PGIM India Mutual Fund recently launched PGIM India Global Select Real Estate Securities Fund of Fund, which is India’s leading global real estate securities fund. The first such programs focused largely on the Asia-Pacific region. The PGIM India program will invest in the PGIM Global Select Real Estate Securities Fund, which primarily invests in REITs or real estate investment trusts and equity related securities of global real estate companies. Rick Romano, Managing Director of PGIM Real Estate and Head of Global Real Estate Securities Business, spoke with mint on how demand changed after the pandemic and why real estate is expected to benefit from inflation. Edited excerpts:
How has the real estate trend evolved in the post-covid world?
There have been a lot of trends that started to accelerate during the pandemic. For example, the impact of e-commerce on brick and mortar retailing. Demand for e-commerce has been pulled forward during the pandemic, as people have been forced to do so during the pandemic. This therefore benefited the Reits global industrial warehouse. One trend that wasn’t really in place was working from home. And this is going to have implications for office space, where there may be a worldwide need for less office space. While this can hurt office real estate, it really benefits another area of real estate like data centers or cell phone towers. Thus, the need for streaming services over calls such as Zoom calls, Work from Home (WFH), which has created a huge demand for data centers, the use of cell towers, and this is one area. of real estate that would benefit from it.
What kinds of opportunities can a global real estate fund offer Indian investors that they do not have access to in domestic markets?
What you can gain by investing in a comprehensive real estate strategy is diversification. If your local market is not growing as fast as the rest of the world, or if it is in a recession, you benefit from diversification and the ability to access other markets that may be at different times of the year. real estate cycle. Additionally, you can access some of the very high growth real estate areas that might be difficult to access in the private real estate markets. This would therefore include areas such as data centers, healthcare facilities, be it assisted-living or skilled nursing hospitals, cell phone towers, specialty residential properties as well as self-storage and hotels. Also, liquidity; you can buy and sell anytime you usually don’t in real estate.
The one-year return of the PGIM Global Select Real Estate Securities Fund is approximately 26% and the five-year return is approximately 7%. What should investors expect in the future?
When we think of Reits and real estate, we really think of them as a hybrid between a bond and a stock. So they have bond-like qualities because they have a dividend. But it is not fixed as a link. The dividend can increase over time as a real estate company increases rents. Thus, your rent would increase each year by inflation, and this would be reflected in the dividend which increases by inflation. Beyond that, the light equity components, especially when you’re talking about a shorter lease term, can all reset rents very quickly and participate in equity growth as a result. When you think about it this way, you should expect that for long periods of time, returns will be higher than bonds and closer to stocks. Historically, over long periods of time, they have averaged annualized returns of around 10% (in dollars) within the global Reit space.
Rising prices globally pose a risk to expensive stock markets. What will be the impact of inflation on global real estate?
I think inflation has historically been an opportunity for real estate investors. When you look at returns and periods of inflation, you’ll see that REITs have outperformed general stocks and bonds during these periods, and that’s in part because many leases have built-in protection against leases. core inflation. In addition, you have construction cost inflation, which rises a lot, which tends to limit supply. The only caveat is that you have to watch out for wage inflation. These are the types of opportunities that exist in real estate in an inflationary environment.
Will the continued demand for work from home negatively impact returns in the future?
This will be a headwind for office demand. But the good news about being in a diversified global real estate strategy is that we don’t need to invest in office space. In fact, in some areas we’ve either been tactical, which means we’ve had tactical positions, or we haven’t held them at all, recently. So, the menu of opportunities in the global real estate strategy allows us to invest in opportunities outside the office if we think it’s going to be negatively affected and have headwinds for working from home. Even beyond that, there are beneficiaries of working from home in the overall real estate strategy for real estate.
Pension funds as an investment vehicle are relatively new to Indians, and there is a small percentage of people who have started to give it a try. What makes you confident that Indian investors will go for global real estate?
Indian investors have a good knowledge of real estate. Plus, what we’ve seen in other parts of the world when introducing Reits is that there’s an appetite for diversification. Investors are realizing that real estate as an asset class can be a great diversification if they own local stocks, bonds and real estate. And it’s a good way for local investors to access the best real estate in the world. Once we brought this to the markets, I think investors were drawn to these diversification benefits of having access to high quality properties to increase their real estate exposure to different types of properties that they don’t have. may not have access locally.
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