David: Oh boy. I grew up in Brooklyn, New York. I'm a first generation American, so I grew up in the Bay Ridge area and let's see, my first concert would've been a Billy Joel concert in the early 1980s.

Stewart: Wow, that's a good one. I've mentioned on another podcast, mine was Billy Squire and Pet Benatar. I didn't care nearly as much about Pat Benatar as I did about Billy Squire, and if memory serves, we sat in the sixth row right in front of the speaker stack, and I got my hearing back about three days later. This was the time when nobody thought about hearing loss, anything like that. But if you would, tell us a little bit about yourself and some background on MetLife investment Management, just in case some of our audience isn't familiar.

David: Sure. Background on myself. Let's see. I started out in banking coming out of school and pretty quickly moved into the real estate group as a restructure guy, so that wasn't something that I wanted to do, but the opportunities were there because of the time when I graduated college in the late 1980s. I worked in banking for five or six years and then in 1994, took a job with MetLife as a workout guy in their debt space, and it was all commercial mortgages then. MetLife was a mutual company back then, so it was a great way to get into an excellent company. And as you noted in the open, I've been here since 1994, so I’m coming up on my 31^st year, and I've been able to grow my career over that timeframe to move on from just doing workouts to originating investments on the mortgage side to the equity side, overseeing our capital markets group and international platform.

But over the last three years, I've been head of the debt strategies group. What that means is I'm chair of the debt investment committee and basically oversee the book of business that we have. In terms of what MetLife Investment Management is — the transition happened about 12 or 13 years ago when we moved from just managing MetLife to managing third parties. And today, we manage over $100 billion in commercial real estate debt and equity. We've got a team of over 250 people on the ground here in the U.S. Europe, Latin America and Asia. When you look at how we do our business, how many clients we have, we've got onshore clients, offshore clients, and now, we've got life companies, property casualty companies and pension funds that we manage money for in the debt and equity space. We've got regional offices. So if you look at MetLife Investment Management, what makes us sort of different than other life companies that are in this space or that have investment management businesses, we've got an on-the-ground approach to real estate, which is the right way to look at it. And since we do both debt and equity, and our platform is under the same leadership, we look at that as an advantage. So we've got scale, and we have operational advantage.

Stewart: That's terrific. I don't exactly know how to ask this question, but I'm going to give it a try and see how it goes. How do insurance companies invest differently from CMBS or bank loans? What makes the insurance approach distinct?

David: It's a great question. In the space that we operate in, MetLife Investment Management originates loans just the way a bank would for securitization or CMBS. The distinct difference is when we originate a loan, we hold that loan, and we service that loan throughout its life, so you can call it from cradle to grave. Anyone who does business with us on the borrowing side is dealing with MetLife. In the banking world, when loans are securitized, they originate a loan; then they've got to hold it for 30 or 60 days; it then gets wrapped up into a securitization and sold off as a bond. Investors are buying bonds that are secured by a portfolio of loans, so it's the same underlying product. It's just a question of what happens to the investor, which investor does it appeal to. And for us, if you were to look at how insurance companies play in this space, generally they're generally more conservative than what you might find in a CMBS.

CMBS allow them to buy tranches that are lower risk. When you do business with an insurance company, normally you're buying into a whole loan, one whole loan, one asset. If you were to look at the risk profile of insurance company loans that top out normally in the 60% to 65% leverage area, and you compare that to CMBS, you would say, well, how do they perform? Well, generally speaking, insurance companies are showing much lower delinquency rates than CMBS. I think just recently there was something published that showed CMBS delinquencies topping up over 11%, and if you were to look at the insurance company book, it's probably around half of that or even less than half of that. So it's a different risk profile when you do a CMBS deal. If you're a borrower, you're going to be dealing with a special service, not the folks that originated your debt. For us, relationship building is really important. That's what our whole business is built on. There are loans in our book today that I originated back in the 1990s, which have been back two and three times for us because of that relationship. CMBS does offer sort of tighter pricing from time to time, but they don't offer the same execution that going with the life company does, specifically MetLife.

