wholesale changes. And because of that, it’s very easy for those who have been here since the beginning to feel at home and those who are new to the team to feel that they can contribute fresh perspectives. We lead with results and when we can show that change delivers results and creates value, we change and evolve.
What aspect of doing business has changed the most in your time here?
The level of teamwork in the organization. In the early days, we pursued opportunities as individuals and there was a certain level of internal competition. Over the past say seven to 10 years, we’ve broken down those silos and while we compete with just as much intensity, and are still aggressive entrepreneurs, we are very well integrated. We understand each other well, are responsive to the needs of other departments and have generally replaced ‘us and them’ with more big-picture thinking. We’re a team, not a collection of individuals.
What else has changed?
The way the market thinks about First National. We’re now the commercial market leader whereas before, we were just another contender. The company’s stature and status have definitely evolved. I mean who would have thought 10 years ago that one of Canada’s biggest banks would choose First National to underwrite single-family mortgages for them?
How has the commercial mortgage lending market evolved over the years?
Lending has changed dramatically in the last 15 to 20 years in Canada. In the late 1980s, there was an abundance of lenders. By the early 1990s, we saw a whole bunch merge and many others exit. The 2008 credit crisis brought in another set of changes when some of the dominant names in CMHC lending left and once again, First National remained and became the largest player in the space. Now, it’s a very liquid market with more participants than we’ve seen since the late 1980s. That’s been good for our business because it makes it easier to differentiate First National.
How has your approach changed?
We put greater emphasis on building partnerships with borrowers and funding partners, including CMHC. We were never bad partners, but I don’t think we took as much time to truly understand what was important to clients as we do now. We’ve also worked hard to add more product choices, to take the value proposition to a whole new level. Along the way, we’ve transitioned from being thought of as an intermediary to becoming recognized as a leading force in commercial lending.
How will First National’s approach change in the future?
I think what we have today is totally scalable. We have the foundation in place. Our new plan, which we call Growth Imperative 2.0, calls on us to add more originators and underwriters which should translate into a virtuous cycle of future growth. But this effort will be focused, disciplined and partner-centric.
We are interested in the quality of our partnerships over quantity. Obviously, growing our origination and underwriting capacity will allow us to bid on more deals, and that will create business opportunities for more investors, but we think in terms of adding depth to our relationships, not simply adding more of them. It’s about focus not just expansion. Borrowers and investors want the attention, focus and the advice people like us give and that’s what our future will be all about.
What does it take to become an advisor versus just a lender?
It requires skills and subject-matter expertise but it’s also about diligence and patience. Some lenders might try to be all things to all people. We try to immerse ourselves in the specifics of every relationship so that we can add value. It takes time, focus and confidence to do that.
In our model, an originator works with a small group of borrowers and they aren’t fearful of concentrating their attention. They don’t worry that these borrowers won’t be active this quarter or next. They have confidence and conviction in what they do because they know they will be rewarded over time. All of our top people have adopted this advisory role and it’s been very successful.
When did you start on the journey to becoming more than a lender?
In 2010, as part of what we called Project Rethink. Again, we took it slowly and it was two to three years into the project before the advisory piece was born. It’s continued to evolve even in the past 24 months. It’s a big mandate of ours and it involves continuous learning. If you want to be an expert in commercial real estate, you have to keep accumulating knowledge, constantly mine market data and monitor trends so that you can stay a step or two ahead for clients.
What would you like commercial borrowers to know about First National’s plans and aspirations?
That we are ambitious, that we have lots of opportunities and because of the incremental advancements we’ve made in our platform over the past few years, we are much better able to act on those opportunities for them. We’re not perfect, but we’ve set this great foundation of diligent advisory services and smart underwriting, and that positions us to scale up to help more Canadians with their debt financing. We’ve arrived, and I think we are ready to lead and dominate even more.
How have your relationships with funding partners changed and advanced over the years?
We’ve put much greater emphasis on understanding what’s important to our partners and have a much closer relationship with them. They’ve always known that we will not put their capital in jeopardy, but our objectives are much deeper than that. I think the other thing that’s changed is that First National has much more of its own capital in the system and it means that we can temporarily fund loans for partners if they aren’t ready to do so themselves. A lot of other lenders don’t have that ability. I think it helps our borrowers and investor partners to know that one way or another, First National is here to get loans funded.
