Leadership, Market Trends, and the Future of CRE with Michelle Herrick, Head of Commercial Real Estate at JPMorgan Chase
Willy Walker: Hi, how are you doing?
Michelle Herrick: I'm good. How are you?
Willy Walker: Nice to have you here.
Michelle Herrick: Thank you for having me.
Willy Walker: Thank you for joining me. Good morning, everyone. It's a real pleasure to be able to sit with my friend Michelle and talk about what's going on in the world of banking generally, and more specifically, commercial real estate and JP Morgan's role in being the largest U.S. lender to commercial real estate. You’ve moved up at JPMorgan incredibly fast. If we wind the clock back a bit to when you were at LaSalle and then from LaSalle into Bank of America, those are big organizations. You were singled out and identified as someone who had real talent. As you think back on how you got those promotions and how you've moved up so rapidly in these big organizations…It's one thing for someone to be an entrepreneur like me and go out and do your own thing and build your own company and what have you. But to be in these mega-organizations and actually stand out is another thing. I'm always amazed at people, for instance, who are in the military and who somehow rise to the top as the leaders in the military. How did Michelle Herrick get identified inside LaSalle and B of A to be the leader you are today?
Michelle Herrick: Good question. First of all, thank you for having me. I also need to thank you on behalf of our family dog, Murphy, because he gets longer walks when I'm listening to something interesting, which is almost always your podcast right now on the weekend. It's really fun to be here. Let me tell you a little bit about my background and what I think of myself, but a lot of people that I work with do it differently. I started in a training program, LaSalle Bank, which was a large, maybe super-regional, right out of school. I wasn't sure exactly what I wanted to do. That experience taught me, first of all, that 2005 was a booming time for the commercial real estate (CRE) industry. At a regional level, it was an all-hands-on-deck environment—smaller teams handling large corporate lending. I was likely working in a tier-two position within the capital stack, learning about covenant packages and asset allocations for corporate credit users. At the same time, I was involved in private-side financing as asset managers were becoming more active, along with specific project debt transactions. If you fast-forward a couple of years into my career, there was a large acquisition of that region for a variety of reasons, which gave me two things pretty early on in my career: the perspective of a regional versus a money center bank and a major workout in the GFC. But in the portfolio that I was working on, which included regional credit, Merrill Lynch money center, and a pretty tough time at the intersection of CRE and banking, then I think specifically, a lot of opportunities that I was there for early on. A lot of it is knowing what guides you. Whenever I say, “I'm going to do something,” I'm taking it seriously. I'm working really hard at it. I think that whatever you're saying is important should be accompanied by action. I think that naturally lends itself now that I'm in leadership roles to more of a player-coach mentality. If I really believe in something, then I'm generally right there with people trying to get it done. I like clear roles and responsibilities because I think then we know who's doing what, so we can accomplish a lot together. Not to overcomplicate this, but you gotta do the right thing. There are shortcuts, and there are short-term ways to get things done, but that's never the right answer in the end. You have to have a long-term view. You have to be honest about when things aren't working the way that you thought they would and put that out on the table for everyone to look at and correct. I don't think any of those are particularly special or unique to me, but I would assume that I'm on a path or have been put on this path because I am able to bring those pieces together. It feels really good to be a part of an organization that values those types of characteristics. It also feels really great to be in the seat to make sure that my team and everything that they're trying to accomplish for all of our fantastic clients is under those same guiding principles.
Willy Walker: You mentioned clear accountability and responsibility. You're in an organization that has over 300,000 people.
Michelle Herrick: It's quite large.
Willy Walker: It is quite large. We're a company of 1,400, and we have channel conflict conversations all the time. This group has a client here; this group has a client there. We're clashing with each other. We've got who covers it and who gets the fees and all that stuff. Yesterday morning, I literally spoke to two different people in two different groups from JPMorgan before 9 a.m. You are our largest partner as it relates to our use of JPMorgan. I'm talking to someone in the investment bank one day, someone in the commercial bank one day, talking to you the next day, talking to someone in the private wealth management group, someone on your trading desk, etc. How do you create clear accountability in an organization that's that big?
Michelle Herrick: First of all, thank you for your business. Really appreciate that you talked to all of those people at our organization yesterday. You're right; it's over 300,000 people, and it's a $4 trillion bank. With that comes a deep product offering, and what I love about the management style of the firm I work at—and what ultimately led me there—is its strong risk discipline and consistent approach to capital in the economy. This is our guiding principle. We have our clients; we have our team. What we do in product offerings and how we get it done is gonna drive impact to our shareholders and our communities. You gotta always circle back there. There are a lot of people, and they're all doing great things. But if everyone's trying to accomplish a shared goal, it would be somewhat crazy to have that and then devolve into a fight for who gets credit for something. We're all part of a team; we're all driving to a larger amount of success as a team. It doesn't work if you go for the individual victory.
