Flagship US core property fund to halve rate of acquisitions in 2017

PGIM Real Estate’s flagship core property fund is expected to halve the volume of acquisitions its makes year, while increasing sales, according to a prospective investor.

PRISA, the oldest pooled property fund in the US, is planning to invest between $750m and $1.15bn (€1.09bn) in 2017, according to San Diego City Employees’ Retirement System – roughly half of the $2.4bn of investments it made last year.

PRISA is also expecting to sell as much as $1bn worth of properties, it was stated in a San Diego City board meeting document, meaning it could potentially be a net-seller this year. Last year, PRISA closed on $600m worth of sales.

PGIM did not comment, but it is likely that the shift is related to capital flows affecting PRISA and a number of other multi-billion-dollar open-ended funds that make up the $174bn Open End Diversified Core Equity (ODCE) index in the US.

As reported by IPE Real Estatenet inflows into ODCE funds fell to the lowest annual total since 2009, according to the National Council of Real Estate Investment Fiduciaries (NCREIF). The $884m figure for 2016 was far below the $5-6.5bn annual trend of the previous two years.

NCREIF said net inflows turned negative in the fourth quarter of 2016, as distributions and redemptions ($4.4bn) outgrew contributions ($3.9bn).

Despite growing redemptions among core funds, San Diego City is looking to invest in PRISA and another ODCE constituent, Morgan Stanley Prime Property Fund.

San Diego City said PRISA will look to add more apartments and industrial assets to its portfolio over the next three years, because it is underweight both property types relative to the ODCE index.

According to a board meeting document, PRISA will acquire or develop apartments in markets with high barriers to entry, and invest in existing industrial assets and development projects in Southern California, the Baltimore/Washington DC corridor and Miami.  

San Diego City is considering a $45m commitment to PRISA and a $15m to the Morgan Stanley Prime Property Fund.

According to San Diego City, PRISA had $250m of capital seeking to redeem from the fund at the end of 2016, while the Morgan Stanley has entry queue, although it did not specificy the size.

The two commitments will be funded by recent sales from a separate account managed by Deutsche Asset ManagementSan Diego City recently took the decision to wind down the separate account.

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