PGIM Real Estate, the property arm of US insurance group Prudential, is to launch two new discretionary funds this year, with living and logistics strategies still centre stage.
The European division will market the next in its value-add series, following up on European Value Partners II which amassed $1.1bn (€940mln) at final close in September 2021.
It will also launch a new fund in its core plus series.
New capital raising plans continue to focus on NOI growth strategies during the current higher inflation setting.
In an interview with PropertyEU, Jocelyn de Verdelon, head of transactions Europe, notes: ‘With significant inflation already coming in, and probably nottransitory we have to find strategies for growth and especially NOI growth.’
Not only is the firm launching the next in its core-plus family of funds as well as the next in its value-add series. which will be a significantly large fund given European Value Partners Fund II closed on $1.1bn (€940mln) last September. In addition, PGIM Real Estate keeps attracting third party equity to its European open ended core vehicle and furthermore, its UK Affordable Housing strategy. The latter launched in December 2020.
Though inflation is a new factor, it seems the overall strategies PGIM Real Estate is pursuing for its fund architecture will not bend a pre-existing investment approach of four pillars – digital transformation such as the movement towards e-commerce, change of living needs, ageing population structures, and sustainability.
Last year, the company invested around 75% of its $4bn global volume in logistics and in the residential sector. ‘This means we see growth in the first pillar - digital transformation of our economies - and also a major focus on the living sector,’ says Verdelon.
DIGITAL TRANSFORMATION
PGIM Real Estate already has strategic JVs with local logistics managers including Kier in the UK, Azora in Spain, and Aventos in Germany. The idea is to aggregate big portfolios. PGIM Real Estate is now holding talks with last mile operators in the UK, Germany, and France to boost its presence in that niche.
At the same time, the digital transformation pillar explains why PGIM Real Estate is underwriting ideas for data centre exposure in Europe. In October, the firm signed a $575mln (€524mln) JV to build two hyperscale data centres in Sydney, Australia, called SY9x and SY10x, with Nasdaq-listed Equinix, who already has a partnership with another firm in Europe. Deals for PGIM Real Estate in Europe are expected to be announced this year.
Also up for consideration is cold storage logistics. In France, PGIM Real Estate owns a 100,000m2 platform with supermarket giant Carrefour for fresh product irrigation. ‘We are focussed on new forms of logistics. Even though cold storage is not a new format, we see developers providing new features. More and more of our logistics tenants are diversifying their business, he adds. ‘For logistics, we see very significant rental growth for the right products in the right locations.’
LIVING
PGIM Real Estate’s second growth pillar, the transformation of residential to reflect the changing living habits of the next generation means affordable housing in Europe is grabbing the firm’s attention too. Via its value-add series, the firm acquired a 35% stake in Le Groupe Uniti during 2019. Uniti builds affordable housing and has more than 20 sites so far. Together, the partners are selling projects to local state-owned housing bodies.
But that’s not all. The third growth pillar, addressing the needs of an ageing population means PGIM Real Estateis also building affordable senior housing projects, which are not being sold to state-owned entities but private industry. ‘We are trying to address a huge chunk of the market that cannot afford senior housing. We want to supply the market with a new offer that is affordable for the maximum number of retired people. We think this is very interesting.’
ESG
Affordable housing fits into the ‘S’ part of the firm’s overall ESG strategy. As the firm’s local teams scout fresh acquisitions off-market, they see the major ‘brown discounts’ for assets that do not yet meet required ESG standards. PGIM Real Estate sees the fourth growth pillar for the business as a continued focus on sustainability – most immediately this means a focus on the office sector, where the difference between the green premium and the brown discount is set to be extremely wide, and the team is looking to redevelop existing office assets in strong locations.
Comments Verdelon: ‘We have to work on the liquidity of our portfolios. Notwithstanding the strategy, whether core, core plus or value-add, open ended or closed ended, we have to make sure assets in the portfolio are compliant with the highest ESG standards from day one or that there is a pathway to absolutely improve them to ensure you have liquidity in the future. That is an acceleration of a pre-existing trend, and this is going to be very long term.’
WEDNESDAY ANNOUNCEMENT
The interview with Verdelon took place ahead of Wednesday's announcement that PGIM Real Estate completed a record $42.7bn in global transactions in 2021 across debt and equity, up 43% from 2020.
In Europe, transaction volume in equity increased by 38% to $3.3bn in 2021 and in debt by 55% to $1.4bn across a total of 76 transactions.
Raimondo Amabile, global CIO and head of Europe and Latin America at PGIM Real Estate, said: 'The sustained growth of PGIM Real Estate in Europe continues to be centred on high-conviction investment themes driven by four pillars of growth: digital transformation, generational change in living needs, the ageing population structure and sustainability. Using these pillars, we identify sectors, markets and opportunities with high growth potential across all asset classes and investment strategies.'