Willy Walker: That sounds great, and I know it's true. But break it down to this. There are a lot of people in this room who work in larger firms. They're in a law firm. They're working with a certain client. Then you bring in some other skill set, and they're adding value. It's hard to determine who really controls the client or who's actually adding value. If you think about us all, we've got over a billion dollars of warehouse capacity from JPMorgan, which allows us to fund loans. We do hundreds of millions of dollars a year of financing with your balance sheet. We do hundreds of millions of dollars with your conduit. We have relationships on the investment banking side. There are all these fees that come from Walker & Dunlop that come back to JPMorgan. Where's the end-of-the-year meeting that says, “Oh, it was Michelle hanging out with Willy in Florida at this conference that got us that big deal that ended up creating a huge fee.” Who gets credit for it?
Michelle Herrick: First of all, let's do that. Let's have that be. I think that's part of the culture. What you're setting the expectation is from a leadership seat on how people are gonna be viewed. That isn't a conversation that's going to happen. The conversation's gonna be, “Wow, look at all that we accomplished this year with Walker & Dunlop. Who was involved? Let's make sure everyone gets credit.”
Willy Walker: I was thinking about this. I've spent plenty of time with Jamie. I have massive respect for Jamie. My question was, “What's the good, the bad, and the ugly of working for someone as iconic and great as Jamie?”
Michelle Herrick: We're only going to talk about it this way.
Willy Walker: I won't put you on the spot on that one, but talk for a moment about what it's like to have a CEO with both the experienced track record and, quite honestly, the clarity that someone like Jamie has.
Michelle Herrick: I think it's a phenomenal experience. Our entire company, our clients, and the economy benefit from it. But I think you hit it right. He has the experience. He has clarity. When he says something, he means it. It's accompanied by action. At the most basic level, especially when you have hundreds of thousands of employees, that eliminates what can be the downfall of so many corporations, which is you're saying stuff, you don't really mean it, it becomes bureaucratic, it becomes unclear, and who's measured how, which tends to lead itself to infighting. I think having a really strong leader of a company that cares so deeply about it sets the groundwork for a culture that flows through to the newest employees that join our firm or the most junior staff in, “Hey, this is a level playing field; we're all here trying to accomplish very clear goals and we're gonna get them done together and then we're going to celebrate together.” I really think about the joke about the good, the bad, and the ugly. I've not seen any of the second category. I find Jamie and his full leadership team—because everyone working there at that level is in the same discipline that he is—to be incredibly generous with their time, incredibly willing to share the good, the bad, and the ugly of management decisions they've made over the past several decades. Again, it sets up a wonderful culture that I'm proud to be a part of.
Willy Walker: Was it challenging when Jamie got out there and said, “Back to the office” ahead of all your competitor firms? I'm assuming that there were people on your team who came back and said, “Wow, whoever isn't requiring me to be back in the office, I might wanna use this flexibility of work schedule and things like that.”
Michelle Herrick: I think, again, the context is important here because we're a large bank. All through COVID, the majority of our workforce was working in the branches, in the lockbox centers. Everyone processing the money never went home. As soon as possible, the trading desks were back. Then, as quickly as possible, which generally was capacity for needing to space people out, most of the front office came back too. We're working with highly sensitive information. It's a very disruptive time in the financial markets, and we want to do a really nice job. It wasn't hard. It was very much on message with the culture of our firm. If you think about the specifics in my group, we were covering the real estate industries. We were back as soon as we safely could be back because our clients had been there the whole time. No one was going to see them except for us. It was great.
Willy Walker: What makes you think about the office right now, segueing from 30,000 feet of a big policy at JPMorgan and diving right into one specific asset class? It's important for everybody in the room to know what the outlook is for office and your portfolio of exposure to office loans.
