4 Real

Parsing Private Credit in Commercial Real Estate With Missy Dolski and Jim Dunbar of Värde Partners

• Dechert LLP • Episode 26

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How does fund finance fit into leading investment firms’ broader lending strategies? In this edition of Dechert’s 4 Real podcast, hosts Jon Gaynor and Stewart McQueen sit down with Missy Dolski and Jim Dunbar of Värde Partners to discuss the launch of Värde’s new fund finance platform, CRE CLO collapses, areas of distress in real estate, issuance trends, opportunities on the horizon and much more. Plus, Jon and Stewart share the 411 on the recent data center boom.

Show Notes

Jon Gaynor:

Hello, and welcome back to the Dechert 4 Real podcast, where we discuss current issues and trends in commercial real estate finance. We aim to bring market commentary about developments, updates you can use and hopefully a little bit of answer along the way. I'm Jon Gaynor, a partner based in Dechert's Philadelphia office.

Stewart McQueen:

I'm Stewart McQueen. I'm a partner based in Dechert's Charlotte office.

Jon Gaynor:

In this episode, we are joined in our New York office by Jim Dunbar and Missy Dolski of Värde Partners. We'll be talking with them a bit about private credit and commercial real estate lending, CRE CLO collapses, non-performing loans and more. Before that, in our 411, segment, we'll give some impressive figures behind the hottest asset class in CRE finance right now, data centers. But first, let's get 4 Real with the host to break the ice. Stewart, for today's 4 Real, can you tell our audience one app on your phone that brings you joy? And no cop-out answers like Outlook or Teams because you love work that much.

Stewart McQueen:

They're not in my top five. I would say the GHIN app from the USGA should bring me joy, because it means I'm playing golf, but the scores I post do not bring me joy. So, it's not that one. I would actually say the one I like the most, this year, in February, I joined the Orange Theory cult. I'm calling it a cult because it's just fun, and I enjoy those workouts, and so that app brings me joy when I can book classes and actually make the classes.

Jon Gaynor:

This is another potential sponsor that we haven't even gotten to approach us yet. So more free advertising there. I like that for you. It wasn't even on your New Year's resolutions, now that I'm thinking about it. For me, my favorite app is probably Audible. I like to listen to audio books. You know, if it's like a dumb fantasy novel or great fantasy novel like Brandon Sanderson or "The Anxious Generation" by Jonathan Haidt or whatever, like I like, I'll reward myself while I'm doing something I'm supposed to do, or commuting by, like listening to an audio book, and it makes me really happy. So I think that counts as getting 4 Real with the hosts. So on to our 411 segment. Today, we're talking about data centers. Data centers have gone from a niche asset class to one of the biggest drivers in commercial real estate. JLL had a mid-year report that puts the North American pipeline at about a trillion dollars through 2030 with more than 100 gigawatts of hyperscale and co-location capacity under construction or planned right now. Vacancy is barely 2.3% even with the current 15 and a half gigawatt supply already online and roughly 73% of new builds are pre-leased before they're finished.

Stewart McQueen:

You mentioned a bunch of fancy words there. Why do we care about gigawatts?

Jon Gaynor:

It's a good question. In this space, capacity isn't measured in square feet, it's measured in critical power - that's the usable electricity that's delivered to servers and networking gear. So, when people say "100 gigawatts coming online," they're talking about power and not floor plates. Pricing on these is usually quoted in dollars per kilowatt per month. So, it's a big deal that the critical power on these things is growing by so much in so little time. You might ask, where is this build happening?

Stewart McQueen:

I was going to ask you, do we even have the power infrastructure to support this?

Jon Gaynor:

You're getting ahead of me, but I'll tell you, we don't. Interconnection timelines now run up to four years, so average electricity costs as a result of all of this are up nearly 30% since 2020 and that's why developers are clustering in areas like Northern Virginia and Phoenix. But there's also secondary markets with grid headroom, like Reno and Columbus and Salt Lake City, and they're gaining ground as a result of their ability to provide power for these very greedy data centers.

Stewart McQueen:

So, my family wants to sell a lot of land in West Virginia. I should hold on to it, then.

