Eric Adler, chief executive of PGIM Real Estate, expressed mixed views on Wednesday night about on a less regulated business environment under President Donald Trump.
On the one hand, he correlated less regulation to greater real estate demand. “The generic idea of deregulation, at least in the near term, seems to be something that is business favorable,” said Adler, speaking at a PGIM market outlook event in New York on Wednesday night. “I think that’s good for real estate. At the end of the day, we’re in a leasing business and it’s a cash-flow business, so the more corporations whose hands are untied and who feel free to make more investment decisions, that’s generally good for us.”
He added: “A pro-business climate is good for many industries, and they are all our tenants.”
Adler acknowledged that PGIM Real Estate’s debt business has benefited from traditional banks pulling back on lending under the Dodd-Frank Act. Yet a repeal of the legislation under Trump would not have a major impact on the firm’s lending activities, he said.
“I think there are enough other factors going on that will constrain traditional lenders from taking more high-risk loans,” Adler said. “We do a lot of junior loans, mezzanine type loans, whereas the banks have really moved away from that space. There are enough things that are going on around the globe, like Basel III, where the banks are restructuring and are just not in that business. I don’t think [a repeal of] Dodd-Frank is going to change that. We feel comfortable that it’s not going to put us back to where we were before, behind the big lending banks.”
At the same time, a dismantling of Dodd-Frank and other financial regulation was potentially troubling. “I’m not really convinced that backing away from regulation is a good thing,” he observed. “I’m worried about deregulation.”
While increased regulation has made industries “nervous,” it also helped to keep real estate development in check. If deregulation were to occur and there were fewer restrictions in areas such as lending, “it could really create a supply and demand imbalance and raise concerns for the health of the real estate industry,” Adler said.
In this respect, regulation has been a positive for real estate, he noted. “It’s really helped to keep the market going.”
While such stability has not necessarily been welcome news for opportunistic real estate investors, which rely on market volatility to create an arbitrage opportunity, it has worked out well for PGIM Real Estate. “We’re much more interested in markets that are more predictable and less volatile,” he said.