Stewart: I don't want to put words in your mouth, but the resources that you have at MetLife Investment Management are considerable, and it requires those considerable resources to provide cradle-to-grave deployment of capital. Is that fair to say?

David: Absolutely, and that's what distinguishes us. We originate loans in regional offices. They're serviced or managed in those regional offices. We originate loans in conjunction with our research team telling us where the best opportunities are. All of that makes us different than those that originate for CMBS, at least in my view.

Stewart: Is it fair, I don't know if this is right or not, but if I'm an investor, buying that loan in the way that you're describing it. Is that going to give me a different yield than if I go with another avenue due to the better… I don't know what the right word is, but it seems to me the word is friction. There's less friction.

David: I agree 100% with that. There's less friction if you're going to go with the life company originator. Someone who holds that debt throughout the term, and the investor in it can deal with the life company or in our case, MetLife Investment Management. I think that that's true. This is a fixed-income product, Stewart, so it's not so much about what you make, it's about what you keep.

Stewart: Absolutely.

David: And what you keep — that's usually net of what you lose. And in our space, we have an excellent track record of exactly what we keep for the insurance company clients that we have. If you were to look back over the period of time from the global financial crisis to 2024, the last calendar year that we have, our commercial mortgage book had an average loss of about four basis points. If you looked across CMBS and banks, it was probably between 50 and 60 basis points for banks and between 80 and 85 basis points for CMBS. That’s a lot of loss to make up for in a fixed-income investment.

Stewart: Absolutely. Okay. So whenever you're talking about real estate and whatever else, COVID always seems to show up somehow. And so looking back, what was the impact of COVID on property markets from your perspective in debt? I know it requires you to look in the rear view mirror a little bit, but I think it's helpful.

David: A great question. I would say that since the Global Financial Crisis, we didn't have anything else that affected real estate, real estate debt or real estate equity the way COVID did, the way it affected property markets. The pandemic was a shock to the system. It impacted things in an uneven way, but ones that were predictable when you look back. Based on how we behaved in a political way, the first to get hit in COVID were hotels and retail. And when you think about it, that's logical, right? You couldn't travel, and you certainly couldn't go in places to shop and be in big groups. So right away those got hit. The most modification requests we got came from that space, not the office space. At the same time, we had industrial demand surge, everyone still had to shop. People were doing that through e-commerce. So when you look at how well e-commerce did, there was the penetration of that e-commerce market that grew more than 40% in a single year.

So then, that was something we expected to happen. Our research people expected it to happen over a 10-year period, but it got compressed to 12 months. Office demand in the beginning was unaffected because when you're a tenant in an office building, you have a long-term lease, and even though you couldn't go to the office, companies were doing fine, and they were paying their rent. That changed dramatically when the world reopened. When the world reopened, retail and hotels did very, very well. So when that happened, if you had loans or you owned equity in those two assets sectors in real estate, sure you had a little bit of a tough time for a period of time, but right after markets opened, you did fine. Occupancies were back up, people were traveling again, all great. Office did not recover the same way. And there's a lot of talk around what happened there.

We kept people out. When I say we, I mean the economy kept people out of office for a prolonged period of time, whether it was school teachers not wanting to go back and teach because there were risks for them to be exposed to COVID or other political reasons, but it was long enough to change people's behavior, and to this day, we still have knock-on effects from that behavior. Most people now have hybrid work schedules, so the number of people going back to the office has gone up. It's not like you're hearing about people saying we're going to be doing 100% work from home. That sort of start-ed to turn around over the last couple of years, but the knock-on effect for office has been dramatic.

Stewart: I appreciate that. The next item up for bids is pricing trends. Where is pricing today versus the peak? And I hate to ask this, but when was the peak? And, how are you seeing values adjust across property types? Because we've had other folks on other podcasts who've made the point that people say, oh, the impact of COVID, but I think where you were headed was that aspects of real estate did quite well. It depends on the property type. So can you talk to us about pricing and the values across those various property types?