Michelle Herrick: In summary, the office is not dead. Space goes obsolete over time. Maybe low interest rates or the capital associated with maintaining buildings masked some of that and led to challenges in equity investments in loan portfolios. But the core of the office as a center of cities, as a place for people to gather and accomplish things, I don't think that changes in any way. I think what has changed in the last 10 years that was definitely evident post-COVID is that large corporations are looking for spaces that have air, light, and amenities for their employees. They're willing to pay for it. There is still very much a need for the B and C class space, which has reasonable amenities and a lower chunk price, but we had too much of it. Particularly, you have a lot of it in these million-plus square footers that used to have a large corporate tenant, and now you have to fill a million square feet with five or 10,000 square-foot leases each. That's really tough. Exacerbating that, if you think about the supply-demand and a little bit of the mismatch going on in the office, when someone rents a new apartment, you don't agree to rip out the kitchen and replace it. However, some of the packages and the capital associated with the leasing packages in the office can be tough economically for what makes sense and how to make investments and carry the assets. I sit in the Chicago Loop, one of the hardest-hit areas. I spend a lot of my time in Midtown New York, where you could watch this evolve over the last few years, and probably our most expanding market, particularly with FRB in the last couple of years, is San Francisco. I'm in these three markets quite often. I would say that the green shoots are there outside of New York. New York has been recovering, or whatever you wanna call it, active with foot traffic, significant new leasing in the best buildings going on, and this is going to be a long-duration problem as we work through the oversupply across the country. But the office is not dead.
Willy Walker: As we're in the office, two quick questions on JPMorgan in the office. One, will you put debt on your new headquarters? Or will it be all cash?
Michelle Herrick: It's a good question. I don't know. I think it's cash.
Willy Walker: I think it's cash today and the construction I'm thinking about from a permanent standpoint whether they turn to you and say go outside.
Michelle Herrick: Oh, me? Oh, no.
Willy Walker: They won't put your own debt on it. I'm thinking about putting somebody else's debt on it.
Michelle Herrick: We can’t let that go against ourselves.
Willy Walker: But by the way, if you need someone to finance your headquarters for you, we'd love to do it for you.
Michelle Herrick: All right. We'll have David call you.
Willy Walker: But the other one is, I understand that the enormous building—such a fascinating project to watch come to life—was a complex undertaking. You had to take down the old tower, transport everything out through the underground rail system to clear the site, and then construct this incredible new headquarters. From what I’ve heard, you’re now facing space constraints and will need to retain much of the temporary space you moved into in New York to accommodate all the JPMorgan employees.
Michelle Herrick: It is quite phenomenal. If you think about 2020, take down a little over a million square feet, you're gonna put up two and a half. The assumption there is that you'll consolidate various buildings, that we're in New York into one center where everyone's working together. Fast forward five years later, we will likely need 383 Madison, which is another million square feet on top of the two and a half. We're in 390. We have 250 Park. We have ended up having the employees, the strength of the company, and the desire to all be together to now have a little campus in Midtown for JPMorgan.
Willy Walker: It's amazing.
Michelle Herrick: It’s fun.
Willy Walker: I said at the top that you manage a portfolio of $165 billion of outstanding. What's the best part and the most challenging part of managing a portfolio like that, particularly right now? It hasn't been exactly the easiest two and a half years since the great tightening started as it relates to that portfolio's performance and what you've had to deal with. What's the best part and the worst part?
Michelle Herrick: I think you're right. I took over running the large space two months before quantitative tightening began. It was looking like we would have a decent run as an industry, and then it quickly became a little bit more portfolio management. But I think whatever environment you're in, this is a cyclical industry. The point is to do well throughout the cycle. It's the same good parts of what you're doing. Our clients are fantastic. They want consistency of capital. They want the depth of product to have their businesses run better. The team is phenomenal. They are working so hard for all those clients, many of whom have been with us for decades. To delight a client, it's a function of internal processes and investments around “What is our process? What is our technology solution?” Otherwise, it's a manual effort by individuals. You're doing this loop from my seat of “How do we make this easier for fantastic people to deliver for these amazing clients?” Then the output of how you figure those two out is what you're delivering as a bottom line to shareholders who deserve a consistent return across a cyclical industry and communities. A lot of this is real asset development. Thinking about housing needs and how we're helping, particularly in affordability, across the country and what we're contributing in real buildings that will exist for a very long period of time to our local communities, the best part is when you get it all right and you're working with people that have shared goals around each of those pieces that come together for this amazing holistic story. I think the worst part is local recently. It's honestly Zoom.
Willy Walker: Zoom.
Michelle Herrick: Not Zoom.
Willy Walker: I thought you were going to say, “I had to sit down with this borrower and call their $150 million loan and they don't have $2 to put together to pay me back.”
Michelle Herrick: No. We don't do that. Listen, we're always collaborating with our clients.