Jon Gaynor:

I love the idea of some coal-powered data centers. I think that's the dystopia we're all looking for.

Stewart McQueen:

The coal is out of the land. It's already been mined.

Jon Gaynor:

Good point. Now it's just flat and ready to build. I like it. So, we talked about where it's happening. The next question you might ask is, why now? The build-out of artificial intelligence infrastructure is really flipping the demand curve. Analysts estimate that nearly $3 trillion of global data center spending is going to happen between now and 2028 with about $1.3 trillion of that in real estate and construction. Morgan Stanley says AI infrastructure could add around four-tenths of a percentage point to U.S. GDP growth over the next two years. Another firm put it slightly differently. In the first half of this year, AI-linked capex accounted for half of all U.S. GDP growth. These are impressive stats. The reason to bring it up is just like, you know, our audience is really in the know, we're all on top of data center, but the numbers there are just absolutely huge. And so, the bottom line here is that data centers aren't just another hot sector. They're a major driver of the economy right now. And the right question for anyone financing them isn't how big the box is, but will the megawatts be there on time? So, we did a deeper dive on data center financing with our partner Justin Gdula, which you can find a link to in the show notes. Today, we are joined by two leaders from Värde Partners who are shaping the firm's strategy across real estate and fund finance. First, Jim Dunbar. Jim is a partner and head of real estate lending at Värde, where he oversees the firm's U.S. commercial real estate debt strategies. He joined Värde in 2010 became a partner in 2022 and also serves on the firm's Global Investment Committee. He has done everything from real estate loan origination and trading to investing in real estate operating companies and non-performing loans. Today, he leads Värde's CRE loan origination business, which has originated over $8 billion across all major property types- multifamily, hospitality, industrial, office - though probably less of office today. Before Värde, Jim held senior roles at Macquarie in Chicago and started his career in investment banking at Salomon Smith Barney Citigroup, working in both New York and Sydney. We're also joined by Missy Dolski, Managing Director and Global Head of Fund Finance and Capital Markets at Värde. Missy leads the firm's fund finance investing strategy, a more recently announced platform under the firm's broader asset-based finance strategy, as well as its centralized capital markets function. She's been with Värde since 2017, joining from Wells Fargo Securities, where she worked most recently in the Real Estate Capital Markets Group in New York, but held various roles during her tenure at the bank in both London and San Francisco. She also earned her MBA with distinction from the London Business School. Jim, Missy, thanks so much for being here.

Missy Dolski:

Great to be here.

Jim Dunbar:

Yeah, thanks for having us.

Jon Gaynor:

All right. So, to kick things off, we've got our getting 4 Real segment, Stewart and I shared ours earlier, but let me put it to both of you. What's one app on your phone that actually brings you joy, something you use for fun, not for work?

Jim Dunbar:

Yeah, I was looking on my flight this morning, kind of trying to answer this one, and I actually looked at the GHIN app too, Stewart, but my scores also are not good enough to bring that much joy. So, one that isn't used that much, but in the winter, when I go skiing, there's an app called Ski Tracks that is just a fun way to track your day out on the hill, how much elevation you've gone, how fast you've gone on the hill. And so, that'd be my answer of what brings me joy.

Jon Gaynor:

All right, that's a good one. What about you, Missy?

Missy Dolski:

So, mine would be a spinoff of what Stewart said, except I don't actually use it to work out. But I got this Oura Ring for the holidays, and I'm obsessed with the Oura Ring app. I basically look at it every morning to tell me how I'm feeling that day and how I slept. It's actually quite dangerous, but it's a really great stress and sleep tracker, if you will.

Jon Gaynor:

Yeah, totally. I look at my 2025 sleep numbers because I wear an Apple Watch, and it's like, "you're down 10% in sleep this year compared to last year." And I'm already sleep deprived.

Stewart McQueen:

I don't need a smartphone or smart thing to tell me I've been inactive that day.

Jon Gaynor:

All right. So that counts, I think. So, let's move into the substance. Part of what inspired this interview was that I saw the press release of the launch of your fund finance platform with CPP Investments. I'm really curious about it and about how fund finance fits in or complements Värde's, broader lending strategies. Where do you see the most durable opportunities, and what are the biggest risks as you're scaling this initiative?

