Drew Fung

Describe the past 12 months in one word, then expand on your choice.

Dynamic. The past year required us to pay close attention to a host of critical underwriting variables that were much more dynamic than in past years. Ten-year Treasury yields routinely moved 100-plus basis points in a day. Operating expenses, particularly insurance, for all property types climbed steadily. A host of significant geopolitical events continued to flow. 

All of these factors and many others required constant monitoring and tweaking of our loan underwriting. Borrower sentiment was also quite dynamic. Preferences for structural features such as term, fixed or floating rate, and timing, tended to shift quite often as rates and market sentiment did the same.  

Tell us about a recently closed deal you’re proud of, and its biggest challenges/high points.

We recently closed a mezzanine loan in New York City secured by a high-rise multifamily property that also included a significant amount of commercial space and parking. Part of the proceeds are being used to complete renovations of the 450-plus units. Given the complexities of New York City’s dynamic rental markets, the renovation budget, and various rental regulations, the team did an outstanding job structuring a deal that worked for the borrower, senior lender and Clarion.

What are/aren’t you lending on today, and what’s changed in your loan terms?

We are open-minded about geographic markets but tend to gravitate toward the ones where we have experience either on the debt side or where Clarion has direct ownership experience. In terms of loan terms, most of the loan opportunities we have closed on recently have the same structural features we have always required. Interest reserve, cash management thresholds, and minimum net worth/liquidity requirements receive careful scrutiny during our underwriting process. Once the loan is closed, subsequent asset management from our dedicated asset management team is critical as well. 

Name two markets you’re gravitating toward today, and tell us why. 

We tend to follow markets with, long-term, the biggest job gains coupled with strong in-migration. But we are also mindful of new supply, the type of jobs being produced, and whether or not the households being created are a fit for the type of property we are targeting. Dallas and Miami tend to have the size, liquidity and long-term prospects that Clarion prefers. That said, there are many other markets — particularly in the Sun Belt, but not exclusively — that we believe have very good long-term prospects.

Has certain lenders’ retrenchment been beneficial to your pipeline? Discuss. 

While we have always been active in providing subordinate debt, the need for private lenders such as Clarion Partners to provide mezzanine and preferred equity capital to borrowers has expanded with the retrenchment you reference. While overall transaction volumes are down, many borrowers facing loan maturities have found that they are in need of subordinate debt. This demand has offset some of the decline in overall volume. While the pullback in lending activity from banks and CMBS has been somewhat beneficial to our business, it is important from an overall capital markets health perspective for these lenders to continue to be able to provide liquidity. 

Will rate stability calm market volatility, or is that wishful thinking? 

Market volatility is driven by much more than just rates. That said, the recent rate volatility would likely settle down to a degree once the market regains confidence in rate-setting policy.  Whether it is up, down or stable, once the confidence factor has been restored, the real estate capital markets tend to be resilient and should begin to stabilize. Once confidence returns, transaction volume should begin to recover as borrowers begin to see more transparency in property values.    

What scares the bejesus out of you in today’s market? 

The future of vibrant urban downtown cores. Our cities need to stay vibrant and healthy. Despite challenges, they offer a blend of dynamic workplaces, public transport, cultural institutions and lifestyle that are unique to urban living. Cities are also economic engines that are critical to a healthy U.S. economy. The shift in how office space is utilized in our cities continues to evolve, but it is something we need to be mindful of in order to preserve the other aspects of urban living that are critical to economic growth.

Lightning Round:

Multifamily or Industrial?

Multifamily.

Taylor Swift or Beyoncé?

I have three daughters in their 20s who all grew up as Swifties. Taylor!

What would be the title of your Lifetime biopic?

“Live, Work, Play.”

Vacay time: Mountains or beach?

Beach in the summer; mountains in the winter.

Complete this sentence: If I weren’t a lender I’d be a…

Real estate developer.