J.P. Morgan’s Chad Tredway On Commercial Real Estate’s FOMO Wave

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While he departed the bank amid a flurry of transaction activity in 2021, Tredway returned to J.P. Morgan’s investment business at a complex time for the commercial real estate industry. In December 2023, uncertainty reigned and jitters abounded as the market laid bare the distress that a global pandemic and elevated interest rate environment had left behind. That distress and dislocation, however, also presented a blink-and-you’ll-miss-it, once-in-a-cycle window of opportunity for investors in the space. Tredway, having transacted through a similar window following the Global Financial Crisis, recognized the opening. 

When it came to his decision to jump back in, J.P. Morgan’s extensive real estate reach — and the expansive data embedded in it — was top of mind. 

“J.P. Morgan is such a powerhouse in real estate, because it spans everything we do. We’re one of the biggest users of real estate in the United States, between our branch network and our corporate footprint. We’re one of the biggest lenders in the United States, we’re building one of the largest office buildings in New York on Park Avenue, and we have a top 10 investment management business that spans the globe,” Tredway said. “All of these things came together for me, and it was just so exciting.” 

A phone call from George Gatch, CEO of J.P. Morgan Asset Management, and Mary Callahan Erdoes, CEO of the bank’s asset and wealth management business, didn’t hurt, either. 

“When you get a call from Mary Erdoes and George Gatch, it’s really hard to turn that down,” Tredway said. “What Mary and George laid out for me was incredibly compelling. They talked about continuing our dominance in the core real estate strategy, and expanding more into core-plus and opportunistic real estate. They talked about leveraging our dominance from our commercial investment bank and debt lending into investment management. And we all agreed that now is the time to double down to invest in that vision. Dislocation in real estate means opportunity, and that’s why last year was the perfect entry point.” 

Tredway’s first 12 months in his new seat have only proved that theory. 

“Chad is an outstanding addition to J.P. Morgan’s real estate asset management franchise,” Gatch told Commercial Observer. “He is already having a huge impact for our clients and business. There are generational return opportunities present today, and I know he will ensure our clients are in a position to exploit them.”  

“There’s no place like home,” Tredway said. “I’m pumped to be back here, because it feels like being back where I’m supposed to be, frankly.” 

This interview has been edited for length and clarity. 

Commercial Observer: You rejoined J.P. Morgan one year ago, at a pretty interesting time in the market. How was the process of stepping into your new role amid all of that volatility, and how did you navigate your re-entry? 

Chad Tredway: Real estate is cyclical, and we all know that. But, if you think back to a year ago, people didn’t know if inflation was going to be tamed, we didn’t know the health of the consumer, there was talk of a rolling recession, and generally lots of uncertainty everywhere. Then, within the real estate landscape, across all core funds, there were redemption queues with investors trying to leave those funds in search of other alternatives. That was challenging, but I think what’s really nice about J.P.  Morgan is we really stay close to our clients. 

So, in my first 120 days in this role, I spent time traveling the country. I was basically in all 50 states, and all I did was listen to our clients. To me, the best thing I could be doing during that uncertain time was to meet them where they were, and listen.

What was the general real estate sentiment from those clients in December 2023, and how does that compare to today? 

A year ago, real estate values were still going down, and people were concerned about liquidity. People didn’t know how far real estate values could fall, and the picture was way murkier than it is today. Fast forward a year, what we see in our core business is that values seemed to have bottomed out mid-year. If you look at the NFI-ODCE index, which is the index for core funds, over half of the funds in ODCE are now showing positive returns. The redemption queues across the core industry are coming down, and transaction volume is going up. Are we out of the woods? Probably not yet, but last year it was hard to see the light at the end of the tunnel, while today we firmly feel like we have hit bottom and are now rebounding. 

Even in the last few weeks, there’s a palpable shift. We’ve moved on from a fear of making mistakes to FOMO. People are already afraid of missing out. Looking at our portfolio, people are actively bidding on it, there’s capital for real estate, and the market is starting to open up. It’s exciting to see the green shoots, and we’re positioned to take advantage of them. 

How long does this window of opportunity last, in your opinion? 

We have so much data just around what happens in real estate cycles. They tend to last longer than 10 years, which is pretty amazing in and of itself, and real estate is less volatile than stocks or bonds — which is also a really exciting reason why people invest. But, if you think about the last true cycle bottom, it was the Global Financial Crisis, and you only had two years to capture the majority of your upside. Over 35 percent of the upside in a 10-plus-year cycle was captured in the first two years. It took six quarters from when the market bottomed, where you had redemption queues that were elevated, until those queues went to zero. 

Our data said the market bottomed in the second quarter, which means you have four quarters left to get in. So, it’s pretty urgent that people look at investing in real estate right now.