Willy Walker: Hold on a second. You guys took your loan loss reserve in Q3 of 2023, a year and a half ago, was $ 3.1 billion. I know that covers more than commercial real estate. But this hasn't exactly been all roses over the last two and a half years during the Great Tightening. You are dealing with some very significant credit issues and making sure that JPMorgan is protected against those credit issues. You've clearly been pulled in to have really tough conversations with borrowers.
Michelle Herrick: Sorry, yeah. Leading those conversations, of course. But I think this is cyclical. We've all been doing this for a very long time. The key to those conversations is being honest about wherever you're at from the borrower's side, from our side, and from our portfolio allocation across different loan products or asset classes because that's going to tell you what options you have to get through whatever challenge you're facing. Then working together or not, but starting from the assumption that we're gonna work together. I think that's where banks should be at their best—when there's an unanticipated issue or challenge to the economy, which COVID certainly was. If I had taken over running the large space and said, “I think every major city will close their downtown for some period of time next year…” There are unexpected things that happen, and you work through them together. Those conversations always start from that core assumption. Then you're gonna go from there with what the other side is sharing and willing to do for the variety of options and flexibility that you're going to offer someone. We had realistic conversations. We were very aware of the challenges we had early on. Then again, it was a team effort to work through them. We were lucky to have quite a bit fewer than other banks, which let us spend the capital on new investments instead of losses from a CRE group. I think any overconfidence in how you're doing things tends not to work out for you the next time around. We're happy with what we did. We continue to have some tough conversations in various areas. Overall, as a portfolio, we’re really excited about where we are and the investments that we're making for the ability to support those clients. Always remind real estate clients, “This is a cyclical industry. The way to avoid those tough conversations is you are setting a leverage level to allow for you to exist in a cyclical industry, and you always need a pocket of liquidity to get through. If you don't subscribe to that, you may be better off somewhere else. We're not trying to do a quick flip, we're trying to help you be incredibly successful over the long term.”
Willy Walker: A couple of things on that. One, if you look at JPMorgan's outstanding commercial real estate versus your big SIFI competitors, B of A is below you at less than 10 % of total loans outstanding in commercial real estate. Wells Fargo is almost 2X you all at about 22%, 24 % of total loans outstanding to commercial real estate. You all are at 12%. Are you actively advocating that the balance of loans outstanding ought to grow to commercial real estate, stay about the same, or shrink down?
Michelle Herrick: I think about it as a commercial real estate book. At JPMorgan, we have a little over 200. We have a $4 trillion bank. We're comfortably in the single-digit percentage on that equation, which is, I think, exactly where we wanna be because it gives us the flexibility to support our clients. There's no hard and fast number that we're managing to. We're here to support our clients and what they're trying to accomplish and make sure that works for our shareholders in a consistent return.
Willy Walker: Right now, for instance, given what's happened in the last two and a half years and the provisions that have been taken, you're not sitting there advocating, “Okay. Now's the time to go long. Let's grow our standings in commercial real estate versus any other line of business.”
Michelle Herrick: I have always been partial to commercial real estate. That's my role. I think, as I sit in my seat with my team, we're really hopeful that the transaction volume will materialize this year. We're really encouraged that even though rates are up year over year from January, so are our pipelines, in a significant way. It feels like the capital is out there. The markets are functioning. There's a desire or timing pressure or capitulation that rates aren't going back to mid-threes to get going. We're very happy to be in a position where we can support everyone with that. There's not a deeper conversation around like, “Oh, but we can only do a little. We have this number.”
Willy Walker: It's close to a trillion dollars of commercial real estate debt that terms in 2025. It's $900 and $X billion. About $300 billion of that was loans that matured in ‘24 and got kicked to ‘25. About $300 billion of that was loans that matured in ‘23 and got kicked to ‘24. When you look at ‘25 and your outstanding, what is maturing in ‘25? What percentage of those loans are returning this year? Do you think they're gonna pay off versus what percentage of them do you think you're gonna kick down to ‘26 or ‘27? If someone's got a SOFR plus a 250 loan that's performing, do you actually want it to go off your books, or do you want to just extend it for another year if they come back to you and say, “Could I extend it for another year?”
Michelle Herrick: It's a good question, but I think a lot of that was actually switching from short-term bank to short-term private because at the bank, the advice would have been in ‘23 or ‘24, “So you can lower your base rate by taking this out and fixing your debt. I don't know why you're still floating.”
Willy Walker: Except, typically, it's a cash-in refi.
