Q&A: David Twardock, Prudential Mortgage Capital Company

The Mortgage Observer: You’re retiring this month after over 30 years with Prudential (PRU). Have you spent your entire career there?

David Twardock: No, I had a two-year stint with Otis Elevator Company. I was an elevator salesman. The joke is that I went from one up-and-down business to another.

How did you move to real estate?

I was working on my MBA at the University of Chicago, because I wanted to transition into the real estate business. Prudential came in and interviewed [me] on campus in 1982. I was fortunate enough to get hired, thinking that I was going to work my way into the development side of Prudential. Prudential was one of the biggest real estate developers, if not the biggest, in the country in the early 1980s.

But you didn’t end up in development?

I never got that spot. Prudential had been out of the mortgage business, because interest rates were so high from 1979 until 1984. I spent the first couple of years buying buildings, selling buildings and managing assets. Then, in 1984, they decided they wanted to get back in the commercial mortgage business and they drafted me to be in that business. I was not happy with that. I wanted to be building buildings. I didn’t want to be financing them. It turned out to be the best thing that could have ever happened to me. It was a brand-new organization, nobody had had any experience doing this for five years and it gave me an opportunity to really step into a business area with Prudential’s brand and financial backing and do deals, as a really young guy. I was 27 years old and I was doing major deals in Chicago.

How did you move up within Prudential?

I ran the New York office from 1986 to 1989. Then they asked me to move to corporate headquarters in Newark and I started running about a third of the country for our lending operations. I had always wanted to get back to Chicago, and they sent me back in 1992. But three years later they said, “We need you back in New Jersey, and you’re going to be running a major business.” That was in the mid-’90s, and the first assignment that I had when I got back to New Jersey was to downsize our real estate operation by about 50 percent. It was really difficult.

Was it the most difficult time in your career?

Yes, that was the most difficult. Just because of the impact on people. It was half of the organization. Hundreds of people. But after that, the business sort of re-established itself and I was given the job of running the real estate equity business for Prudential’s on-book portfolio. We had about $5.5 billion of equities. At the time, John Strangfeld—who is now our chairman—was my boss, and we came up with a strategy to significantly reduce those holdings.

Anything particularly creative that you did?

We were one of the original investors in Strategic Hotels, which is now a major hotel company. We took our assets and, together with Goldman Sachs, we formed that company. We sold to Boston Properties some major assets—the Prudential Center in Boston, the Embarcadero Center in San Francisco, two of the sites at Times Square that they ultimately developed. We took back stock positions in Boston Properties as part of that. We sold our industrial portfolio to Meridian Industrial Trust, for a nice sale. We took back stock. Meridian later was merged into ProLogis and we got another nice return on stock after we sold it.

Can you talk about your role as a head of Prudential Mortgage Capital Company?

They brought me in to run PMCC in 1998. At the time, PMCC was an investment division, like a lot of life companies have. We were investing Prudential’s money, and we had the idea of trying to commercialize the business. And so we got capital; we formed a securitization conduit. We bought a company called WMF in 2000, which gave us a Fannie Mae DUS license and FHA and Ginnie Mae license. We consolidated all that and formed a servicing business in Dallas, which was new for us. The net of all that was, through the 2000s, we had more pockets of capital.

What was the difference between Prudential’s CMBS business pre- and post-2007?

We stopped the CMBS business in 2007. We’ve now formed a venture with Perella Weinberg [Partners] called Liberty Island [Group] that does that business, but in a different way. Before 2007, we did everything on our balance sheet. We originated it and we put it on our balance sheet. We hedged and we contributed to a securitization. It was completely a balance sheet-based business. With Perella Weinberg, they provide most of the capital for that venture, and it’s not on our balance sheet. We make a loan that goes on the venture’s balance sheet. We have a small economic stake in the venture, but much smaller, a fraction than what we had before. Our primary role is to be the operating partner for the venture. So we originate, we have the securitization team, we get paid more on fees and on the success of the venture that we do on any balance sheet business. This takes the risk off the table.

What are your plans after retiring?

At the end of March, it will be my last day in the office. I’m going to take six months and enjoy my sailing and my golfing and my outdoor activities, and then I’m not going to take another job, I’m just going to maybe do some board work and advisory work. But I’m going to own my own time, more than I do now.

apirolo@observer.com