Jason Hernandez

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

Frozen! The market is frozen with transaction activity down 60 percent in the first half 2023 versus first half 2022, and domestic bank originations are down 69 percent over the same period. Having seen the movie “Frozen” in the theater six times when my girls were little, I can’t help but think of the song “Let It Go” when I think about 3 percent SOFR and the hopes that CREFC in January 2023 would bring a boost to liquidity and transaction activity. However, like Elsa, Anna and Olaf did in the movie, I’m confident that buyers, sellers and lenders will eventually come together to end this eternal winter.

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

$68 million multifamily acquisition financing for an institutional sponsor we have been targeting for some time in the South End submarket of Charlotte. The South End continues to be one of the fastest-growing pockets of the Charlotte metro area from both an employment and population perspective. The property was built in 2009 and had not been renovated, creating an opportunity for the sponsor to upgrade the amenities and interiors in order to offer units that are similar in quality to newer construction but at a better price point. The biggest challenge in the transaction was the level of supply coming online within the immediate area. 

Given that, we decreased our leverage to 55 percent LTC to help offset the elevated supply risk. This deal was meaningful as it established a new relationship with a best-in-class sponsor and has since led to additional deals on a direct basis.

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

Two markets that we really like are central Florida (Orlando and Tampa) and Dallas. Both markets rate well in our proprietary mortgage relative model due to their strong population and job growth as well as continued infrastructure investment that will benefit these markets over the long term. 

Specifically, central Florida has been the beneficiary of net in-migration for years while Florida as a whole was the fastest-growing state from July 2021 to July 2022. Meanwhile, Dallas continues to be one of the fastest-growing metros in the United States and continues to benefit from corporate relocations and expansions. In order to accommodate the employment and population growth, DFW Airport is in the beginning stages of a several-billion-dollar expansion plan to add an additional terminal. Based on all of this, we remain excited about these two markets in particular. 

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

The core-plus credit space has been dominated by banks that have retrenched and mortgage REITS/open-end debt funds that are dealing with liquidity concerns, so there is less core-plus debt available. If you’re a borrower with a core-plus risk profile asset, one of your only options for debt is from a value-add credit provider. We think this creates a great opportunity to earn value-
add returns for core-plus risk, and that’s where we are seeing the majority of the opportunities in our current pipeline.

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

Rate stability should calm some of the market volatility. If you look at financing costs through the lens of the overall cost of capital, there is over $250 billion of dry powder for value-add and opportunistic equity strategies, each targeting their respective required return. The challenge with valuation is that although investors “know” their medium- to long-term cost of equity, it is much more difficult to pin down the cost of debt over the same time frame in a rising rate environment, which increases uncertainty around valuations and has significantly curtailed transaction activity. Any stability in the resting heart of SOFR should benefit the market and lead to greater price transparency.

If you could make like Scott Bakula and quantum leap back to November 2022, what would you tell yourself?

Great question. The original was one of my favorite shows, plus extra points for referencing the original vs. the reboot! Since you don’t want to alter the space-time continuum, you would leap back as a different person. I think it would be fascinating to observe yourself from that perspective, both at work and, more importantly, outside. I think that is significantly more valuable than any advice I could give my past self. Candidly, the last 12 months have “generally” played out as expected and, therefore, there was little opportunity to do things differently. Plus, we all know the plot of “Back to the Future 2” and how that turned out when you know the future and try to take advantage of it! I guess I would just tell myself to spend even more time with family and friends, especially my dad.

Lightning Round:

Multifamily or Industrial?

Multifamily.

Taylor or Beyoncé.

Taylor.

What would be the title of your Lifetime biopic?

Cathy Cunningham said it best earlier this year in a prior interview for CO: “Agave and a Chaser of Seasoned Wisdom.”

‘Ride or dies’ only (relationship borrowers) or taking on new borrowers?

Great opportunity to grab quality new borrowers given dislocation.

Vacay time: Mountains or beach?

Beach, but it’s really a pick ’em!

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

I’d be an astronaut.