Michelle Herrick: That's right. We have some people that we're staying with for a short, but the majority took the length and put it away for five years. Put a hedge on it that lets you break in three or four if rates do come down in a significant way. But don't stay in this constant angst of, “Is it going to drop in the next three to six months where I can get a better 50 basis points on my rate?”
Willy Walker: But on that, all the lending we did in 2024 was essentially five-year fixed-rate lending. I sit there and look at that, and you know we do a huge volume, as do you all, and we did a ton of it with you. I sit there and say, “What are these people thinking as it relates to where rates are going if they're only doing a five-year loan rather than a 10-year loan?” What's your outlook if I'm sitting here as a borrower of JPMorgan, and I say to you, “Michelle, I've got this asset, and I need to go finance it today. What should I be doing from a structural standpoint? Should I float because of exactly what you just talked about? Should I fix it for five years, or should I push it out for 10 years because I think rates are gonna go up from here, and this is as good as it's gonna get?” What's your advice to me?
Michelle Herrick: Two prongs, what's the rest of your portfolio? Everybody, no one's ever been right.
Willy Walker: Let's say I've got a very diversified portfolio in the capital structure. I'm almost agnostic about the capital structure. I want you as the expert to tell me what type of financing I put on this asset.
Michelle Herrick: I would say five to ten, depending on what it is and what your whole appetite is for the asset. You're trying to match your duration.
Willy Walker: But I guess in saying five to ten, you think that there's a chance that rates are lower in five years than they are today.
Michelle Herrick: I think, and I've been in banking for over two decades, and we stare at interest rates every single day. We've almost never been right. I don't know that we've ever been right. Actually, if I say it right, I don't even know that I need to caveat. You're always managing to arrange your outcomes. I am personally a little bit more risk-averse. I feel more comfortable with the advice of the five. It gives you more time. Whatever asset you own, I am assuming that you're adding value to that asset or improving it, managing it in a way that should drive your income over that five-year period or 10-year period, or else why would you be owning it? Take the interest rates off the table as a short-term variable.
Willy Walker: Yeah, I think one of the other things, and to your point about understanding the strategy behind it, a lot of those assets are owned by funds which bring it back to this group. The growth of private credit has been incredible. We collectively worked on an asset here in Coral Gables last year where you did a $245 million loan on a mixed-use development in Coral Gables called The Grove that was taking out an Apollo construction loan. Talk for a moment about the competitive threat that comes from the private equity firms and the private credit world. Who's your friend and who's your foe in the sense that we compete hard against each other and we also partner with each other. How hard is it to deal with the Blackstones and the Apollos of this world as they get so big on private credit, yet they're also big owners of assets?
Michelle Herrick: I was going to say competitive threat. It's much more nuanced than that. Sometimes we're fierce competitors, and we have a lot of different relationships where then we're partners, clients, and borrowers. Everyone's growing larger, and everyone's working together in various ways. If you pull out to the broader market that you referenced with the trillion maturing this year, the $5 trillion commercial mortgage market, there have always been a variety of debt sources there. Banks are the largest; we're close to two of the five. But life companies, agencies, CMBS, and private companies used to be quite a small sliver. What has been playing is they're inching toward the double-digit percentage of the pie. I think that will continue. They're taking their growth away from some of the bank pieces. Many of the funds, I'm sure for many of the funds represented in this room, your capital is efficient, and I don't think that's a bad thing. If a bank holds an outsized reserve against a loan and someone can offer it and make a better bottom-line return like that, that will play. A lot of our clients have started debt funds, and a lot of the debt funds in the industry are important clients of our firm. I think it's a functioning market in which all is working well together, where we've seen the last couple of years, and we're all warned that some of the banks were frozen up or failed as we went into this quantitative tightening piece. There was a real need for additional capital to step in and support borrowers. We were doing what we could and what you would expect us to do as JPMorgan. We were taking an outsized percentage of a lower transaction volume market to try and do more to support our clients. But they had real needs that they couldn't find solutions for within the banks. I think private capital was very helpful and had a very strong value proposition in that period of time, and I expect it to continue in the future. The only caveat, I would say, is that banks tend to be able to lean in and feel a necessity to lean in when things are really tough in the economy because you have this commitment to your local communities. I hope that's the case with the private credit piece if you zoom out past the real estate. This is now a very large market that we haven't really seen go through a significant recessionary event. It's tough to know how it can act since it's investor money. I'm hopeful, but I think that's my only caveat to this being a very functioning, great ecosystem that JP Morgan is working with financing some support for.
