Season 6 of the No Cap podcast continues with Chris Hentemann, founder, managing partner, and CIO of 400 Capital Management. Hentemann has spent over three decades inside credit markets, from trading mortgage-backed securities in the early ’90s to launching his firm in the middle of the 2008 financial crisis.
In this episode, he joins Jack Stone and Alex Gornik to break down what actually went wrong leading up to the crisis, how credit markets were rebuilt, and why today’s environment(especially in real estate) still offers opportunity for investors willing to take the right kind of risk.
Conversation Highlights
Alex: Did you see the 2008 crisis coming?
Chris Hentemann: It’s easy to say in hindsight, but the answer is yes. You could see fractures in the system. The most simple thing was regulation was absent. Then the second thing, there were misalignments of incentives. There was no skin in the game. The raw material was not getting originated well, it wasn’t getting rated well, and things were getting overlevered. The compounded nature of all that said there’s likely to be something.
There were just misalignments of incentives… there was no skin in the game.
Jack: Why launch a firm right into the crisis?
Chris: October 2008 was the absolute best time to be investing. It was the worst time to actually launch a financial firm. But what happens all the time is things overreact. You go through a crisis, risk tolerance is really low, and there’s not a lot of competition. So you control the terms and the pricing is in your favor. Regulation also starts to realign incentives, which creates asymmetry and protects the downside.
The conversation then shifts from what broke the system to how it was rebuilt and where risk sits today.
Alex: How do credit markets actually work today?
Chris: Banks fund loans efficiently, but they now transfer credit risk into private markets. Whether that’s through CRT in housing or B-piece markets in commercial real estate, private capital is stepping in and saying we know how to price that risk and take that risk. That’s what’s fueled a lot of the growth for firms like ourselves.
Alex: Break down the structure for us.
Chris: Think about a box filled with loans. Cash flows come off and go to the senior first, then down the capital structure. The bottom piece gets the last dollar. If there’s a dollar of loss, it gets borne from the bottom up. That bottom piece is the risk retention piece. The idea is to have someone with expertise and capital hold that risk so the system is more stable.
The discussion then moves into how this structure plays out in today’s real estate market, where conditions have shifted quickly.
Alex: What are you seeing in today’s market?
Chris: The market doesn’t close. Borrowers still need to refinance loans, but they now face a completely different environment at maturity. Rates have changed, cap rates have moved, and you have challenges in office. All these dynamics are unique. Banks still need to lend, but they have to place the credit risk, and we’re there as a partner making sure each loan has the right integrity.
You control the terms and the pricing is in your favor.
Alex: What kind of returns come with that?
Chris: They tend to be in the upper teens. After adjusting for losses or modifications, we think we’ll net somewhere in the mid-teens. You have to hold it, so there’s a liquidity premium. What we really like is that we get a say in how the risk is shaped, and that combination makes it attractive.
From there, the conversation widens beyond real estate into the broader private credit cycle.
Chris: Too much capital has gone into it. Credit discipline has gone down a bit. Fundamentals have been good, but you’re going through cycles. You’re starting to see default rates rise, so we’re likely at the back end of a cycle. The question is whether weaker underwriting starts to show up because of excess capital.
Alex: Where are you seeing opportunity now?
Chris: We still love residential. There’s a lack of supply and that’s not going away overnight. Regulation has limited banks in financing builders, so we’ve leaned into builder finance. We fund projects, take control of lots, and structure it so builders buy them back as they develop. It’s a good example of where capital is constrained and you can step in with structure and expertise.
Watch the full episode on our YouTube Channel or your favorite podcast app.
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