DWS
- Asset manager DWS hires a JPMorgan exec to lead its real estate lending business.
- Its head of real estate seeks to build the firm into a “top five provider of private real estate debt capital.”
- “Investors should be looking to invest in real estate,” DWS says.
Higher interest rates have caused upheaval in commercial real estate lending. A top executive at DWS predicts that traditional lenders like banks will retreat from the sector, leaving hundreds of billions of dollars of lending to new players, including the $110 billion DWS.
DWS’s co-global head of real estate and head of real estate for the Americas, Todd Henderson, says he has ambitions to build the firm into a “top five provider of private real estate debt capital.”
Toward that end, he has now hired Jay DeWaltoff, an executive at JPMorgan Asset Management, to lead DWS’s real estate lending business. Joining DeWaltoff in the move from JPMorgan to DWS are the lending executives Daniel Sang, Catherine Millane, and Khrystyna Bazlyak. DeWaltoff, who will be based in New York, says he imagines growing DWS’s loan book by more than 10 times in the coming years. Business Insider spoke to Henderson and DeWaltoff about the outlook for commercial real estate and DWS’s plans. The interview has been edited for clarity.
Why are you expanding your commercial real estate debt business?
Henderson: The traditional providers of debt in the marketplace we think are going to pull back, materially leaving a supply gap. The private space for debt could grow at a 30% compounded annual rate over the next five years. I think that could be conservative.
There’s a wall of debt maturities that are coming and that in combination with the lack of traditional supply, we like that opportunity.
Jay, you came from JP Morgan Chase. What brought you to DWS?
DeWaltoff: The firm is very focused on growing alternative credit globally. There’s a lot of senior sponsorship all the way up to the CEO of the company that wants to see this be successful.
What is your loan portfolio today and what are your projections for growth?
DeWaltoff: It’s a little under $2 billion, and I think the idea is in five years to have a book that’s north of $10 billion. This should be easily a $20 billion to $30 billion business.
Why would traditional lenders back off of real estate when it has been a main area of their business?
Henderson: A big provider of debt capital to the real estate market was the regional and local banks. The regulatory oversight now expanding to those banks is going to limit in a material way their ability to meet the market in the same way that they met it in the past.
Are you raising new funds or using existing funds to get into the debt business?
Henderson: The platform has about $80 billion of assets in real estate globally, and that is made up of separately managed accounts. Within many of those funds, we have existing capital that we can deploy. The insurance space is a large consumer of credit. We think that this platform will afford us the opportunity to grow our presence there.
There’s the expectation that rates will fall. What will that do to the lending market?
Henderson: With rates seemingly headed on a path that is neutral to down from here, that will free the market up to transact more. As a lender, a provider of capital to transaction activity, that’s what you want to see.
What asset types are you guys going to go after?
Henderson: We are very constructive on the industrial, residential, and grocery-anchored retail sectors. We also are constructive within the housing market on not just multifamily, but single-family rentals as well as student housing. We’re constructive on the self-storage space. Those sectors will probably be dominant in what we do.
What will buffer you from the property defaults that have besieged the market in recent years?
Henderson: The ability to take an asset back and manage it. Banks, they don’t have that capability. So I think that really differentiates us in terms of our ability to recover capital.
Firms like Blackstone, have called the bottom of the real estate dip. Do you agree?
Henderson: In early May, I said to all of our investors that we were in the trough. I think calling the bottom is a difficult thing to do because you usually don’t know where the bottom was until you’re looking in the rearview mirror.
It’s proven out that rates were finished going up and that predictability of rates put a floor on how much further values were going to go down. We’ve actually seen some value recovery over the last, call it 30 to 45 days.
This is a time when investors should be looking to invest in real estate, growing their real estate portfolio, whether it be equity, whether it be debt.
