PGIM Real Estate may be active around the globe, but for Raimondo Amabile, Europe represents a major growth area for the real estate investment management business of New Jersey-based insurer Prudential Financial.
“We are in a position to think big about our European platform,” said Amabile, who was promoted to global chief investment officer in September. PGIM Real Estate is aiming to double the size of its business in the region from €15 billion in assets under management to €30 billion over the next three to five years.
He adds that there is ample opportunity for the platform to grow in Europe, whereas PGIM Real Estate is already a very large and established player in the US market.
That growth will primarily take place around the firm’s high-conviction investment themes in real estate, driven by what Amabile refers to as “the four pillars of growth” – digital transformation, residential transformation, aging population and sustainability. The first pillar, digital transformation, has driven activity in logistics, particularly in strategies such as last-mile and urban logistics that have seen double digit rental growth. “When it comes to these asset classes, you have to be very flexible,” he said. Strategies “tend to be very granular,” such as dark kitchens and delivery sites for urban logistics.
Another aspect of digital transformation is the digital infrastructure space, which “is going to be a huge growth story,” Amabile remarked. PGIM Real Estate’s digital real estate investments will focus on hyperscale centers and, in October, formed a $575 million joint venture with Equinix to build two data centers in Sydney. The firm plans to develop hyperscale centers globally but has not yet determined its partners in the other geographies. “We’re going to push development across US and Europe,” he explained.
A second growth pillar is the transformation of residential to reflect the changing living habits of the next generation. PGIM Real Estate is developing two to three partnerships in affordable living space for build-to-rent properties in France and the UK. The latter is also the geographic focus of the UK Affordable Housing Fund, which raised £190 million ($257 million; €228 million) in its initial close from the Northern LGPS and Brunel Pension Partnership in February 2021. “The UK is five to 10 years behind the US,” Amabile said. “It’s a huge growth story there.”
The third growth pillar is the aging population, which is driving demand for senior housing. In April 2021, PGIM formed a joint venture with Signature Senior Lifestyle to develop and operate a portfolio of prime senior housing in and around the Greater London and Southeast areas of the UK. “There’s huge potentiality to deliver good pipelines of senior housing space,” he noted, adding that UK senior housing is more than 10 years behind the US in its maturity. The firm also plans to launch a senior housing strategy in Spain over the next 18 months.
To support its investment initiatives, the firm also plans to raise additional capital through various vehicles. These will include follow-on closes for open-ended funds such as its European core vehicle and the UK Affordable Housing Fund, as well as new fund launches in its core-plus and value-add real estate strategies.
The fourth growth pillar is the firm’s continued focus on sustainability. “Most immediately, we are focused on the office sector where the difference between the green premium and the brown discount is set to be extremely wide,” Amabile said. “In particular, we are focused on opportunities to reposition and redevelop existing assets in strong locations.” ESG initiatives will positively impact both the rental and capital value of assets, he noted.
One additional area of growth is PGIM Real Estate’s European debt platform, which raised €1.6 billion – €600 million of which came from a German insurer – during the first quarter for its senior debt platform, which will be dedicated to floating rate loans in the region. In January, the firm also closed its European real estate high-yield debt fund PRECap VII, with total equity of €1.82 billion.
“The strength and growth of our debt platform will come from the advantage we have compared to other lenders – we are fully integrated with our real estate equity and asset management platform, and therefore we can underwrite the real estate risk that’s in front of us,” Amabile explained. “This means that we can be very dynamic with credit structuring and provide the capital required, as we can take any position across the capital stack.”
PGIM Real Estate’s European business is currently around 50 percent invested in industrial and residential (ex-senior living) across both debt and equity. Amabile expects logistics and residential to increase to two-thirds of its portfolio allocation as the firm seeks to grow the platform over the next three to five years, with the remaining one-third to come from senior living and sustainability initiatives.
PGIM Real Estate had $209.3 billion in combined assets under management and assets under advisement as of December 31, 2021. Of that amount, 65 percent was allocated to the US; 22 percent to US agency and other loan servicing; 7 percent to Europe; 4 percent to Asia-Pacific; and 2 percent to Latin America.