Before February, PGIM Real Estate had record-breaking fundraising, and pipelines for debt and equity transactions were “as good as we’ve seen them,” Mr. Adler said.
“We really were on trend to have year-over-year AUM that would have been the best ever,” Mr. Adler said.
The 12-month period ended June 30 was marked by two major events: The start of Russia’s war in Ukraine in February “was a cold shower for both debt and equity,” Mr. Adler said.
In Europe, the real estate debt and equity markets reacted right away to the war in Ukraine, he said. In the U.S., real estate debt transactions slowed when the war in Ukraine broke out, but the real estate equity markets didn’t start tapping on the brakes until June with the Federal Reserve’s first 75-basis-point interest rate hike, Mr. Adler said.
“There’s been no drama, no disaster, no big falling off a cliff,” because the real estate markets are more mature than they were in past cycles, Mr. Adler said. In other real estate cycles, so-called “hot money” moved into real estate at the top of the market and then panicked when there was a downturn, he said. The full impact of the current slowdown on real estate managers’ assets under management won’t be reflected in P&I’s survey results until 2023, Mr. Adler said.
All types of institutional investors around the world are fairly sanguine, Mr. Adler said.
Although they acknowledge that “liquidity will be lower and values might drift down a little bit … everyone is taking that in stride,” he said.
Among the debt categories, mezzanine assets grew while the other real estate debt categories tracked by P&I slumped.
PGIM Real Estate’s mezzanine portfolio more than doubled in the period to $1.2 billion from $531 million in the year-earlier survey. This put PGIM Real Estate in the fourth spot on P&I’s list of the top 10 managers of mezzanine assets for U.S. tax-exempt investors.
PGIM has an “incredibly strong” mezzanine business, especially in Europe, and PGIM raised its biggest-ever real estate debt fund in 2021, Mr. Adler said. A fair amount of U.S. institutional capital is invested in PGIM’s European mezzanine strategies, he said.
“Our mezzanine business is punching above its weight right now,” Mr. Adler said.
The manager with the most mezzanine assets managed for U.S. tax-exempt investors was Nuveen, with mezzanine assets dipping 1% to $6.7 billion.