Missy Dolski:

Yeah, thanks, well, and thanks for having us. We're really excited to be here, particularly to talk about this initiative. We, you know, I think when a lot of people think about Värde, they think of, you know, we're a firm, we've been around for over 30 years. Our roots are definitely more on the distress side. But, you know, this is another area that I'd put in our performing credi. We've really been focusing on scalable performing credit strategies. A lot of them have an asset lending tilt to them. So, Jim's commercial real estate lending businesses is definitely our largest, most well known, but we have a broader kind of non-real estate, ABF business and fund finance is kind of our newest strategy there. It was really born out of the group I run on the capital market side, you know, we're a centralized group. We work across the organization, focus on managing our liabilities, both at the fund and the investment level, in addition to managing all of our street relationships. And we, like 80% of all of the fund managers out there, utilize sub-lines to manage liquidity, etc., at the fund level. And, you know, our experience as a borrower of that product was such that you were really at the whim of bank balance sheets, liquidity, health, etc. And here you have a trillion dollar asset class growing at the rate that private capital is growing sitting within the banking system. Bank balance sheets are not growing at that same rate. And so, we took a view alongside our anchor capital partner around "there's got to be a way for non-bank capital, private capital, to play a role in this space." And so, we're focused on the sub-line space, which really is the behemoth of the broader fund finance space. That really is a nice foundation to then build relationships with those underlying GPs, offer them more higher yielding products. We can do that in asset classes we have expertise in, including real estate to real estate fund managers. And so, you know, we're really excited about it. It sits within our broader asset-backed finance strategy at Värde, and I think it just feeds off this broader theme of banks pulling back lending in the market and the role of private capital stepping in.

Stewart McQueen:

Wow. All right, let's pivot to CRE CLOs for a second. We're seeing more of a trend of deals getting called, in some people's view, earlier than you'd expect, obviously, after the non-call period. And these deals are getting taken out into term-out financings. From your perspective, what's tipping that decision today?

Missy Dolski:

I think, from a manager's perspective, right? Like, the way we think about this is active liability management is just something we're constantly doing with our book, and we think about it a little bit as having a toolkit to do that. So, what is that toolkit? That toolkit is, you know, bank repo lines that are in more traditional form. It's the CRE CLO market. It's one-off A-notes to partners. And, you know, to your point, I don't think it's new, per se, but there definitely is kind of this uptick in, you know, being able to collapse CRE CLOs, put them into more private type of structures. And, you know, I think there's a lot of decisioning factors that go into that. One is, what's happening, really, with the business plans of the underlying performing asset classes? What's happened with the CRE CLO structure since the time you issued it, i.e., you know, has it de-levered? Are you still in your reinvestment period? Where are you relative to your OC tests? And then part of it is also, you know, are you trying to generate liquidity back to the funds that are invested in it? In particular, what you've seen more recently, and this coincides a little bit with some of our thesis when I talked about fund finance, you know, we had started doing kind of a number of SRT trades in the market. We flipped that into building out a bigger fund finance platform, but a lot of banks had build-up capital buffers when Basel III Endgame proposal had come out. As that got rolled back under the new administration, you saw banks very flush with cash to put to work, and not just in a more traditional repo format, but being able to write very large checks in some of these private kind of term-outs as well. So, you know, we kind of think about it as, like I said, another tool in the toolkit, but it just gives really more optionality for us to actively manage our liabilities, which is huge, and how we generate returns for investors.

Stewart McQueen:

Do you think there's more of an appetite from the banks to finance distressed or REO assets?

Missy Dolski:

There is definitely more than there was, and I don't know if I would call it appetite so much as I would say they have figured out how to optimize their capital treatment in that they actually can have a bucket of defaulted assets on the line before it impacts their capital treatment which, for, you know, again, depending on your asset mix, can be a better outcome than the OC tests that you're otherwise living with in a CLO type of structure.