What are your highest conviction themes today? 

There are three key themes for us — all of which have been accelerated by COVID, by the way.

The first one is housing. Depending on which study you look at, we need 4 million to 6 million housing units in the United States. When COVID happened, that stopped a lot of construction for obvious reasons. When rates increased, homebuilders did not have the capital to continue building. So we’re going to be in a deficit situation in single-family housing and multifamily housing, structurally, for decades. We own over 6,000 single-family homes on our platform. The way we approach it is, we actually build those homes, so we don’t steal the American Dream out of neighborhoods and we don’t buy single scattered houses. We create new supply. What’s exciting about that is people come and rent these houses so they can have a backyard, a great school district and amenities. It’s the most responsible way that we think people can rent before they save up enough to actually get a single-family house.

Build-to-rent is where we believe that you’re going to have outsized gains, particularly in markets where the migration trends favor us, which is the Southeast. So we’re focused on build-to-rent, primarily in the Sun Belt, and targeting average rent levels around 2,500 bucks a month. The reason for that is your average family in the United States makes roughly $105,000 a year and, as any local Chase branch will tell you, don’t spend any more than 30 percent of your income on housing. We’re focused on what’s affordable for middle-class families in the U.S.

The second big trend for us is logistics-
focused real estate. Before COVID, if you click that little “Buy Now” button on your phone, you would get your goods in four days. You go click that button now, and you typically get your goods in a day. No one ever thinks about this, but there’s four times as many delivery trucks on the road as there were 20 years ago. Those trucks have to go somewhere to get packed with those goods. So, we’re buying truck terminals all around the United States.  

The next thing is industrial outdoor storage [IOS], which is where those trucks go at night.

IOS is particularly interesting to me because it wasn’t always institutionalized, right? It started off with smaller investors and lenders focused on the space. But I think over the last couple of years, you’ve really seen more institutional interest in it. 

Well, I think J.P. Morgan is a first mover, given the data advantage we have. We’re also always looking for inefficient markets where we can drive returns for our investors, and this represents a market where we have a data advantage, and it also represents a market where we can use the inefficiency to drive returns, and we can scale over time.

If you think about the supply of industrial outdoor storage over the last 20 years, it’s actually shrinking, because while we all want to get our goods as fast as possible, you don’t want to live next to an industrial outdoor storage parcel. Getting zoning is incredibly difficult. I always say it’s like cellphone service — we all want five bars, but nobody wants to live next to a cellphone tower. Same thing with IOS. We’re also buying shallow-bay, small-box, industrial outdoor storage near consumers. Everyone’s focused there, but I think our IOS strategy and our truck terminal strategies are differentiated from anyone else out there. 

The third leg of our stool is grocery-
anchored retail. That’s where everyone goes on Friday when they’re not in the office, picking up groceries and going to Pilates and getting a haircut — all the things that Amazon can’t get to you. 

What’s your general take on the office sector? 

If you look at our office portfolio, what’s been pretty amazing is some of the bigger leases that we’ve signed, specifically in New York. We’re seeing occupancy at 90 percent or above where it was pre-COVID. We’re seeing cash flow grow. J.P. Morgan has the largest build-to-suit office building underway in the United States. So we’re big believers that office does have a place in real estate.

Where we’re less bullish is office that’s older and not amenitized, that’s not near great transportation, and that doesn’t have flexible floor plates. For offices we own on this platform, cash flow continues to grow, but if you’ve got C class or B-minus office, it’s a long, bumpy road.

What do you think will become of Class B and C office? 

I don’t think anyone knows exactly what will happen, but there are a few lessons that we’ve learned throughout recent years: Quality really matters when you’re thinking through office, amenity packages really matter when you’re thinking through office, and location really matters when you’re thinking through office. I think there will be winners here who will be able to buy office in great locations at a low basis, because the industry tends to throw the baby out with the bath-
water. That’s why you’re seeing people raising funds around office today. 

But, as for the long-term focus, I don’t know. For the clients that we speak with, I think it’s more of a wait-and-see approach. I think everyone acknowledges that office is getting stronger, but I don’t think there’s institutional appetite for it yet. 

There are plenty of fears around the inflationary environment next year. How critical is a lower interest rate environment for CRE? 

Real estate is set to outperform in this environment, regardless of a little bit of inflation in rates. If rates come down, that’s even better, but most real estate rents reset annually. So, if higher rates mean also that we’ve got more corporate profits and a growing GDP, and that means slightly higher rates at the long end of the curve, that’s actually going to be a
great thing for real estate investors and a great thing for returns. If rates happen to go down while the fundamentals stay strong, even better. 