What is First National’s guiding philosophy and objective in its relationships with funding partners?
Treat them as full-on partners. Always understand their needs and objectives, be very responsive in customizing and refining our process to ensure it works for them and bring forward quality lending opportunities that we control. We track our funding ratios, which is a measure of how many deals close compared to the number of deals we present. If we are doing things right, there should be have a very high hit rate. In simple terms, we want to help investors put capital out safely and at the return that’s appropriate for them. By doing so for 30 years, we’ve retained partners and attracted between three and five significant new investors annually.
Have funding partners made First National a better business?
Absolutely and in numerous ways. Many borrowers will come to us simply because they know we have high-quality funding partners who are ready to do business. Unlike some lenders who have funding constraints and fill up on just a couple of deals, we have the capacity to take on much more. With huge real estate clients who are active on multiple deals at once, First National’s funding depth and diversity are serious advantages.
What would you like funding partners to know about First National’s future?
We are going to maintain the same diligence we’ve always had but with additions to our scale over time, we will have more opportunities to share and their hit rates will go up. Having a national underwriting platform also gives partners the ability to say, ‘I need more Quebec’ or ‘I need more Atlantic Canada’ and we will provide it. Adding depth to our regional teams has and will continue to make us more versatile for partners and borrowers.
Thinking about the people of First National, how has your workforce changed?
It’s bigger, probably twice the size it was when I joined and it’s more of a team. We are very clear on our vision and objectives and that helps us to be more effective together. Because of First National’s status and reputation, we get a lot more inbound requests from high-quality career seekers looking to join our team. We hear comments like, ‘I’m looking for a job, I’ve talked to a lot of people in the industry and they all tell me, I’ve got to get into First National.’ That’s great for our future. Our people want to be here, they want to learn, and they are engaged.
What is your guiding philosophy as a business leader?
My philosophy is that great people do great work when they have clarity around their objectives. Ensuring that everyone knows what our position is at all times is something I take very seriously because when you know the organization’s goals, it’s easy to navigate back to them when you are confronted with all the important little decisions and details that need to be addressed every day.
How do you personally go about making First National a career destination?
We really try to help young people in the organization develop their skills. We think that if we engage early and often, we stand a much better chance of retaining people who will be our future leaders. As an entrepreneurial company, we haven’t always had the structures in place to do this. In the early days, our training might have consisted of saying, ‘here’s a phone, here’s a computer, get to it.’ Now, I think we are getting better at demonstrating how important our people are to our business and for example, showing them how to develop their first client relationships and pairing them with experienced employees so that they get exposure to different scenarios. There is a group of rising stars who meet regularly to share their experiences and learn from each other. These aren’t formal programs at this point, but if we keep encouraging that kind of interplay and coaching, ten years from now we will be an even better business because we’ve built from below and within.
What motivates you?
I love growth and I get excited by identifying what I would call the ‘threads’ in the business that we can pull to get more growth. Growth is not always intuitive at the surface. Sometimes, we have to dig around to find the best opportunity and when we find it, there is a deep engagement that takes over in trying to secure it for First National. If I thought we could only ever do $5.8 billion in annual originations or that we were about to get into a sort of coupon-clipping mode as a business, I wouldn’t be as motivated.
When you think about potential growth drivers, what’s the one thing that excites you?
There are a number of examples I could give but let me name one. CMHC has a new program out called Flex Affordable Financing. We’ve jumped all over it because it’s a great way to fuel construction across Canada in the apartment and affordable housing sectors. We’ve set out to be the voice or advocate for Flex Financing in the market.
Looking back, what’s your proudest First National moment, or most cherished memory?
The transformation that our team made as a result of Project Rethink. We executed Rethink with clear responsibilities, accountability and vision and we did it at the perfect pace with no deviation. It was a tremendous group effort and it has made a major difference to our approach to market.
Overall, what does the 30th anniversary mean to you?
That First National has really come into its own. That it’s established a platform to do business that is strong and enduring. Thirty years is a very long time that speaks to the durability of the business model, and the sheer drive of everyone who works here.