Jim Dunbar:

Yeah, and I'd just add on to that, that consistent with how we've always thought about and talked to CLO investors, is it's really a financing transaction from our perspective. And so, you know, everything Missy was talking about there is just, how do we manage the right side of our balance sheet within if it's a fund or a pool of assets? And, you know, getting the optimal leverage for what that CLO can provide at that time.

Jon Gaynor:

Jim, I think this one's for you. So, Värde has been a major player in originating transitional loans across CRE. How has your approach to putting new money to work in CRE debt evolved recently given the rate environment, tighter liquidity, shifting demand, and where are you leaning in or holding back the most right now?

Jim Dunbar:

Yeah, I think a couple things in there. I think our approach to how we originate credit and where we want to deploy capital, like, that, approach hasn't changed. It's really been grounded the same way since we started this strategy back in 2016 with kind of three pieces. One, you know, who is that sponsor, you know, who's undertaking a business plan at that asset on our collateral? How do we think above valuation, both, you know, at the collateral level of the real estate property, and where we think that's going over the term of our loan? And then finally, just how we structure those loans, and so that that's always been the approach we've utilized to make loans. Now, obviously, the market is always changing, and, you know, how do we allocate capital to different markets or different sectors through that lens over time? I mean, I think about 60% of our portfolio right now is to housing assets. And so, as we look at what is really a housing shortage across the country, but then also what we think is just going to be continued need to rent versus own homes, the multifamily. There's a student housing angle to that, and even the build-for-rent space are very attractive to us from a lending perspective. We've always had an aspect of hotel lending too, to our portfolio, and so that's about 20% of what we do today. And then the, you know, the other sectors where we've had some success recently is in self storage, some last-mile industrial deals, and the medical office space is something that we're doing more and more in as well. You know, the other way to kind of frame that question is just to think about the underlying risk that we're financing at a real estate level. And, you know, we are, I would say, doing more lease-up financing, so taking out construction loans relative to value-add business plans where there's a need to push rents post-renovation, and a lot of that is driven by, you know, a lot of these markets having supply that is coming online, both at the end of the last year and then through this year as well. The other place would be just stabilized real estate, where I think there's a lot of borrowers out there that are hesitant today to go into fixed-rate debt with the prepayment restrictions that it has, and so creating that flexibility, they might want to sell that property over the next 12 to 18 months, or refinance as well. And so, that stabilized profile is actually one we're seeing more and more opportunities to lend into.

Jon Gaynor:

I'm hearing a lot of asset classes and the like that are durable to the current kind of secular moment that we're going through with, like the change to office use, or the change of those things like, it seems like the strategy is really based on stuff you know, isn't going away. Like, people need a place to live.

Jim Dunbar:

Yeah, absolutely, yeah, a place to live. I think that's the thesis behind medical office for us. There's, you know, historically been much higher retention rates for those tenants than, obviously, in traditional office. And so there's a durability of cash flow point when you're a lender, and then, you know, as a lender, we have some protection from volatility and in cap rates and changes in underlying real estate values as well.

Stewart McQueen:

So we recently had Trimont's Cindy Barreda and Leslie Hayton on to talk about Trimont's acquisition of the Wells Fargo non-agency servicing platform. As Trimont's owner, how does bringing that platform into the fold fit within your overall strategy? And lastly, does the added scale and servicing capability influence how you think about the lending and investment side of your platform?

Jim Dunbar:

Yeah, so the Trimont business, you know, this is a business we've owned since 2015 and we, I guess, the thesis to originally acquire that business was rooted in our view of non-bank lending growing, you know, initially, post-GFC. But I think we continue to have that view here, that non-bank lenders are going to continue to grow. The Wells Fargo piece of it, you know, that business is very CMBS focused, whereas Trimont's platform was very non-bank focused. I think part of what we see over the next three to five years is, you know, there's somewhat of a bit of a ... merger's maybe not the right term, but non-bank lenders utilize the capital markets just as much, maybe more, than traditional real estate lenders. And so, Trimont having a platform that can access and service the capital markets just makes them even more relevant, I think, to a lot of the non-bank clients that they have. And so, that was sort of the strategic view that those two parts of the market are where we're going to see real estate finance grow over the next three to five years. And then, you know, the secondary part of it is it just creates a business that, from a scale perspective, I think, can do a lot more than than its competitors, just given the size of it.

