Nuveen’s Jason Hernandez On ‘Broken Assets’ and the Finance Climate Now

Hernandez chatted with Commercial Observer in late April, a little more than a month after the banking crisis unfolded, to describe his path to Nuveen and the key market opportunities he sees today. 

This interview has been edited for length and clarity. 

Commercial Observer: Where did you grow up, and how did you get into real estate?

Jason Hernandez:  I was born and raised in Chicago, and I didn’t choose real estate, per se. When I graduated college, I went to work for GE, and was in the financial management program where they want you to become a CFO or an accountant. After doing my first few rotations, I said to myself: “Oh, my god, I do not want to be a CFO or an accountant.” In my last rotation, there were two non-
finance roles: one was an analyst in the large transaction group in the real estate business, and the other was an M&A role in the credit card business. My best friend got the credit card one, and I got the real estate one. So, while I didn’t necessarily choose real estate, I joined that team.

Somebody once told me, and this is so true, careers only look elegant in retrospect. I didn’t know I wanted to work in real estate, and, candidly, I spent the first 15 years of my career doing equity, not doing lending or credit. But sometimes opportunity happens, and in the end it all comes together. 

When did you connect the dots and realize that real estate was the career for you? 

The constant theme in my life is I’ve always worked for great leaders, but I’d say it wasn’t really until the GFC [Global Financial Crisis] when things finally slowed down that I had time to stop and realize how much I’d learned. 

When I first came out of business school [in 2003] I thought I wanted to be an M&A banker in real estate, so I went to work for Philip Mintz [now a partner at Apollo Global Management] who ran M&A at Merrill. Soon after I started, Phil left Merrill to go run M&A at GE Capital Real Estate, and so I went back to GE with him. Phil then moved to Asia, and I was done following him after that [laughs]. 

At GE I was working for Joe Parsons, who ran equity. GE was being very acquisitive, and, working for Joe, I’d been working on things like taking REITs private and selling platforms — really cool cocktail party stuff. I told him I wanted to be his staff executive and he said, “No. I think you should go be a joint venture equity investor instead. Go and learn real estate.” I was like, “But I’ve been doing this for, like, eight years, Joe — I know real estate.” At that point, I was ready to leave, because I thought he was trying to crater my career,  but I did as he said. When you’re doing joint venture equity investing, you’re buying an apartment building in Atlanta, or you’re financing an industrial building in Houston. They were smaller deals, but that’s when everything finally clicked for me. I learned so much more and realized that while I knew the analytics, I had no idea how to be a true investor. 

Without Joe, I would have probably had a good career, but I wouldn’t have the depth and breadth that I have right now.  I was so pissed at the time [laughs], but I wouldn’t have gotten the Acore job if I hadn’t done that, and I wouldn’t have gotten this job [at Nuveen] if I hadn’t done the Acore job. I still see Joe now, and tell him, “I hated you for three months straight.” 

How did the Acore role come about? 

It happened around the time that GE sold their real estate business to Wells Fargo and Blackstone. I interviewed with Tom Arnold [the former real estate head of Abu Dhabi Investment Authority] and was thinking of going to work at ADIA and move to Abu Dhabi. I also had a conversation with the Acore guys, but I didn’t know if it was going to work out, and I think [Acore founder] Warren de Haan felt the same way. But then he and I had dinner at the Viceroy Hotel, and four tequilas later we figured out we actually liked each other. 

I had three choices at the time. I could interview for my  job at GE — it was almost like that movie “Office Space,” the guys from Wells came in and everybody got a 10-
minute interview — but I had too much pride for that;  I could go to Abu Dhabi with ADIA; or I could go to Acore. My wife did not want to move to Abu Dhabi, so it was an easy decision, and I was employee No. 8 at Acore and helped build out the New York office with Tony Fineman. 

At the time, it took some courage to go from a huge institution to Acore. Today Acore is a top four firm, but at the time it was four guys with Gmail accounts [laughs]. But it was a fantastic three-year run and I have so many good stories from it — it was just awesome. GE taught me how to be like a leader and how to run a business, but Acore taught me how to be a real credit investor. 