David: Sure. So let's handle the first part of your question. When did they peak? Pre-COVID, I would say going into COVID, 2019 and very early in 2020, before we knew what COVID was going to do, I'd say that that was the peak for all of the asset sectors. Broadly speaking, commercial real estate pricing corrected over the 2022 and 2023 time period and fell, peak to trough, between 15% and 20%. Since then, market values have stabilized, and they have been increasing slightly. Office remains a problem. I mean if you were looking at apartments, for instance, over the last year, they're sort of back to where they were. In most markets, it's market specific, but for most markets around pre-COVID levels, if you look at office, for example, there are still deep discounts in some markets. Values in the office sector have declined somewhere in the 30% to 35% range.

And Stewart, that's over the entire U.S. That does not mean you can't go to markets that have suffered more with the COVID effect than others. So if you were to look at some markets like Seattle, Portland, D.C. and Chicago, they probably had, on average, broader declines in value. Could be 40%, 50%. And you will see in the real estate publications that occasionally, a deal trades for a third of where it was at its peak or its last sale. I would say that right now, according to our research folks, they're thinking that half of CBD office markets are seeing positive value growth. This includes some large markets like L.A., New York, San Francisco, and even Chicago, Atlanta and Dallas. Places like Boston and D.C. still remain negative. So what's going on in D.C.? The 800-pound rule in D.C. is government. Everybody knows what's going on there. They had pretty liberal policies around COVID, around coming back to the office, not coming back to the office, and you're going to see that D.C. correction, at least from where I sit, go on for a while. Good news is we think values are sort of at the trough. We think things may bounce around here for the next quarter or two, but it'll be a slow and gradual recovery for the office space.

Stewart: You use term CBD, I think that means central business district, is that right?

David: Correct.

Stewart: Hey, all right, I got one right. And just one other thing with regard to office, is it fair to say that — I mean you mentioned the regional differences. Is it fair to say that the Class A office space did better than some of the other lesser-quality office segments? Is that something that you've noticed, or am I just out in left field here?

David: No, no. You absolutely have it correct. In every market, if you're truly in the trophy space, you could make the case today that you're as well off as you were pre-COVID, maybe even a little better in some markets. I don't think it's enough to say that it's just quality properties. These are literally the top-tier buildings. ln New York City, I guess it would be One Vanderbilt and some of the others in Hudson Yards. Those are the best buildings, and they're doing really, really well. If you're in some of the B- and C-quality buildings, it was always expected that those buildings in major CBDs that were older, were going to have to go through some sort of adaptive reuse analysis because sometimes you can't convert a 1940s, 1950s or 1960s building into something that people want to be in. What we're seeing is that conversions of those buildings or scraping of those buildings are increasing, which is taking some inventory off the market. I think Jones Lang published something recently where, for the first time in a long time, you might've had more office space come off the market than go on the market. So more new deliveries. New deliveries were less than the space that has been removed from the market. So that's something that will help some of the older B and C properties going forward. Whatever remains will begin to have some traction in the near future.

Stewart: And just so that I'm on the right page here, when you say deliveries, that's a sale, right?

David: Sorry. No, it isn't. It's not a delivery means bringing new product to market.

Stewart: Oh, got it. Okay.

David: About 7.5 million or 7.6 million square feet, something like that, came on the market as new deliverables, brand new buildings, and about 8 million feet came off the market. So those will be properties that are going to be redeveloped into something else. That was sort of the order of magnitude. It's not a lot, but let's just say that there’s not been positive growth in the office space over the last year. Just one more thing. I mean, kudos to the municipalities and large cities that are understanding that they have a problem, and they're starting to think about ways to facilitate owners in their quest to convert older buildings to something else. We have a housing crisis in the U.S., so this is a great way to revitalize CBDs. If you can introduce some affordable housing, some market-rate housing — that, in and of itself, would help spur more office use.

Stewart: Thank you. I want to talk a little bit about the lender landscape in 2025, right? Is it shifting? Who's active, who's pulling back, and what role are insurers playing in this market?