Jon Gaynor:

Maybe this will be informed by your servicing arm, or maybe not. But, so, where are you seeing areas of distress in real estate right now? And are you more focused on defending your existing positions, or do you see areas where there's room to be on the offensive and take advantage of the dislocations?

Jim Dunbar:

It's probably more the latter. And so, I think, you know, we are seeing a significant opportunity to put capital to work today from a lending perspective. And I think this ties into some of my previous comments about just, you know, non-bank lenders, you know, continuing to grow and, you know, effectively take market share within real estate finance. And, you know, the word distress gets used, I think, in a lot of different ways. I think the way that we've historically thought about distress is there's both fundamental distress at an asset level, and then there can be distressed from an owner of that risk. And, you know, today we're not seeing a lot of stress forcing people to sell, and so it becomes more fundamental distress at an asset level. And I think that's ultimately taking a view on, do you want to be a credit investor or do you want to be an equity investor? And our views continue to be that the equity side, you know, there's a lot of things that need to go right in order to generate a return. Today, you've got negative leverage, you've got pressure on cap rates given the 10-year continues to stay high, and so we view it as the distress, if you will, is an opportunity to lend into that and be a provider of liquidity. I'll give you one kind of interesting stat that Trimont has seen across its platform in the first half of this year. Loans that came due or matured, about 8 billion of them did not pay off. The majority of those deals that didn't pay off, 38% of them were multi-family loans. Office was number two, in the low 20%, but at the same time the watch list deals, the deals that increased on a watch list, multi-family was number four. And so, I think this is a good example of, you know, if you looked at that and said, "well, they're not paying off, they must be distressed," but they're not on the watch list is because they're getting modified and liquidity is coming to those assets. There's a good fundamental story, whereas there's fundamental distress in office. But, you know, it's just not registering. Those deals are either getting sold or paid off in some fashion.

Jon Gaynor:

That's such an interesting insight.

Stewart McQueen:

Let's talk about issuance this year. On the CMBS and CRE CLO side, it's been running at a breakneck pace in 2025 compared to 202. I think Trepp reports that CRE CLO issuance has already topped $17 billion through mid-year, with projections of nearly $33 billion for the rest of the year. CMBS is also surging up roughly 35% from last year's first half. So, we're on pace for some of the strongest volumes we've seen in a while. With things moving this fast, do you see issuance continuing at this pace throughout the end of the year? Or do you think we'll settle?

Missy Dolski:

Just to rewind a little bit right? Like, we're coming off a couple super low issuance year volumes. When rates really spike, there's a lot of uncertainty in the market. Really, since there's been a bit of stabilization there, you've seen this just continued grinding tighter of the capital markets. You know, maybe you've had a couple small setbacks, things like Liberation Day, etc. But, you know, overall issuance really has picked up as the broader markets have grown tighter. And having said that, with that, you know, a lot of issuers have come to market to your point, Stewart, this year. Those are mostly managed deals, right? Which gives them runway to originate into, so, you know, back to this point on, you don't have a lot of forced sellers, a lot of these platforms need to keep up origination volumes to have a reason to come to new issue for the market. So, I think our view is we are going to see a little bit of leveling off. It's not an issue of the capital markets not being healthy enough, but just a mechanism to keep up with some origination volumes. Obviously, the big outstanding question that is really hard to answer and the market is largely ignoring right now is just, you know, what are the geopolitical and other macro risks that can turn the market on its head? We've seen increasingly that those types of events or those blips do tend to be, you know more, just that the market tends to recover pretty quickly nowadays. But you know, there's, there's a lot going on in the market. So, that's always just a little bit of an unknown, but I think we're going to continue to see a pretty healthy market here, all things equal.

Stewart McQueen:

That's good news for us. We love it whn issuance is up. It doesn't, you know, on the CRE CLO front, it doesn't really feel as busy. Notwithstanding the numbers, it doesn't feel like it did a few years ago where we had that really robust year, where I felt like we were printing and closing every single week on different deals.

