PREI's global Investment Research Team consists of experienced analysts with a broad range of training in areas of finance, real estate, economics and quantitative methods, and access to the best available resources. Team members are located on four continents, providing clients with an international perspective. This depth of knowledge and diversity of experience enables PREI's Investment Research department to support client needs from many perspectives including the US and non-US, public and private, and equity and debt market segments.
The Investment Research department's reports cover a wide range of topics of interest to institutional real estate investors, practitioners and investment professionals. Most reports are available online in pdf format in the research archive. For inquiries, please contact the Investment Research department via e-mail at prei.reports@prudential.com or by phone @ 973.683.1745.
Recent reports from PREI:
- U.S. Quarterly, October 2009 (October 2009). The commercial real estate market presents a bit of a paradox. Property values continue to fall, the outlook for fundamentals is weak, and the debt markets remain relatively dysfunctional. Nonetheless, a tone of optimism has crept into the market despite these bleak conditions, and there appears to be a meaningful amount of capital prepared to step into the market.
- Latin American Quarterly, October 2009 (October 2009). The recovery process in Latin America is well underway. Market fundamentals are improving, which has created a healthier economic landscape with improved business and consumer sentiment. Investors, both local and foreign, are eyeing opportunities to buy commercial real estate in the region, despite the lack of debt financing. Transactions remain slow, however, as owners wait for values to rise.
- European Quarterly, October 2009 (October 2009). Despite improvements in the wider economy, the European real estate market is facing difficult times. Occupier markets are under pressure and access to new debt is difficult. Given the capital intensive nature of real estate, it is difficult to think of markets approaching normal operating conditions in the near future. However, some liquidity is returning to the market, and investors are showing a strong appetite for high-quality buildings with stable cash flows.
- Asian Quarterly, October 2009 (October 2009). Strong public policies have significantly alleviated the fear of an economic meltdown and somewhat shored up the confidence of investors in Asia, notwithstanding the lingering uncertainty about growth in many regions of the globe. The International Monetary Fund’s latest GDP forecasts for Asia predict respectable growth of 5% in 2009 and 6.8% in 2010, mostly led by China and India. Against this background, Asia’s real estate markets should stabilize this year.
- Life After Debt: Coming to Grips with the Funding Gap (September 2009). As a result of the aggressive lending environment between 2005 and 2008, there is a large body of commercial properties that will not qualify for mortgages sufficient to pay off the existing debt. It is virtually certain that the volume of overlevered real estate will create an enormous amount of distress and turnover in the commercial property market over the next few years. In this paper, we estimate how much capital will be needed to fill the funding gap, or the difference between the size of existing mortgages and the proceeds those properties will qualify for in a less-heated environment.
- Sized-Tiered Economic Geography: 2009 Update (June 2009). This paper updates a previous study that addressed geographical diversity in institutional real estate and how such knowledge can be used to craft a diversified portfolio of assets capable of achieving superior risk-adjusted returns. Real estate investment remains highly concentrated in a handful of markets, which over time do not perform in tandem. As a result, our findings indicate that geographic diversity is highly beneficial as an investment strategy in the long run.
- Deleveraging Commercial Real Estate in Europe (May 2009). Commercial real estate owners in Europe are facing a quandary stemming from falling property prices and the increasingly conservative behavior of banks. Loans written with high loan-to-value ratios during the bull market are likely to breach loan covenants, which will empower banks to require that property owners provide additional equity to repair the breach. What's more, many property owners will not be able to refinance maturing loans with the same level of proceeds. Both situations are likely to create opportunities for investors to fill the shortfalls.
- PPIP and TALF: Impact on Commercial Real Estate (April 2009). The Obama administration has announced two programs -- the Public-Private Investment Program (PPIP) and Term Asset-Backed Securities Loan Facility (TALF) -- that are aimed at repairing banks' balance sheets and unfreezing the credit markets. In this paper, we explore the potential impact of the programs on the commercial real estate market. While details are still being ironed out, the programs could create debt investment opportunities and help jump-start a limited amount of new lending.
- A Bird’s Eye View of Global Real Estate Markets: 2009 Update (March 2009). This paper calculates the size of the commercial real estate markets in Prudential’s global universe, encompassing 55 countries with $23.5 trillion of assets. We use a GDP-based approach, taking into consideration the current slowdown in the global economy. The analysis, an update of a similar study published by PREI in 2003, includes projections of market size over the next 20 years, which gives investors a better understanding of future growth.
- Global Real Estate Secutities - 2009 Outlook (January 2009). With the steep decline in real estate securities globally last year, there is a noticeable disconnect between the valuations of direct real estate, even assuming a further material increase in cap rates, and the pricing of real estate equities. We expect that public real estate companies will be significant beneficiaries of capital flows as investors look to take advantage of the distress in the market. The first half of 2009 is likely to remain volatile, but signs of an economic recovery in 2010 should -- provided the debt markets stabilize -- prompt a rebound in stock prices and provide the opportunity for very compelling risk-adjusted returns from the sector.
- Deleveraging the Commercial Real Estate Market (December 2008). The report notes that after several years of easy credit, the commercial mortgage market is entering a new period in which players are deleveraging. Going forward, debt will be expensive and loan proceeds relatively scant. The implications for commercial real estate include lower prices, fewer transactions, more loan defaults and the possible revival of the REIT market.
- Waiting for Distress (July 2008). Coming on the heels of several years of lower cap rates that pushed prices steeply upwards, the U.S. real estate market appears poised for a correction. The only question is how much. The correction could be steep if cap rates revert to historical norms. However, if one takes a range of other factors into consideration -- such as relative value to Treasury yields and the emergence of the real estate capital markets -- the more likely scenario is a modest drop in prices.
- Housing and Rental Demand (June 2008). The housing market faces challenges over the short term due to the crisis in the credit markets, but the outlook for the medium and long term is positive due to favorable demographics. The number of individuals entering prime rental age will grow far in excess of the projected new apartment supply. Plus, the percentage of homeowners is dropping closer to historical levels. As a result, opportunities for development will be available for investors that can arrange financing.
- Investor-Friendly Trends in Seniors Housing (June 2008). The aging of the baby boom generation combined with the slow pace of new product makes the seniors housing market an attractive investment in the near future. The number of individuals reaching age 75 each year will rise six-fold by 2018, while the number of new seniors housing units is growing at about 1% per year. Decisions about housing are based on many factors -- including health, family resources and the single-family housing market -- but demand for housing that caters specifically to seniors is likely to be strong.
- Property and Policy: Hand-in-Hand (June 2008). As real estate investors turn to emerging markets in search of superior growth prospects and higher returns, it is important to recognize not only the connections that exist within countries between their political leadership and market performance, but also the interconnectedness between countries and markets.
- Turkey: Two Steps Forward... (May 2008). The report notes that foreign direct real estate investment in Turkey has increased dramatically in recent years. While investors should not underestimate the risks that still exist in Turkey, the country's young, expanding and largely pro-Western population, dynamic economy and market-based reforms make a compelling case for real estate investment over the next decade.
- To Be Green or Not to Be Green? Why That Is Not the Question (November 2007). The green building movement has serious implications for real estate investors and developers, especially in the office sector. As more businesses conclude that sustainable practices address many competitive, organizational and regulatory challenges, increasing demand for green space will create new risks and opportunities for owners and builders.
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