David: Great question. I'll start by saying there's still a fair number of owners who will not transact right now because they believe either rates are too high, or there's not enough good news out there for them to go to market and sell properties, and that is mostly in the office space. You're seeing warehouse, industrial, hotels, retail and multifamily, that stuff is trading. You are hearing about this maturity wall stuff's being pushed forward. So, on the one hand, the deals that are coming to market are good enough that they’re going to attract attention from all lenders. Banks, insurance companies, investment banks and non-bank lenders, such as any of the private equity funds that are now in the space. In terms of having money available, if you have a really good deal, there's a lot of that competition going on right now, and it's driving down spreads aggressively. Even the government-sponsored entities like Fannie and Freddy are in the act doing multifamily deals at spreads that have compressed at least 40 basis points since the beginning of the year.

Let’s say you have good product, and you're out in the market to get financing. You don't necessarily want to sell, you just want to finance, or maybe you do want to transact and sell, then you won't have a problem finding financing. And it's changed in the last couple of quarters, when even good office is trading because there are lenders out there willing to lend on the stuff we were talking about earlier, the best-of-the-best long-term leases in place in good markets. So it's competitive. Still, not as many transactions as we would like to see. I think that will change if rates drop. I know today there's going to be an announcement on interest rates, and if that trend continues, I would expect everyone here would expect the transaction volume to increase. In terms of who's lending the most right now, CMBS has come back aggressively. I think they're on track to maybe hit $100 billion in issuance this year, and that's probably up there over the last seven or eight years. That level might be back up to sort of their high point being at $100 billion plus. So CMBS was active. Life insurance companies, including MetLife Investment Management, with the client base we have, we're out in the market, we've got money to put to work. It's more about getting good relative value. Right now, there are folks who are cutting spreads just to put loans on the books.

Stewart: And just thinking about everything that we've covered on this podcast, is there a trend or an opportunity in CRE debt that stands out to you right now? And whenever I ask a question like this, I always add on, is there anything where you're cautious?

David: It's a great question, and you could probably do a whole podcast just on that.

Stewart: We'll have to have you back.

David: We were talking about this with our research folks, and we do have a global platform, so we play in markets outside the U.S., and in terms of what has the best relative value, Mexico industrial right now is a place where we think you can get premium. They've done fairly well in the negotiations with the U.S. Whether in Trump 1.0 or Trump 2.0, Mexico seems to be doing pretty well, especially in their warehouse spaces, a lot of stuff gets manufactured there. So that's the key space that we like to play in for our clients. I would say that we've been playing there for over 20 years. The book is solid. You get paid in dollars, the rent is paid in dollars. These are dollar-denominated loans. So given that we have access to that market, we think it's a great opportunity going forward in terms of where to be cautious. There are green shoots in the office space.

If you pick your spots like some lenders are doing today, and you're playing in the best of the best, I think you're going to do just fine. You're getting paid for it. The risk-adjusted returns seem very reasonable. I would still be very cautious about markets that are still suffering from something politically. However, just now, there are places, certain markets, where the political atmosphere around them, efforts to make cities safer, improving quality of life, taking a different view toward quality-of-life crimes, that kind of stuff — if that continues to play out, that's great. A year from now, we can talk about other markets that would be good places to put money. I'd be cautious about certain office markets that have those attributes.

Stewart: That's super helpful. If you could give us a talking point or two or a wrap-up point or two, what would it be for our audience? And then I got a couple fun ones for you on the way out the door.

David: I think that in real estate, looking forward, we've come through some pretty tough times over the last three or four years. I've been in the real estate business since the late 1980s. I've seen a lot of different cycles throughout that time. This period has been the most challenging. I think that going forward, the worst of it is behind us. Assuming that we don't slip into some sort of terrible recession, I think that things will look much better a year from now than they do today in the real estate space.

Stewart: Really helpful. Great education. Really appreciate having someone on who has been with a company for a long time. MetLife Investment Management has others that have been with your firm for a long time, which I think is something that — you can't make that one up. There's nothing you can do about that one. So the question I guess I have is, and it speaks to the culture there, right? What characteristics are you looking for when you are adding members to your team?

