the owner of a very large portfolio of shopping centers, heavily
concentrated in Singapore, on behalf of a number of our differ-
ent funds. That strategy is one we’ve tried to leverage in making
a leap to China.”
Since setting up its Beijing office in 2010, PREI has focused on
developing its capability to invest in shopping center properties
throughout China. “That continues to be a work in progress; we
remain quite optimistic about the prospects,” Smith says.
He notes that the Chinese commercial market is “moving very
quickly. Having said that, it’s a huge market and has a long way to
go. You have to be prepared to be in it for the long haul; there
will be twists and turns and you can’t anticipate how everything
will play out. But if you focus on the long term, the trajectory is
irrefutable and the need is compelling.” A current priority for
PREI in China, he adds, is developing “the right kind of capability” there and finding “culturally compatible” business partners.
In keeping with the theme of serving “new and emerging
sources of capital around the world,” Smith says Latin America is
another overseas stronghold for PREI. “We started in Mexico
and have quite a substantial presence there,” he says. “We’ve had
a series of sector-specific funds in
Mexico, in industrial warehouse, residential and shopping, and feel very
good about the capability we’ve built
up.” He adds that PREI is also able to
target Mexico’s local pension fund market, thanks to regulatory changes that
now permit the funds to invest in real
estate domestically.
Brazil is a Latin American focal point,
as well, in particular the industrial/
warehouse and residential sectors, says
Smith. PREI is also looking at Chile,
Colombia and Peru, “although we’re
not nearly as far along in those markets
as others,” he adds. “Our three emerg-
ing markets that we’ve been most
focused on have been China, Mexico
and Brazil. We’ve also been active in
Turkey to some extent.”
In looking at emerging markets,
Smith says, “the big-picture investment
themes are conspicuous. Rapid eco-
nomic growth, development and high
levels of urbanization, the expanding
consumer class—all those things give
rise to demand for real estate product,
particularly housing, shopping and
logistics.” The challenge of these mar-
kets, he says, is executing at a local level
to generate consistent returns for inves-
tors while feeling “comfortable that
you’re managing the multitude of risks”
that go with the territory.
On the debt side, Durning says emerging markets don’t hold
quite the same appeal for PMCC. “Emerging markets offer some
great opportunities for people who are in the equity business,
but you also have volatility and the fact that they don’t have the
same liquidity,” he says. Gateway cities such as New York City,
London and Tokyo, by contrast, are “very attractive” due to their
liquidity and “the resiliency of those markets for someone who’s
involved in debt as opposed to equity.” He adds, “For us to move
into markets that we don’t know, there has to be a lot of infor-
mation and transparency. Markets like London offer that.”
Durning says a PMCC move into gateway European markets is a
near-term possibility.
“We feel like we’re positioned for this market as it evolves. It’s just a matter of how e apply the tools that we have.”
DAVID TWARDOCK
President, Prudential Mortgage Capital Co.
core real estate in the US could be pretty appealing.”
Notwithstanding the emphasis on key markets, about 10% of the
fund is targeted to non-core properties.
Multifamily stands out on the radar screens of Prisa clients,
which dovetails with PREI’s expertise. “We feel very strongly
about the demographic trends that support the multifamily
industry,” says Marcus. “We also feel very strongly about the lack
of supply and how that will impact the ability to raise rents.”