Missy Dolski:

I do think some of that, though, does dovetail to your earlier question, which is like, I think there's more creative structures out there. I think there's more pockets of capital out there. There's a lot of big asset managers that manage insurance now, there's just capital coming from a lot of directions that you didn't necessarily see back in those high issuance volume years. So, which, you know, again, with a borrower hat on, is great. It's just better optionality for us.

Jon Gaynor:

So, as you think about the months ahead, what's one development you're watching especially closely that could change how capital flows in real estate and on the other side, what gives you the most confidence right now? Where are you the most optimistic about opportunities in this market?

Jim Dunbar:

The one thing we're watching closely is really where the 10-year treasury stays. I mean, even if the Fed does cut here, I think like the market expects in a couple of weeks, we have the view that the 10-year is going to stay higher than the market thinks. If that does start to trend even higher, given, you know, some of the developments and policy stances that are out there, I mean, that should have an effect on real estate valuations, which could slow the transaction volumes a bit. So, that is one thing we are watching. I think, where we feel very confident, though, is from a fundamentals perspective and, you know, the fact that there is significantly less development going on today, because I think it's very difficult to make developments pencil from, you know, just the cost to build them, the rents that are needed, and frankly, where financing is being offered for those developments today. And so, you know, from a fundamental supply/demand perspective, we feel really good as to where you can create credit at the moment.

Missy Dolski:

Yeah, I would answer that a little bit, maybe, with my capital markets hat on, which is, we're kind of always watching what's happening with the banks, both from a bank regulation perspective, banks' willingness to lend, their pullback, you know, that has a lot of impacts on competition in the market. It has a lot of impacts on, you know, the tools in our toolkit, has a lot of knock-on effects for other types of lending we can be doing candidly, you know, back to this point of like, how private capital is disintermediating the banks in a way. And so, you know, we're kind of always looking at that. I would say a lot of banks have capital still to put to work yet this year across you know, loan growth has been slowed, and again, that's a lot driven by some of the capital they have accessible to put to work. So all in all, feel good that, I mean, again, with a borrower hat on, it's an attractive time to be a borrower.

Jon Gaynor:

Well, OK. Jim, Nissy, thank you so much for this conversation. It was really great to talk to talk to you about the growth of your platform ans the things you're looking at. Thank you for joining us on the podcast.

Missy Dolski:

Thanks for having us,

Jim Dunbar:

Thanks for having us.

Jon Gaynor:

Great. So thank you to our audience for joining us for another episode of the Dechert 4 Real podcast. If you have any thoughts, please share them with us at our email inbox, realpodcast@dechert.com Also, if you like what you heard, give us a five-star rating on whatever platform you found this on. This episode is hosted by Stewart McQueen and me, Jon Gaynor. Sam Gilbert, Matt Armstrong and Kate Mylod produced it. Production support is by Kara Ray, Mallory Gorham, Alyssa Norton, Peggy Heffner, James Wortman and Jacob Kimmel. Our editor is Andy Robbins of AudioFile Solutions. Thanks for listening, and we'll see you next time on the Dechert 4 Real podcast.

Stewart McQueen:

Tell me some dad jokes.

Jon Gaynor:

Jim, Missy, do you guys have one? I can warm us up. They're all terrible. I promise.

Jim Dunbar:

You should take the lead here.

Jon Gaynor:

All right. Why can chickens only make one sound? They can't think outside of the bawks. This one cracked my family up, I'll give you one more, but somebody else has to do one, OK? What weighs more, a gallon of water or a gallon of butane? Water does. Butane is a lighter fluid.

Stewart McQueen:

I don't think I can top those.

Jon Gaynor:

I have a couple more written down if you guys want to steal. If you don't have one, that's OK.

Jim Dunbar:

I have a stock one, but I didn't, like, plan anything for this.

Jon Gaynor:

if you don't want to, you don't have to. Let's hear it.

Jim Dunbar:

Have you heard about the new pirate movie?

Jon Gaynor:

No.

Jim Dunbar:

Do you know what it's rated?

Jon Gaynor:

Oh.

Jim Dunbar:

See, it's an old stock one.

Jon Gaynor:

Arrrrr!