This emphasis on apartments carries over to the PMCC side,
as well. “If you compared us with the industry generally, we have
higher levels of exposure in industrial and multifamily than our
peer set, which is by design,” Durning says. The firm has ramped
up its apartment lending, acquiring a Freddie Mac Program Plus
business within the last 18 months and securing a National
Seniors Housing designation from Freddie. The designation
authorizes PMCC to sell and service conventional loans secured
by senior housing properties nationwide.
For either PMCC or PREI, the emphasis on apartments is
certainly not a case of jumping on the bandwagon of the strongest asset class coming out of the downturn. “For PREI, multi-family has been a core strength for a long time,” says Marcus.
“Through our relationships with development partners around
the country, we have a lot of experience developing apartments
and operating existing apartments.” She adds that the renter by
choice is a target demographic in terms of where PREI buys or
develops multifamily.
Bradford Klatt, co-principal of Roseland Property Co., is
among those longstanding development partners. “Pru has been
our primary development, financial and intellectual partner
since the mid-1990s,” he shares. The companies have done more
than $1 billion of business together, he adds, and there’s another
$500 million of development on the slate.
The relationship began in 1995 with a single rental apartment
tower at Port Imperial, a master-planned community along two
miles of Hudson River waterfront in West New York, NJ. PREI
bought out Roseland’s hedge fund partner and then committed
“If you’re a global investor, particularly across many asset classes, it’s easy to see how a 5% yield on core assets in the US could be pretty appealing.”
CATHERINE MARCUS, Managing Directorand Portfolio Manager
Prudential Real Estate Investors
the capital to build a total of 10 apartment houses at Port
Imperial. “Our first $35-million apartment project together has
spawned what is now $800 million—and will be more than $1
billion—of buildings together on one big site,” says Klatt. He
credits PREI with having a long-term vision for the project: “the
idea of what it can be, how to do that together and how to live
through the good times and the bad times.”
Loyalty has been a key component of this relationship, says
Klatt. “We never considered leaving Pru because less expensive
money might be available,” he says. “We’ve always had the value
of the highest level of attention and intellect at Pru, and that’s
really what our relationship is about.”
This combination of commitment and attention to detail—an
eye toward how much needs to be spent on amenities and fin-
ishes to attract renters by choice—creates what Klatt calls “a
much higher historic yield” than would be available from peers.
“They manage the risk and reward differently than the other
capital investors or institutional money managers,” he says.
In common with Klatt and PREI, Starr and PMCC also have
“Emerging markets offer some great opportunities for people in the equity business, but you also have volatility and the fact that they don’t have the same liquidity.”
DAVID DURNING, Senior Managing Director
Prudential Mortgage Capital Co.
done approximately $1 billion of business together over the
years, and she similarly credits the lender with reliability. “They’re
consistently in the market; they don’t go in and out,” Starr says.
“As a borrower, you don’t want someone who’s going to be in and
out. You want to know that if you’ve got good assets, there will
always be financing available.” She adds that PMCC understands
real estate. “So they underwrite their real estate as though
they’re going to own it.”
That kind of steadiness comes more easily to an organization
that takes a long-term view. Smith sees investors’ current priori-
ties—control, governance and alignment of interests—as a con-
tinuation of what they’ve always been, although at the moment
investors are better positioned to realize those priorities. “The
dynamic in our business between investors and investment man-
agers is sort of a pendulum; it swings back and forth in terms of
who has the greatest leverage,” he says. “Some of these things
aren’t going to change back rapidly to the way they were pre-cri-
sis. That’s not a bad thing; clearly there were excesses.”
A current theme, he says, is “very large, global institutional
investors” that exercise “a disproportionate influence over the
manner in which we raise and invest capital. These are large,
sophisticated investors who very much view the entire world as
their opportunity set and find themselves in situations where
they’re gaining more experience investing with one another.”
The result, says Smith, is that one or two lead investors, which
tend to be “institutions that have meaningful financial capacity
and a comparable level of investment sophistication, and can be
problem solvers in the event things go wrong,” get the ball roll-
ing on raising funds, allowing PREI to go into the market and
bring in other partners. Today, he says, “We may have four to
eight investors in the fund, as opposed to a period of time where
you might have had 15 to 20.”
He adds that a lot of investors’ current concerns stem from
“bad experiences that people had leading up to the financial
crisis. Some of those things will be fairly entrenched over the
next few years in terms of how we raise and invest capital,” says
Smith.
At PMCC, Twardock similarly takes a steady-as-she-goes out-
look toward the next few years. “We think we have the pieces in
place that we need,” he says. “We have an active insurance com-
pany portfolio, we have an active agency Fannie/Freddie plat-
form and we have an emerging presence in the CMBS market
with our venture with Perella Weinberg. We feel like we’re posi-
tioned for this market as it evolves.”
Yet he is aware that this evolution is likely to entail some
“twists and turns in the road. It’s just a matter of how we apply
the tools that we have. But we feel pretty good about what we
have in our toolkit.” ◆
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