Willy Walker: You all stepped in and bought the First Republic during the Great Tightening. That expanded your real estate portfolio quite significantly. How do you feel about the loans that you bought in the First Republic acquisition because they're now in your book?
Michelle Herrick: They are; I feel very good about them. That's the summary. The First Republic had an exceptional client service model. And they were…
Willy Walker: Exceptional.
Michelle Herrick: They were very deep.
Willy Walker: Has JPMorgan learned something from the First Republic as it relates to how to engage with their clients?
Michelle Herrick: I thought we were pretty good at it in the first place.
Willy Walker: Look, I'm a huge customer of yours and love everything I get. But First Republic was unique in the high-end private client space as it relates to clients of ours who'd been borrowers of First Republic before. Everyone would be like, “I loved First Republic. They were so good; they were so hands-on.” Just curious, have you learned anything from that?
Michelle Herrick: Of course. If you think about my history, I started in a model like that. I believe in that model. There's always a challenge; you still have to deliver a bottom-line result. How do you find the right balance of being all things to a client but having a consistent return and efficiency and necessity as you grow to these larger organizations? On a simple level, yes, we've learned from the First Republic. There's a lot to be admired there. If you come to see us, we serve cookies now.
Willy Walker: Because they did.
Michelle Herrick: Who doesn’t like cookies, first of all.
Willy Walker: Do you buy the cookies, or do you bake the cookies? Have you got your own ovens going in there?
Michelle Herrick: I personally do not bake the cookies.
Willy Walker: I wasn't asking whether you were cooking. I was just wondering if JPMorgan actually cooked or bought them.
Michelle Herrick: I think we cook them. We have a full service. I imagine they're making them. Some of it doesn't work for a large money center bank. You can call us. We can't deliver cash to you on the sidewalk because that's what you would like. There are additional procedures that we follow to protect all of our clients. When you're managing such a large place, some of the flexibility that comes with that very, very local model…I think we have an incredible local investment in communities and branch networks, but we do keep tight procedures and processes around protecting everyone's money at all times. You have to, with how large we are.
Willy Walker: Let's talk for a moment about data centers. It's the asset class du jour, if you will. There was a long conversation yesterday on Squawk Alley between David Faber and Jim Cramer regarding Microsoft coming out and saying that they're not messaging to the market. They're lowering their investments in data centers. Then Apple comes out and says they're putting $500 billion, half a trillion dollars of increased investment in the U.S. I think you have two markets. You've got the hyperscalers who have unlimited capital and can do whatever they want, and I'm assuming they're not coming to JPMorgan asking for financing on those big projects. Then you have everybody else who's out there trying to build the capacity that allows for JPMorgan, Walker & Dunlop, and others to go and access that. Are you bullish on the financing of data centers for non-hyperscalers? Are you more on a wait-and-see because there might be too much capacity being built today?
Michelle Herrick: At a broad brush, data centers, if the capital flew out of the office and marked it with a big X to some extent, it rushed into data centers. Anytime there's that much movement, speaking from a debt provider's seat, there's clearly some substantial equity upside. You gotta be careful because there's a lot of money and all things are not the same. I would say, “ We’re bullish on data centers, and we believe that there is a need here.” There is a question around capital efficiency and these investments on the longer term; DeepSeek gave us a first shock. There are significant investments, but how long will these go for, and how much? I would say on the financing of data centers, we're involved; we're very active. We also are watching the structures around the construction of data centers. What is equity risk? What is debt risk? Who covers if the power doesn't come or if the tenant has outs around a timeline? These are very large projects.
Willy Walker: Speaking of these are very large projects, I was curious. What's the largest real estate loan you can write and hold before you have to turn around and syndicate it?
Michelle Herrick: Not capped.
Willy Walker: Not capped.
Michelle Herrick: We would be very careful. It would have a lot of eyes at different levels. It's not hard and fast.
Willy Walker: I guess here’s another way of asking. What's the largest request you've had regarding a single loan? Data centers are billions of dollars. I'm assuming that someone's come to you and said, “Will JPMorgan finance the construction of a $2 billion data center?”
Michelle Herrick: Oh, yeah. Of course.
Willy Walker: Are you doing that?
Michelle Herrick: Look, I think everything that we do doesn't have to be hard and fast, but it has discipline around it. There are a lot of questions that we need to answer in there. We generally would take a loan that's of a significant size, syndicate it, and market it. Now, there's nuance all over that. I don't want to say a specific number and get held to it. But yes, in the data center space, the requests are frequently in the multi-billion range.
