Debt funds are seeking fresh talent to tackle the next wave of distress.

The second half of 2023 was dominated by whispers of distressed debt funds gearing up for the next wave of trouble. As the real estate world begins to accept that the era of cheap debt is well and truly over, attention has turned to building out previously neglected distressed teams. Recruitment has been taking place up and down the corporate hierarchy, according to recruitment consultants. However, over a decade of cheap money and high valuations has meant that, at the junior to mid-level, there’s a real lack of talent. True, more than a few senior players remember the last crisis and the workouts that ensued. However, headhunters point out that in many cases, these senior players rarely get down in the weeds. Plus, all that experience comes at a price.

Discussions are still at an early stage, though they have picked up in the last six months, according to Ulrik Rasmussen, head of Pedersen & Partners’ global real estate practice. Given the speculation about rising distress, people are trying to be prepared, says Rasmussen: '2008 happened so fast, no one was prepared for it. This time, many of the key players are well-prepared for the market change.'

Hollowed out

The larger real estate players are understood to be looking to make specialist hires with corporate and banking skills. Given the workout of most legacy distressed debt, many teams have been hollowed out. Some of the teams at the top distressed investors have shrunk by up to 90%. This means that some firms will be looking to rebuild these teams.

However, very few people at the junior to mid-level have had to work out soured loans, which is posing problems for debt funds trying to build out their teams. One recruiter said: 'There’s a real lack of experience in servicing and workouts at the moment after so many years of cheaper debt. Therefore, funds are having to get more creative about where they hire from and are more open to people coming from different backgrounds, for example the big servicers.'

While some mid-level people did cut their teeth in the Southern European non-performing loan wave of the mid-2010s, debt funds are reportedly looking for people with German and Scandinavian language skills, rather than the Italian, Spanish, and Greek of the previous wave. Given that these markets were spared the biggest bloodbaths of the past 15 years, this has made workout experts with language skills a hot commodity. The German residential construction sector, as well as offices, will be one to watch given some developers are running on squeezed margins.

However, hiring is difficult in a time of layoffs and hiring freezes. This means that recruiters are getting increasingly creative about reallocating people within firms. In many cases, recruiters have told React News that a lot of firms are looking to hire people who are more versatile and can be reallocated when markets change again.

High-profile moves in 2023

React News has been keeping an eye on some of the high-profile moves to distressed debt funds. For example, Alvarez and Marsal hired Florian Nowotny and William Clark ahead of the expected uptick in distressed activity. In the US, former Blackstone grandee Chad Pike launched Mankora, a vehicle that aims to target capital dislocation through credit deals, special situations, and private equity real estate outlays. Back in the UK, Homes England is advertising a role for a senior manager to handle its distressed investments.

The buyside isn’t the only place hiring; advisory firms are also keen to bolster their teams so they can better serve their clients, say recruiters. However, the dearth of real estate restructuring on offer over the past few years, particularly outside of the Southern European and retail markets, has made it difficult to hire at the junior to mid-level. As on the buyside, senior hires with experience working out tricky situations are hard to come by and command a premium. Over in Germany, brokerage firm NAI Apollo hired NPL veteran Klaus Schumacher as an adviser for its corporate services. He was hired to set up a 'special situation platform for NPL and distressed real estate services.'

Partner Ulrik Rasmussen was quoted by www.topmba.com on the advantages of graduating from a Central or an Eastern European business school, the limited applicability of North American and West European curricula case studies to the CEE markets, as well as steps to be taken by regional business schools so as to offer a more practical experience to aspiring students.

[…] The main benefit of studying at a regional business school comes from the mixture between the Western European business education model (that the majority of the local schools adopt) and the case studies adapted to the specifics of the developing economies. International students are profiting from the local educational background that shapes business skills required within multinationals or organisations operating in the emerging markets around the world.

“While in North America and Western Europe the MBA schools have a long-standing history and well-developed curricula, much of the education is based on case studies applicable to the countries in these regions, but not necessarily adequate for the realities of the dynamic CEE markets”, explains Ulrik Rasmussen, a Bucharest-based partner from the Executive Search consulting firm Pedersen & Partners.

However, he stresses that business schools in the region should focus on including more practical experience in their MBAs, such as field trips, help with organising internships and meetings with top executives.

“The knowledge is still very theoretical, especially as many of the professors are lifetime academics, but not practitioners.”

Rasmussen, who completed over 150 Executive Search projects for clients in CEE, has found MBA degrees from a regional business school in at least one out of five CVs of shortlisted candidates. “In CEE countries, we see that multinationals and financial services firms put more emphasis on the MBA degree,” he explains. […]

The future of business schools in the region looks promising, considering the increasing need for leaders in a very dynamic market with room to grow, despite the effects of the economic crisis. “On the one hand, the multinationals are cutting costs and sending less of their people to MBA schools, but on the other, we see different types of MBA students as there are more individuals consciously making a choice to obtain MBA degrees and who are paying for it themselves”, concludes Rasmussen.

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Real Estate Practice Group

Pedersen & Partners’ Real Estate Practice goes far beyond the stage of appointing leadership teams. This component is secondary to our distinct holistic approach to adding value throughout the entire partnership, starting from deep understanding of the client’s business model, its differentiators, its competitive environment and its mission-critical challenges.