But we believe even with rates higher for longer again — excluding, you know, rates going to 10 percent overnight — we think moderately high rates in the face of growth, as long as we have growth, for the consumer and a company, is actually a positive thing. Rates coming down would just be just the icing on the cake.

If we have predictability that rates will stay higher and come down over time. In those two scenarios, the real estate investor — as long as fundamentals stay strong — should see amazingly good generational returns.

We really believe now is the time to be in real estate. Think about it this way: If you invested in the stock market a year ago, your returns are up over 50 percent, depending on what you invested in. We all see it in our 401(k), and, if you invested in bonds, depending on when you invested, things have gone OK for you there as well. 

But, if you look at relative value for real estate, it’s never really this inexpensive. So fundamentals have gone up, but real estate’s down 15 to 25 percent. Depending on which asset class you have, real estate should start rebounding now, which is why it’s so urgent that we think people should get into the asset class today

Is there one single, biggest question that you’re asked by investors who are new to real estate? 

Typically, because of the negative headlines that real estate has had over the past few years, people are worried and they ask if they should wait. They say, “Look, we’d rather just wait and watch from the outside for a few years.” The fact is, real estate has not been down to the tune of 40 percent in over a decade with fundamentals improving. Rates are already coming down, and you get inflation protection. So, we just focus on the fact that a 30-year return is going to be made up in the first two years of the cycle. 

I’m all in. I mean, I took the company I started and founded, rejoined J.P. Morgan, and pulled it into their businesses.

How is the Trio integration going? 

It’s great. Trio is a net-lease-focused strategy, which is amazing, because the number of regional banks has obviously already been cut in half over the last 20 years in America. Think about First Republic, Bear Stearns, Washington Mutual, and we really focused on providing capital through a sale-leaseback to middle-market companies that are private all around the United States. J.P. Morgan was one of our key investors when we launched that fund or that strategy.

What’s exciting about that is the strategy continues to grow. We can provide more
capital to more businesses that need it. We actually think companies should focus on what they’re good at, which is making
goods, and they should leave the real estate risk to us. And, so, that’s been a real highlight for J.P. Morgan, and it’s been a real highlight for me. 

How was the experience of building Trio for you personally, and your time away from the bank? Any big takeaways? 

The biggest takeaway is you can’t underestimate the hustle factor.

So, the hustle is real? 

The hustle is real [laughs]. It’s getting things done quickly. It’s thinking creatively about how to serve our clients, and it’s about aggressively moving towards solutions. And what I love about the experience of being an entrepreneur is that J.P. Morgan, in its own right, even though it’s the largest bank in the United States, is always pushing to move faster, too. It’s always pushing to get closer to clients. It’s always open and pushing to get more creative. And what I really have loved about working with George Gatch and Mary Erdoes is that they’re incredibly focused on creative solutions to solve our clients’ problems. We just work on it over and over and over and over again.

How does your pipeline look today? 

This is a broad statement, but the pipeline for capital coming into our group is up over 50 percent [year-over-year], which is staggering, because we have a $70 billion business in the United States, $80 billion around the world. We have multiple strategies that are bringing in capital right now focused on those three things that we talked about, around single-
family for rent or build-to-rent, around
logistics-oriented real estate, around grocery-
anchored or experiential retail. 

So our pipelines are full with those strategies, which is very exciting. The debt side of the house — because we have a debt business too that’s growing as well — is also very busy. 

What does that tell you about client sentiment today? 

It indicates that client sentiment is coming back faster than anyone expected. I was talking to a CIO last week, and we were discussing how people didn’t expect the outcome that we got for president, but that if you look at the last presidency for Trump, GDP growth was up, corporate earnings were up, family incomes were up, unemployment was down. So, while it was unexpected — depending on what happens, of course — people are looking at a pro-growth environment, which is exciting for a number of people that invest with us, and it’s exciting for our team as well.

Real estate is going to be a place for outsized returns. Year over year, from last year to this year, real estate is the most improved in terms of go-forward return expectations. Our clients that tend to like core are really focused on this entry point. The majority of core funds or core strategies across the industry have repriced and are poised for high single-digit, low
double-digit returns going forward, which you have not been able to get in a core format in a number of years.

On the opportunistic side, what’s really exciting is now you can find opportunistic deals because of the lack of liquidity, and we’re seeing around 15 percent in terms of go-forward returns in this environment. Like I said, it’s a pretty special time for people to enter the market.

What’s your favorite part about being back at J.P. Morgan? 

The obvious answer is the people, because I just love the firepower at the top of this firm. They’re constantly pushing us to think more creatively about creating solutions for clients. But the thing that’s been most exciting coming from an entrepreneurial environment and having a small fund where it was really difficult to move a market, is being able to be in a position where we really can move markets in a really positive way. 

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