Willy Walker: If I come to you and say, “I want to finance the Fontainebleau.” This place has probably got a, I don't know what it is, $800 million CMBS loan on it.
Michelle Herrick: I think we did it.
Willy Walker: I think you did it. As you stayed here last night, not saying anything about the quality of the Fontainebleau, and where it stands today, but as you look at hospitality today in a place like Miami, are you redoing this loan on the Fontainebleau, or are you pulling back a little bit on hospitality?
Michelle Herrick: Across the board on the asset classes, hospitality is stable. Then there's always the nuance of how much capital has gone in, what we'll need to go in over the life of a loan refresh, etc. But I would say, across all asset classes, our view is stable to optimistic. There's a real need for housing in this country, and multi is our largest asset class by far. Industrial is strong; we do as much as possible—a lot of the refi volume there. It's a smaller market overall and generally is put away for 10 years upon development. Retail gives me comfort. It's the office story.
Willy Walker: Even a big box?
Michelle Herrick: There's probably a little bit too much of it, but retail is doing well as an asset class. Then you have all of the single-family rentals and seniors. All of these have nuances around them. But in all of them, there's no red flag sticking out to us. We're optimistic across, including lodging.
Willy Walker: You talked about the need for banks to be there all the time. You also talked about multifamily being your largest asset class. Talk for a moment about Fannie and Freddie and whether you think Fannie and Freddie are gonna get privatized. How does that impact JPMorgan?
Michelle Herrick: I don't know the answer to if they're going to get privatized. The impact is very manageable to JPMorgan. The question is two things that actually I think you're much deeper on this subject than I am. I want to pass it over for your opinion. But implicit/explicit is a big piece. Then the mission statements of both of these agencies around liquidity in the market and affordability of the housing market couldn't be more critical when you look at the millions of units that we’re short. How do you make sure to maintain that in a private structure?
Willy Walker: I have a Walker Webcast on this specific issue tomorrow, which will be a great debate because I have two guests coming on who are on the don't privatize side, and I have myself and another guest, Jim Millstein, from Guggenheim, on the privatize side of things. It will be, I think, very interesting to see how it develops throughout 2025. If it gets teed up as not part of the tax bill but as an offset to the cost of the extension of the Trump tax cuts, there's a real chance that it gets on the track and really runs. I look at it as “We can raise $200 to $300 billion in an IPO of Fannie and Freddie. Let's get them privatized.” I think that if you miss the window of the tax bill and the extension of the Trump tax cuts, it becomes far too much about all the big theoretical questions that you asked as it relates to what their role in the market is. Is it an implicit or explicit guarantee? Should they be kept in their existing box of lending, or should they be allowed to expand out of that? All those different things come into play. I think that the debate in ‘26 is very different from ‘25. I think if it gets on the track in ‘25 and the president says, “Do it,” a lot of the issues as it relates will be in the framework of raising as much capital as they possibly can, which then says, “You better have a really strong guarantee, not explicit, but a very strong implicit guarantee.” You gotta allow them to operate in the private sector to be able to attract private capital and then grow. All that has big issues as it relates to what that means to the banking sector and what's the counter to that. As you think about the privatization issue, the role that Fannie and Freddie have played in the housing market, and the role that someone like JPMorgan plays in both the housing market as well as the general financing market, Bill Ackman sits there and says basically you can pull all the guarantees off and have Fannie and Freddie operate as private enterprises with a standby line from the Treasury for 25 basis points. I don't think that works. I think that their bonds trade off tremendously if they get spun in that way. That has a massive impact on the overall housing market and the cost of borrowing. I don't think they can do the Ackman plan. At the same time, I also am NOT a proponent of them staying in the federal government forever. It's a tough one. You obviously have a lot to gain if Fannie and Freddie are pulled back to any degree. At the same time, you're also a big partner of theirs.
Michelle Herrick: I was going to say that we don't think of it that way. We partner very closely with both of them. If you look at the need for housing across the country, particularly affordable housing, it takes everyone involved. Private, government, nonprofit, and local—this is a real issue. There's no assessment on our side of, wow, it'd be good for us if this or that. Absolutely not.
Willy Walker: As you think about everything that's happening in Washington right now, it feels like we get a memo a day of something changing. We all look to quite honestly, people look to JPMorgan, this fortress balance sheet that Jamie has consistently talked about. As you try to be, if you will, the lighthouse that everyone can see as the storms come in and as the seas get really choppy, as it relates to where we are going and what's happening, everyone looks to JPMorgan as the lighthouse of how to get home. What do you have to keep in mind right now in these challenging times? You talked about commercial real estate being a cyclical asset class. We have good times; we have bad times. What do you think about as you lead JPMorgan's commercial real estate lending practice on a national basis as it relates to how to be there for your clients in these times when it feels every day there's something else that's changing?
