You’ve spent your whole career in real estate – did you always know this is what you wanted to do?
It’s an interesting question as I was unsure which career path to pursue when I was younger. I have always followed my intuition, especially as my career developed, and it was my gut instinct that led me to move to France. A series of French business schools came to the US for a road show which piqued my interest. In the space of a weekend, I changed the course of my life as I decided to move to France for what I thought would be two years of grad school. One thing led to another and I landed my first job in corporate banking for a French company. I did this for three years and it was a fascinating experience as I was in an entirely French environment. For four or five years, I didn’t really speak much English at all as my social life was in France. That was an important experience because it really gave me a taste for trying to immerse myself in various cultures.
How did you get started in real estate?
In 1996, three years into my career, a search firm got in touch for a position at a real estate company called Unibail. This was the mid-90s, in the depth of the real estate crisis. At the time, having spent three years in a bank witnessing issues surrounding non-performing loans, real estate stirred up bad connotations for me. The head hunter – and I really owe him one for this – pushed me to meet with the leadership of Unibail, who he said had interesting ideas for the future direction of the business. I was impressed when I met with the leadership team and my gut said it’s worth giving it a shot. I was in France, totally out of my comfort zone, being presented a great opportunity. Best move I ever made.
You’ve worked at four heavyweights in the industry – Unibail, Morgan Stanley, Tishman Speyer and PGIM – has there been a theme, progression or narrative that links the four and that has runs through your career?
My intuition has played an important role in decisions about my career. In the three previous companies, I had a clear career trajectory and immense respect for my colleagues so overall, it was all going well. There was no logical reason to leave other than an intuitive feeling. In my early career, I became antsy and felt the need to see something else. I had spent eight years in France for two years of school and six years of work. I thought, am I just going to have a very local career or is it time to move on? At the time, I was receiving calls from investment banks which resulted in my move to Morgan Stanley, where I had a great five years. The thing that had me moving again, this antsy feeling in my stomach, was my search for a deeper real estate experience. From discussions with Tishman Speyer, I realised I wanted to know about real estate development not only by investing with an operator, but by being the operator. This led me to move to Tishman for another five years.
What is it about PGIM and your current role that is different from those previous positions?
I’m a generalist, I’m curious and I like being in a position where I can have global views across multiple asset classes. That is why it hasn’t just been a five-year run at PGIM Real Estate, I’m up to year 13 and I’m at the head of the business. I have a very supportive parent company which gives me and the management team a tremendous amount of trust and autonomy to decide how to evolve the business. So, I really have no more excuses. If I get antsy and think we shouldn’t be doing X, Y or Z, I only need to look to myself and my management team. It’s this aspect that has finally settled me down.
You took a decision in 2018 to bring together the equity and debt sides of PGIM Real Estate – what was the rationale for that and how did it work out?
A significant development since the GFC was the rise of non-bank lending, and this drove the macro rationale behind combining our debt and equity platforms. In Europe, non-bank lending was less prevalent before the GFC. Moving through the cycle, we saw an increase in non-bank lenders executing on strategies familiar to us as real estate players. Our expertise in real estate meant we had a deep understanding of the underlying risk and management of collateral, plus we had this amazing debt platform within PGIM, which was one of the largest non-bank mortgage lenders in the world. Therefore, in 2017/18, the discussion started on how we should marry this. The PGIM real estate debt business was different from the real estate equity platform. A decent size of the real estate debt platform, like many insurance businesses, managed an allocation from the Prudential general account. Insurers like public and private fixed income, hence the allocation to real estate debt. On the equity side, we managed very little of Prudential’s general account and thus had an ability to manage third party assets, from capital raising to portfolio management. Putting these two skills together felt very obvious and it has worked extremely well.
What was the benefit of this for clients?
The benefit for clients is twofold. First, we had clients we couldn’t deliver debt products for. What we did have on the equity side were a few very high-octane mezzanine funds, the risk there is so close to equity risk that it was a bit of a derivative of equity. But this was the extent of our ability to deliver a real estate debt service. Combining the equity and debt platform allows us to offer services across the risk spectrum for clients around the world.
Secondly, with our understanding across the debt and equity spectrum, we’ve managed to combine the underwriting, risk functions, market research and knowledge in a centralised way. We’re a better real estate underwriter and investor because we understand the entire capital stack.
How has the role of PE investment changed since the GFC? Is it fair to say it’s a dynamic force leading the market?
