Q&A with Iron Hound Management Company's Christopher Herron
COMMERCIAL OBSERVER · Cathy Cunningham — 2019-01-30
**Q+A
Christopher Herron, Managing Director at Iron Hound Management Company**
**Commercial Observer:** **Which side of Iron Hound’s business is busiest right now—restructuring or debt and equity placement?**
**Chris Herron:** I think 2018 will be the last year that our activity was split 50-50. We’re nearing the end of the CMBS 1.0 legacy deals that are being worked out and so 2019 is the year we’ll see our debt and equity business dominate. Pending any disruption we’ll be 75-25 in terms of debt and equity placement compared with restructuring work.
**Debt and equity placement is a crowded playing field. What’s your competitive edge?**
We’re typically a little more involved in a deal from start to finish—the expectation is for us to be involved in the solicitation process but also to take a look at loan documentation and make sure that everything that was negotiated in a term sheet makes it through to the loan documents. We’re very good at that because we’ve worked out over $30 billion of problematic CMBS over our careers. We were also lenders first and involved in identifying and fixing issues that came up, which lets us look at deals through a different lens.
**What are some of the recent problems you’ve seen in CMBS loans?**
CMBS 2.0 and 3.0 problems are just beginning to trickle in now. The majority of the problems that we’ve seen with certain assets have been tenant-related; either tenants are downsizing significantly or leaving a market entirely. We haven’t seen any poor underwriting standards lead to workouts the way they did in the first go around; it’s been a result of physical occurrences at the property. It’s no secret that the retail sector is having some issues. If you lose a 50,000-square-foot grocer tenant there may not be other tenants in the market to fill that space, so you have to break it down into two or three units and that’s a different feel for a center.
**How competitive is CMBS as a financing source today?**
The CMBS market has gotten very competitive over the past few years. In the last cycle as that space got as competitive, you saw loans make their way into fixed-rate securitizations that shouldn’t have been in those deals. The reason for that was how competitive the market
was, how cheap fixed-rate borrowing was and the prevalence of interest-only loans on almost every deal. Assets that weren’t quite stabilized were able to get into fixed-rate securitizations and ultimately that probably wasn’t the right decision for a number of assets. Right now, with how much debt fund and floating-rate capital has been raised, I think people have been much more inclined to take advantage of that space and those deals have gotten uber competitive—especially since some of those group have been able to further lay off some of their own risk with collateralized loan obligations. That naturally leads to a more competitive environment and is also something to keep an eye on as that space gets overheated.
**Are the debt markets in a healthy place overall right now?**
I think so. It’s a very good time to be a borrower, which means it’s a good time to be in the chairs that Rob and I sit in. Every client should be taking advantage of what is a very competitive marketplace right now. At the end of the day, what causes problems in the debt markets is if underwriting fundamentals go out the window. That’s what led us down the path that we went down in 2008. But I still think today those fundamentals are good from an underwriting perspective, in the majority of deals that we’ve seen.