PGIM Real Estate recently completed a $2 billion fundraise for their inaugural Global Data Center Fund (GDCF), raising capital commitments from an array of investors across multiple asset classes.
The fund, launched in March 2018, will focus on investing in REITs that own or operate property around the world, both domestically and abroad. Additionally, it will invest in other real estate related securities issued by private REITs, non-REITs and other entities – capital appreciation and income are its goals; typically at least 80% of investable assets are placed in equity-related securities of real estate companies like REITs – such as common stock, convertible securities, preferred stock warrants as well as American Depositary Receipts or similar instruments – this ensures maximum return over time and other similar instruments – both of which have proven themselves over time.
Rick Romano, Managing Director and Portfolio Manager on the team, notes that this year the group has seen strong returns due to stock selection and not asset allocation. He notes specific contributions by Welltower (healthcare property) and Digital Realty (data center), with mall operators also contributing positively.
Even with its strong performance, the fund remains wary of commercial real estate as several factors may damage its outlook. According to the firm’s research, an environment of persistently high-interest rates could curb demand for property even though property as an asset class usually holds its value well during low interest rate environments. Furthermore, rising supply levels in core markets could present landlords with more complex pricing conditions and lead to higher rents overall.
As such, the firm continues to explore opportunities in core, value-add and opportunistic segments of the market. Recently in the US it expanded its manufactured home portfolio, completed the disposition of five properties at once and entered strategic joint venture agreements with developers for logistics property investments; while across Europe they closed $4.7 billion worth of logistics transactions.
The fund’s investments will be exposed to similar risks as those directly invested in real estate, including shifting economic conditions, market supply and demand, zoning laws and taxes laws as well as volatility associated with all other market indices. Furthermore, its holdings of publicly traded stocks may experience market index-like volatility; as it’s leveraged its return could be affected by rising interest rates; investing in foreign securities may involve additional political or currency instability while investing in real estate/mortgage loans involves risk of default/prepayment which can reduce yield/increase price both of which tends to be magnified in emerging market investments.