Before the GFC, some of the more dynamic players in the real estate markets were the investment banks but this changed after the crash. After the GFC, private equity took the baton. Private equity firms had the same creativity, dynamism, and ability to take risk, but they had a built-in fiduciary mindset that cut across the entire organisation. This means since the GFC, we have seen a lot of dynamism coming from the private equity world, but I wouldn’t call them leaders because of what we are seeing in real estate as a spectrum of risk-return and a spectrum of strategies. The bigger players realise they can’t be one-trick ponies. At one end of the spectrum, at PGIM, we have decades of experience with longer-term strategies. We are absolutely focused on delivering returns but over a longer period of time with lower volatility. We’re looking for stability. Private equity firms are on the opposite end of the spectrum and very good at it. Both sides have realised that to satisfy increasingly sophisticated client needs globally, you need to be able to do a bit of both. We’ve been moving up the dynamism curve, and private equity has been moving towards more stability and long-term curve, and we’ll see which organisations handle the balance best in the years to come.
PGIM was one of the first firms to start talking about diversity, maybe more than 10 years ago. What sort of progress do you think has been made in that 10-year period?
Early on, we made a conscious effort to bring in more diverse talent, which was relatively successful. We realised that enacting real change in our business goes beyond just recruitment of diverse talent, which is just the start. Over the years, our efforts have evolved to tackle more challenging aspects of diversity and inclusion in the workplace. This means creating a culture which encourages diversity of thought and perspectives, allowing colleagues from all backgrounds to feel included and ultimately, to thrive.
The investment landscape is intriguing right now. Some commentators have called it a perfect storm: digitisation, artificial intelligence, war in Ukraine, cost of living, energy security, inflation. With all those ingredients, what are the most important factors shaping the near to medium term?
Inflation is a big one and that is the one we are slightly stuck on right now. Our view was that this was going to take a bit longer than some thought to wind its way through and that seems to be what people are feeling. It feels like interest rates have to go higher to get a grip on inflation which will result in a longer downturn. In the near term, it is going to be about managing down the risk in your portfolio. There is a lot of hope that in the second half of this year we will hit bottom and then we’re off to the races. That may be true in some regions, but it’s only starting in others.
You also hear commentators saying that almost every major asset class is going through a kind of an existential moment. Do you see this as a kind of transformational moment or just another cycle?
Much of what we are seeing has been talked about for a couple of decades. That’s why, in our business, commitment, persistence, and execution matters more than just having the idea. There was a time when the market was not as mature, so you could have ideas that others hadn’t thought of. We have plenty of ideas about regions, asset classes, new operating models, but the difference now is that other players are coming up with similar perspectives. The real trick is how to keep moving with trends that already exist. You don’t have to be the first to see it, but you have to be very reactive and place your bets. The transformation is happening every day and it’s right beneath our feet. The challenges with technology and some areas of sustainability is the impact on an asset class may not be immediately obvious – you can still buy a building, rents still go up and down, and cap rates still move. However, little by little things are moving in a certain direction. Then there’s suddenly a tipping point where if you’re on the wrong side, it’s harder to catch up. Real estate is an illiquid market. If you own the wrong assets, you can’t simply trade out of them and take your loss, it can take years to pivot. It’s important, therefore, to be really vigilant and paranoid. The only way to operate in today’s market is to assume every one of your asset classes is in the middle of an ongoing, massive transformation and you’ve got to move with that at all times.
The last big economic downturn was the GFC. Given the current downturn following on from Brexit and COVID, are there any key lessons or advice you would give anyone who didn’t experience that last big economic downturn and has maybe started their career since?
What you learn is execution is key, you have to be very quick and get ahead of the trend. We’re in an interesting phase now – in this downturn, we’re seeing value start to come off and whilst nothing has gone completely wrong yet, we see anecdotal areas of distress.
Generally, it’s difficult to predict what’s coming next. It’s easy to think that, values are going to drop slightly, it will slow down and eventually pick back up. We need to be ready to expect the unexpected and usually what happens in downturns, certain things start to take on a spiral which can accelerate – this means your business needs to be agile. The speed at which things can start going wrong is something that we always forget because luckily, we don’t see it too often.
This is a great opportunity for people that haven’t been through a downturn to learn those lessons and to really get exposure to experiences that will make them better professionals and be with them for the rest of their careers.
You’ve described yourself as an ‘odd’ American and that you feel almost European. What do you mean by that?
Well, when I say the word odd, I think it’s because deep down inside, I am an American. I grew up there. My gut feel for things like who I root for at the Olympics really tells me I’m an American, and that will never change. But I’ve been here for 32 years, my wife is from France and we have bi-national children, so I do think I’ve developed a side of me that feels very French in many ways. Then I come to the UK and I feel very at home here. I’ve done business a little bit everywhere. So, I say I’m an odd American because if I really tried to analyse my day-to-day tastes, my beliefs, how they’ve evolved over the years, it’s hard to classify, but they’re certainly not obviously American. But if you gave me a checklist of are you European or American under these 15 criteria? I’m not sure where that would land. Perhaps more European.