Pramerica raises $430m for US-focused fund

The real estate investment arm of Prudential Financial has held a first close of $430 million on a fund to invest in major US cities and some residiential property on behalf of German investors.

Pramerica Real Estate Investors has raised $430 million from German investors to buy offices and some residential assets in the US. The international real estate arm of US insurer Prudential Financial announced today it had not only raised the equity but had deployed it in several assets across the county.

The US Property Fund V most recently bought a six-story, 190,000-square-foot office in San Diego that is 92 percent leased. It paid $56 million for the asset and, in a sign of how values have fluctuated, the price is 20 percent less than the price that Pramerica originally sold it for seven years ago. That ‘buy-back’ accompanies other purchases, such as 575 Lexington Avenue in New York and 650 California Street in San Francisco. The fund, in a joint venture with Alliance Residential, also acquired Broadstone North Central, a 225-unit residential property in Phoenix, and has branched out to apartment developments in Houston and Dallas. 

“David Pahl, senior portfolio manager for Pramerica, said: “We’re grateful for the tremendous support and confidence our German investors place with us.”

Pramerica, which began raising equity for the US property fund series in 1994, has gone on to invest in more than 80 properties with a total investment of more than $3.7 billion. As well as majoring on offices, it has a minor allocation to apartment development in in-fill, high-growth markets.

News of the fundraise comes hot in the heels of data suggesting that German institutional investors are opening up further to international investment. Indeed, German firms have become the second largest foreign investors in the US, having accounted for more than $3.5 billion in transactions over the past 36 months – second only to the Canadians and outgunning the rampant Koreans and Chinese entities. The most active German players in terms of both acquisitions and exits include GLL Real Estate Partners, DEKA and Union Investment, according to property broker Savills in a report published in October.

Commerz Real, part of Commerzbank, and Frankfurt-based Universal-Investment also produced research in October suggesting that, over the next three years, the average real estate allocation in German portfolios will increase to a record high of about 8.6 percent from 7.3 percent. Commerz and Steinbeis University Berlin surveyed more than 110 institutional investors and said that allocations could rise even higher, to as much as 18 percent over the medium term, because investors liked the security and transparency of property.

Universal-Investment said it believes there is a “paradigm shift” underway in the type of investments to be made. Whereas survey participants previously held 54 percent of their real estate investments directly (with only 46 percent invested via funds), now nearly 60 percent of new investments in property are being made through regulated funds. At present, the proportion of capital invested by Universal’s survey participants in real estate already has risen to 10 percent and is set to increase to an average of 12 percent by year’s end.