Michelle Herrick: I think that's it. You're going to be there for your clients every day, even though it feels every day something's changing. We do a wonderful job as an organization. I'm very proud to be a part of it. Managing our balance sheet and the expectations of our shareholders is our purpose, and we can do this very well. The way you step down, the way that you do that, is you're always prepared for a range of outcomes. Because you don't know what's going to happen. It certainly feels much more noticeable when the last few weeks are happening. We have a war room; they're sending out information about what's happening in Washington. Sometimes, it can be a couple of times a day. There are significant things going on that can feel a little bit like a whipsaw. But we're focusing on supporting our clients through it. My piece of that is, of course, supporting our real estate industry clients through it. I think it's a little tough. There's an impact on the policies that will likely play out in interest rates. Then if you look particularly at multi, we would have expected to see some more starts happening now that we're through the wave of supply. But I think it's tough to pull the trigger when it's a six-hour trade war. It's a tariff potentially on this piece. You're watching and helping people think through all of that so that they're using all available information as they run and manage their business.
Willy Walker: It's really interesting your comments on starts. Really quickly, and we're almost at the end, I don't want to go too deep on this one. But I had dinner last week with the mayor of Denver. I was showing him a chart as it relates to multifamily starts in the Denver MSA. You go back to 2010 and you look at starts and when starts got to about 7,000 annual starts, that would play into around that supply in another year or two. Then, that played into three to five percent rent growth. All of a sudden starts were moving up to ten to fifteen thousand and, lo and behold, that plays through to ten to fifteen thousand deliveries on an annual basis, and, lo and behold, that brings rents down flat to 2%. Then all of a sudden we get into an undersupplied market of 3,500 starts a year right now for the last three years in Denver. Denver is going to be dramatically undersupplied. All you have to do is go back to look at where they were on 7,000 a year and what happened to rent growth. You know the picture that's coming, which is that rents are about to spike. Unless they do something to get more shovels in the ground to get more supply coming in, the existing market is gonna explode as it relates to buyers wanting to buy assets at much lower cap rates. Once you buy an existing asset, you're gonna be able to push rents. It's right out there; you can see it. There are these cities that are putting policies in place that are restricting new development and new supply, which is just gonna end up hurting their consumers.
Michelle Herrick: From our perspective, a lot of those cities and municipalities are also our clients. We view our piece in this as helping with some of the education around, “Here's what we've seen work elsewhere. Here's where we've seen smart policy encourage additional development.” The context piece, which is maybe what I bring to the table in terms of leadership, is like, “You can all be right in your view, but we got to figure out how to bring them all together and get more housing in your town.”
Willy Walker: My final question to you, as a very successful female executive who has three kids, is what's the Michelle Herrick hack as it relates to the balance between a very demanding professional career and being a great mom?
Michelle Herrick: Oh, I hope I'm getting it right. I think my hack may be trying something new every three to six months because this can be really hard. I'm playing a team sport. My husband is working. It's a balancing act at our house. We have three children who are lovely, and I hope we're doing everything right to raise them to be incredible adults who contribute a lot to their communities. But it's hard. To my Zoom comment earlier, there's not enough time. I really like to know what we're trying to accomplish, have a good plan for how we're going to do that, and know how everyone's gonna interact to do it as well as we can, but to not waste any time while we do it. Because it feels terrible for me and I'm sure for everyone in the room, when you leave your personal life, go to the office and wonder what you accomplished at the end of the day. It's not the right way to feel.
Willy Walker: You could write Elon Musk a note today and tell him exactly what it is that you did today.
Michelle Herrick: Listen, we send these notes on Friday. But it's like, “Hey, this was interesting in this meeting. This deal went like this. And here's the one thing I see that's going to come up that could be a logjam.” I don't think it's bad to recap what you were doing. It affirms that you did something during the week. I'm not weighing in on the Elon emails. I'm saying that is something that I tend to do and my teams tend to do as well. We came; we worked really hard all week. Some of that will probably continue in some fashion through the weekend, but here are a few things that came out of it.
Willy Walker: You said that your time is very valuable. I greatly appreciate you taking the time to come down here and be with us today to have this conversation. Everyone who's here, thank you for being here and listening to Michelle Herrick. Thank you, Michelle.
Michelle Herrick: Thank you.
