New Name, Historic Performance: How Nuveen Real Estate Dominates the CRE Debt Market

The real estate investment management platform of TIAA (formerly known as TH Real Estate) recently rebranded as Nuveen Real Estate, taking on the name of TIAA’s investment arm, which has $1 trillion in AUM across many asset classes.

Nuveen Real Estate is one of the largest real estate investment managers in the world, with $130 billion of AUM across diverse geographies, sectors, investment styles and vehicle types, providing access to every aspect of real estate investing. One of the areas they are most dominant in is Commercial Real Estate (CRE) debt, which they have been investing in since 1934. They currently manage over $35 billion in CRE debt. The team of nearly 60 staff members around the globe lends on behalf of third party clients and the TIAA General Account through separate accounts and comingled funds, and offers borrowers a wide range of loan types, from senior to subordinated loans, fixed to floating, stabilized to transitional.

Commercial Observer’s Partner Insights team spoke with Jack Gay, Nuveen’s Head of Debt and Jason Hernandez, the company’s Head of U.S. Debt Originations, to learn more about the company’s history and the solutions the firm currently offers for investors interested in CRE debt.

Commercial Observer: Tell us about how Nuveen established itself in the debt space.

Jack Gay: It ties back to our parent company, TIAA, which is a 100-year-old company that is basically a pension provider for not-for-profit universities and endowments. We started investing back in 1934. So, we have a long history of investing in commercial mortgages.

Historically, what are you well-known for?

Gay: Aside from our longevity in the U.S. debt space overall, we were one of the first investors in the long-term mezzanine space, and we’re very proud of leveraging this experience to build our investment platform globally. We launched in the U.K. in 2014 and have built out quite a business there in terms of debt funds and the TIAA General Account investing. Then, in 2018, we launched our Asia-Pacific lending business, and are actively lending at the present time in Australia. So the fact that we have the ability to follow our borrowers and get our investor clients exposure to commercial mortgages throughout the world is unique and powerful.

When did you become Nuveen, and what was the significance of the name change?

Gay: We rebranded as Nuveen Real Estate in January of this year but TIAA’s asset management business had been operating as Nuveen prior to that [TIAA acquired Nuveen in 2014]. The name change ties back to bringing a number of different boutiques across what used to be the TIAA global asset management business together. While these boutiques have their own strategies, processes, and investment expertise, bringing some of them together to benefit from the power of a trillion-dollar asset manager and the branding that would come from that was one of main drivers behind the name change.

Why is investing in CRE debt a desirable strategy now?

Gay: We’re pretty late in the real estate cycle and the economic cycle, and there’s a bit of safety to commercial mortgages relative to other alternative investments, notably commercial real estate equity investments. So, you invest with a cushion towards the equity value of the real estate. Also, given where we are in terms of low interest rates, the return we get from commercial mortgages is pretty much all in income return, and you don’t need appreciation in the asset to achieve the return.

You’ve called debt investment the industry’s superfood. What did you mean by that?

Gay: It ties back to the lower volatility that comes with the return as well as the outsized relative value, where it fits into an investor’s portfolio and becomes a distinct part of it. It’s becoming more of an asset class unto itself.

Tell us about some of the options Nuveen offers for investing in commercial real estate debt.

Jason Hernandez: There are four major types of CRE debt: The banking sector provides low-leverage debt; the CMBS market provides a fixed-rate securitized product; the life insurance company market provides long-term, core, fixed-rate debt.; and then you have this growing segment of non-traditional lenders, which are really just debt funds and other groups that provide transitional debt. Generally, each player in that space only provides one specific product. We play across multiple segments and what we offer is flexible capital. We think of our business in terms of three pillars on the debt side here in the U.S. One pillar is our core, fixed-rate business, providing long-term, fixed-rate debt, five-, seven-, or 10-year, on stabilized properties. Our second pillar provides transitional debt, which is generally floating-rate in nature, analogous to what debt funds do. We also offer mezzanine debt, both fixed- and floating-rate behind a senior mortgage. We can basically go to a borrower and offer pretty much every financing option they would need.

Are there notable differences to Nuveen’s approach that make the company’s offerings especially desirable for borrowers?

Hernandez: Our biggest advantage is that we are a fully integrated real estate investment manager. We’re constantly in the market, lending, acquiring, financing and disposing of assets globally. This creates a degree of reciprocity across many of our key partner-borrower relationships. When people deal with us as a borrower, we not only offer the full suite of financing options, but we also have a very large equity book which creates the opportunity for a broader and deeper relationship beyond debt.

When we talk about the CRE debt market, how big a market are we talking about?

Hernandez: The overall U.S. CRE debt market is plus or minus 4 trillion dollars, divided into segments. We generally play in the insurance company market and the non-traditional lender market segments. Each segment is roughly $500 billion in transaction size, and we think that equates to plus or minus $100-$150 billion a year of opportunity for financing on an annual basis in the U.S.

How prominent should CRE debt be within an investor’s portfolio?

Gay: It depends, because each investor is going to have their own risk-return and investment strategy. With these investments, you can match the duration with the investors’ liability stream, so you can go for short-term mortgages or longer-term mortgages and play with duration. Then, you can also match risk-return profiles in terms of targeting certain segments of a capital stack to take on more or less risk, depending on the investor’s risk appetite. So it’s easy to shape, but you have to start with, what is the investor’s risk-return appetite? Then go from there in terms of what’s appropriate for them.

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or investment strategy and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

Real estate investments are subject to various risks, including fluctuations in property values, higher expenses or lower income than expected, and potential environmental problems and liability. International investing involves risks, including risks related to foreign currency, limited liquidity particularly where the underlying asset comprises real estate, differing levels of government regulations and tax implications in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic, or other developments. Past performance is no guarantee of future results.

Nuveen Real Estate is a real estate investment management holding company owned by Teachers Insurance and Annuity Association of America (TIAA). Nuveen Real Estate securities products distributed in North America are advised by UK regulated subsidiaries or Nuveen Alternatives Advisors, LLC, a registered investment advisor and wholly owned subsidiary of TIAA, and distributed by Nuveen Securities, LLC, Member of FINRA and SIPC. Nuveen, LLC (‘Nuveen’) provides investment advice and portfolio management services through TIAA and over a dozen affiliated registered investment advisers. Nuveen Real Estate is an investment affiliate of Nuveen. Nuveen provides investment advisory solutions through its investment specialists.

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