I assume there was probably a level of entrepreneurship at Acore.  Is that something that you’ve carried over to Nuveen?

Yes. When the headhunter called and asked if I’d be interested in running originations at [Nuveen parent company] TIAA, I said, “Nope, not interested.” I met Jack [Gay] who runs global debt and we had a 45-minute meeting but talked for an hour and a half. It was fantastic but I still wasn’t excited, and my mistake was I was equating it to my experience at GE, which was a great experience but a big bureaucratic company. 

I quickly realized there was just so much opportunity at Nuveen, because, at the time, we were just a pure core, fixed-rate lender. I had the chance to run the core play, but also build out a structured finance, core-plus and value-add credit platform. This was my chance to go off on my own, and Nuveen was looking for an entrepreneurial mindset in building their credit platform. When I got here, our structured finance or debt fund business was less than 2 percent of our book. Last year it was 45 percent. We’ve done $2 billion, $2.5 billion a year from a base of nothing and built out an incredible team.

How has your Nuveen role evolved over the years? 

I started leading the originations team in May 2018, and in November of 2021 I assumed responsibility for all U.S. debt. So now I lead originations, asset management, portfolio management and capital markets, but the more important thing is the people we’ve been able to attract. We realized pretty quickly if you want to build out a full-scale credit platform, you’ve got to invest in people first. 

Chris Miculis, for example, runs our asset manager and came from AllianceBernstein. We also have Shawn Kaufman, who is a top five capital markets guy syndicator on the street. We have Marcus Salgado, we have Alex Ruiz, and we’ve  gone from being a 25-person team to a 45-person team. It’s going to sound terrible in this article, but Marcus Salgado was at Ares and I met him at ICSC, and we went to the Bellagio Hotel and just crushed tequila until I got him to say yes to joining us. The upgrade in talent in the five years that I’ve been here has been tremendous. That’s not to say that the people here before weren’t good. I think it’s just a testament to what we’re building here.  

Our assets under management going from X to Y is great, but I look at the team we’ve built and it’s not a one-person show. We have a real originations team, we have a real capital markets team, and it’s by no means the Jason show. If I get hit by a bus tomorrow, people will be sad, but we’ll continue. We’ve built it into a sustainable platform, and that’s the legacy you want. 

What are you prioritizing today, and how has that changed over the past year?

If we had this conversation a year ago, all people cared about was getting capital deployed, because it was a low-yield environment. Today, yield is abundant, but liquidity is scarce and you can’t fight last year’s war in 2023. 

If I can sum up the past year in a few words, it’s illiquidity and capital allocation — I have to meet with an investor today and that’s my entire pitch. When you think about illiquidity, the CLO market shut down, CMBS has pulled back, rates went up so loans aren’t paying off. We’re not creating capacity in the system, so that illiquidity has stalled the market. Capital allocation always matters, so how do you allocate your limited capital? Because capital is a finite resource, but it matters a whole heck of a lot more when you have less of those dollars. Every dollar that I’m going to use to protect a position of my existing book is a dollar that I cannot deploy in this vintage today, and I think all of us think ’23, ’24, and potentially ’25 will be the best vintages for credit arguably since the GFC.

As a leader, I’m telling my team that you have to redefine what a win is. Anybody who’s been working from 2011 forward has never seen anything like this. You’ve always defined success as: “Did I raise more capital, did I grow my AUM, did I do more deals this year?” You have to redefine what a win is because a win this year is not going to be growing the pie. A win this year for our team is really simple. First, we have to protect the book. The second thing is, we’re going to build for the future — and, for us, that means we’re going to launch a high-yield debt fund, which is higher octane than what we have right now, and we’re going to launch our impact credit business. The third priority was always our first priority every other year, which is capital deployment. It’s the third priority, because our biggest challenge today is defending the book and building for the future. 

In real estate, there’s a lot of groupthink, so you circle the drain like, “Oh, my god, the market’s terrible.” Things are crazy, but the reality is we have to continue to build for the future. If we don’t do that now, we’re not going to be in a position to capitalize on what we think is the most attractive vintage. 

You mentioned the high-yield debt fund and impact financing. Are these both goals for the second half of this year? 