David: It's a great question, and I have a simple answer for it. When we add people to our team, they have to be, well, team dynamics are critical. So they have to be willing to work in a team environment. No one here, and I think this is true of any business, any sport, There are really no lone wolves that are successful. It's being part of a team, being willing to listen to what other people's opinions are, being united, what your purpose is, how you're going to grow. All of that's really, really important. I've had over 30 years with MetLife and mentored many, many folks. Many of the folks who worked with me when they were very junior are now senior people. And if their level of engagement and their willingness to learn is at a certain level, and they pursue what they're doing with professionalism and purpose, we can teach you the rest. If you're at that early stage in your career, you're been at a school four or five years, if you have that, and you love what you're doing, you like the people you work with, you're going to be successful. So we look for people like that, and I surround myself with really good managers. I've had the great fortune of working with some fantastic people. That's what it's all about.

Stewart: That's terrific. All right, last question. You can have dinner with up to three people. Can be one, two or three; they can be alive or dead. David, who's going to dinner with you?

David: Oh, my. Jeff Weinroth, who arranged this interview, told me that you might ask that question. And of all the things that we talked about, this is the most difficult one. So I'm going to break. Is this one dinner or are we doing three separate ones?

Stewart: No, would be, I mean the way that we set it up is it's one, but hey, I mean it's a hypothetical, so you can change the situation here.

David: I'm, I'm going to give you three different folks. It's going to cover science, sports and investments.

Stewart: I love it.

David: So in the science world, it's probably a long list there. It's something I'm very interested in. I think Jonas Salk would be pretty good to have at a dinner, and he's gone now, but he would be great to have at dinner. Right? When you look at impact of the polio vaccine, he'd be number one. Sports was really tough. I’d want to have a sports person there, I’m a huge basketball fan. Growing up in the 1980s, I would have to say it's between Magic Johnson and Larry Bird. I might probably lean more toward Bird because I'm a Northeast guy, so I think Jonas Salk and Larry Bird. And then for investments, just because it's where I've spent my career, two names sort of pop out. I'd say either Warren Buffet for sure and Peter Lynch. I might lean more toward Peter Lynch than Warren Buffet just because I don't know how we'd have a conversation with Warren Buffet. So I think Peter Lynch probably would be the guy.

Stewart: I was fortunate enough to work for a company owned by Buffet, and I got a chance to be part of a lunch where he was speaking for an extended period of time, twice. And he is a really, really good investor, but I don't think that he does anything that's particularly like whiz bang. He has a set of principles, and he invests according to those principles, but he has so much knowledge about other things. He's just a really interesting guy. So he's definitely the leader in the clubhouse as far as people who want to have him. I really appreciate your coming on - great podcast - and thanks so much for taking the time.

David: Absolutely. It's my pleasure, Stewart.

Stewart: The title of the podcast has been Beyond the Bank, the Insurance Approach to CRE Loans. Our guest has been David Ano, managing director, head of debt strategies for MetLife Investment Management's Real Estate Group. If you like what we're doing, please rate us, review us on Apple Podcasts, Spotify, Amazon, or on our brand new YouTube channel at Insurance AUM Community. If you have ideas for podcasts, please shoot me a note at Stewart@insuranceaum.com. We are the home of the world's smartest money at the InsuranceAUM.com podcast.

Disclosure

This podcast presents the speakers’ opinions reflecting current market conditions. It has been prepared for informational and educational purposes only and should not be considered as investment advice or as a recommendation of any particular security, strategy or investment product. This podcast has been sponsored by and prepared in conjunction MetLife Investment Management, LLC , a U.S. Securities and Exchange Commission-registered investment adviser. MetLife Investment Management, LLC is part of MetLife Investment Management (MIM), which is MetLife Inc.’s institutional investment management business. This podcast is provided solely for informational purposes and does not constitute a recommendation regarding any investments or the provision of any investment advice, or constitute or form part of any advertisement of, offer for sale or subscription of, solicitation or invitation of any offer or recommendation to purchase or subscribe for any investments or investment advisory services. Subsequent developments may materially affect the information contained in this article. Affiliates of MIM may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned herein. This podcast may contain forward-looking statements, as well as predictions, projections and forecasts of the economy or economic trends of the markets, which are not necessarily indicative of the future. Any or all forward-looking statements may turn out to be wrong. All investments involve risks including the potential for loss of principal.

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