What does a GP do when half the LPs of its opportunistic funds do not want it to exit their assets for fear they might not get exposure to such real estate again?
For Pramerica Real Estate Investors (PREI), the real estate investment management and advisory business of US insurance giant Prudential Financial, the answer was to wrap a private, open-ended fund around the properties.
Last month, PREI consolidated 11 shopping malls in Singapore and Malaysia, valued at approximately S$3 billion (€1.72 billion; $2.34 billion), from its two Asian Retail Mall funds into one open-ended vehicle called Pramerica Asia-Retail. While half of the dozen or so institutional investors representing about $600 million of equity commitments were keen to exit their positions, the other half wanted to retain their exposure. 
When the first [Asian Retail Mall] fund expired, the realisation sank in that these institutional investors were at risk of losing their strategic position in Singapore. They understood there was no way they could get their positions backote Here
Victoria Sharpe, PREI
Victoria Sharpe, chief executive officer of PREI in Asia, said coming to the open-ended fund solution was a three-year effort. Singapore is somewhat ‘land-locked’ and, short of buying shares of Singapore’s biggest landlord, CapitaLand, on the public market, potential exposure to core Singaporean property is limited, she explained.
“When the first [Asian Retail Mall] fund expired, the realisation sank in that these institutional investors were at risk of losing their strategic position in Singapore,” Sharpe recalled. “They understood there was no way they could get their positions back.”
For PREI, assets that initially embodied an opportunistic value-added and development play, with returns of between 13 and 16 percent, had become assets the firm could continue to manage in a core vehicle. As such, expected returns from the assets are now reflective of those held by publically quoted companies, currently around the 5 percent mark.
For those investors wanting to exit from PREI’s properties, their window to do so will open quarterly, similar to open-ended funds in Europe or the US. “There’s no guaranteed liquidity,” Sharpe warned. “What they have now is a pricing mechanism around a redemption process.” In other words, there still must be a willing buyer, although investors will be able to price fund units according to quarterly appraised net asset values.
Shape said it is too early to price the units but, unlike with the German open-ended funds that are structured with retail investors in mind, Pramerica AsiaRetail is designed only for institutional participation. As such, units bought and sold are likely to be in the $5 million to $10 million range. “We’re looking at that in the context of our existing investors,” she added.
Of the actual assets, Sharpe said the Singapore contingent, representing the majority of the portfolio, are completely developed and 99 percent occupied. Only one of the Malaysia malls is developed and leased, with the remainder expected to be completed over the next 12 months.
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