Yes, we’re actually in the market right now raising a high-yield debt fund, focused on the value-add space, whereas our current debt fund is an open-ended core-plus debt fund. We’re going to get a big co-investment from our parent company, we have the right team, and we have a good track record. Now is the right time for this type of product and so I’m really excited about that. 

We’re also really excited about impact credit, and as a firm we’ve always been really big on responsible investing. We have a very big affordable housing platform on the equity side, and there’s no reason why we shouldn’t apply that same ethos to responsible investing through our credit business. Chris Marshall will lead that effort for us and we’re working on a fairly large transaction, which we can talk about in a couple of weeks. 

How long does the current window of opportunity last? 

Look, there are some systemic issues in the credit markets. The mortgage REITs can’t raise capital, the public markets are effectively shut down. Taking a step back, what’s driving this more than anything else? Again, I’ll go back to illiquidity and cap allocation now that rates are higher. We held rates artificially low for far too long, which inflated asset values, and the cavalry isn’t coming over the hill today. My personal view is I think rates are going to be higher for longer, so I think this opportunity is going to last for longer. 

Over time, liquidity will flow back into the market — hopefully it’s a year from now when we’ve done all the multi-deals and alternative deals that we can. Then I think you’ll see some price discovery in office and retail, and you’ll see financing come back there. I do think specific tactics will change over time. Multifamily spreads shouldn’t be 350 over, they just shouldn’t, and, if they are, then cap rates aren’t going to be 5 percent, they’re going to be a lot higher. And so I think all of that has to work itself out. I’m not smart enough to say how it’s going to play out or when, but this is the beauty of the overall credit space; it’s not a point-in-time strategy. It’s not like I invest in credit only in certain times, but there are times when it’s more or less attractive, and now’s a really, really attractive time to invest in the space. 

How bad do you think the upcoming maturity wave will be? 

We’re all facing it, but what I would say is you have to separate broken assets from broken capital stacks. We all financed office four years ago, and we’d give somebody a 70-cent advance against it because you thought it was worth $1. It’s not worth $1 today, and is it worth 70 or 60 cents? Who knows? That’s a broken capital stack. The reality is those deals will get worked out when either the sponsor will put in equity, or the lender will take it back and work it out at a lower basis; they’ll reset rents and recapitalize those deals.

Anybody who has an office loan maturing today is not going to be paid off by their sponsor. Your best bet as a borrower is your existing lender. The challenge is going to be if you have a broken asset — if it’s obsolete, not well located, it’s a midblock, Class B building — those are going to get really ugly.

As an industry we all have issues. Anybody who says they don’t have issues in their book is lying, and we should be transparent and candid and honest with our investors. But, again, with those deals we’re talking about broken assets, and those decisions were made when you made the loan — they’re not a function of COVID, or rates going up. It’s just a broken asset, and I think you have to recognize if you made a bad credit call three or four years ago, and you’re not going to recapitalize your way out of it. Thankfully, we don’t have any, or very few, of those. 

I assume there’s never a dull moment right now. 

Every day is different but people have to be careful. People love energy and passion and dynamism, but a lot of people haven’t seen this [market environment] before. We had this phrase during COVID where we said, “You gotta be cool in the pocket” like an NFL quarterback. Now, clearly, I’m not an NFL quarterback [laughs], but if I were, I would try to be cool in the pocket. 

This is not life or death, but we need to be thoughtful and, as an industry, if the focus is on allocating capital in an efficient and disciplined way, it’s going to be painful as you work through it. I’m focusing on keeping peoples’ heads on straight and taking people out for tequila every once in a while and telling them, “It’s not all  doom and gloom.” We’re going to have to work through our issues but capital flows into and out of markets, and we’ve all personally lived through worse, whether it’s professionally or personally, so you have to maintain some perspective.

What do you do for fun when you’re not working? 

I love to ski. I probably skied more than I should have this year, given where the market is. But I don’t regret it. I love my family. So, I spend my time being an Uber driver for my kids, taking them to a new surf camp or wherever else they need to go because they don’t drive yet. 

Cathy Cunningham can be reached at ccunningham@commercialobserver.com.