PGIM’s Adler: ‘It’s a very weird cycle’

For Eric Adler, it’s “a tune we’ve been singing for several years”: overall real estate prices are near or at all-time highs globally, but underlying supply-demand dynamics have remained healthy and more or less in check.

“The concern that we have today is that confidence is a little shakier,” said the chief executive of PGIM Real Estate, speaking at a PGIM outlook event in New York last week. People are concerned the wrong geopolitical event could occur at a time when quantitative easing is scaling back and interest rates are rising, he said.

“I’m more concerned than I have been for a long time, but I have no fundamental reason to stop buying real estate,” said Adler. He noted that foreign investors have still been snapping up a high number of prime, core assets in the US for the long-term – despite their high prices, while other buyers have been seeking bargains in value-added or opportunistic deals.

“And all the deals in the middle weren’t happening,” he said. “I think this year you’re going to start seeing more of those deals happening because a lot of investors are like me. They’re thinking, look, this could go on for a long time. It feels expensive, but we can’t time this, we can’t sit on our hands and wait for the markets to turn.”

Adler also noted the abundance of dry powder in the market. “I think some of that dry powder is starting to burn a hole in some of our competitors’ pockets,” he said. “So paradoxically, although I’m more nervous, I expect to see more volume this year. So it’s a very weird cycle and it’s lasting a lot longer than we expected.”

Adler did not expect that PGIM Real Estate itself would necessarily become a more active buyer this year, however. In fact, he noted, in 2017 the firm was a net seller of US real estate for the first time in several years, which he saw as likely to repeat this year – partly because potential buyers would be hungrier for deals. “The assets we couldn’t sell last year, we think we could sell to some of these buyers this year.”

But “we’re bottom-up, not top-down,” he pointed out, noting that being a net seller in the US was determined by market conditions, rather than by senior leadership ahead of time. “Last year, we got a lot of sales done, but we also lost a lot of bids.”