International Investor in Mexico for the Long HaulWed, 11/01/2017 - 12:33
Q: What importance does PGIM Real Estate see in Mexico and what is its importance in your global portfolio?
A: PGIM is the investment management arm of Prudential Financial, which is a large public financial services company headquartered in the US. In Mexico, Prudential has a number of businesses, including a life insurance business, which constitutes a small part of what we do in the country. The largest of Prudential’s businesses in Mexico is PGIM Real Estate, which is the real estate investment arm of the company. We are the largest and longest tenured international real estate manager in Mexico, having established our operations in 1999. At that point, we began specifically investing in real estate in Mexico at a time when few international companies were doing so. We have a wide portfolio of assets totaling more than US$3 billion, mainly concentrated in the industrial sector. We are the external advisor of a publicly traded Fibra called Terrafina, whose portfolio includes warehouses for logistics and manufacturing, and is one of the largest owners of industrial assets in Mexico. Many of our tenants are US companies exporting manufactured goods. Our tenants include GM, Honeywell, Zodiac, Goodyear, Continental and Cessna, among many others.
While the main pillar of our business is industrial, we have expanded to other sectors within real estate over the years, such as for-rent residential and retail, where fundamentals have improved due to a growing middle class. The manufacturing sector has increasingly brought formal employment to the country. Twenty years ago, one in 10 people was formally employed; 10 years ago, this increased to one in eight and now it is one in three people. This increase in formalized employment provides people access to the government housing fund, allowing them to obtain a mortgage and buy a residence. This disposable capital drives the residential segment and PGIM Real Estate is a large investor in this segment in Mexico. The increased access to consumer credit also drives more demand for shopping and retail centers, where we also invest. While our holdings in Mexico constantly fluctuate, we always have a considerable stake in the market here, and even with the concern about US trade and NAFTA, we still believe in the long-term investment viability in Mexico.
Q: The PruMex IV CKD will allow PGIM Real Estate to expand into multifamily-for-sale, residential and mixed use. Why do you see so much potential in these areas?
A: PruMex IV is the fourth fund we have raised in Mexico and it is not the first time we have invested in those sectors. It is a continuation of the 17 years we have spent investing in Mexico. PGIM Real Estate was a pioneer in bringing multifamily-for-rent to the Mexican market. Previously, people tended to buy single-building units or condominiums and rent them but nobody had full buildings dedicated to rental. In 2008, we developed a portfolio of six assets consisting of 3,500 units for this purpose. This was a successful endeavor and we then opted to sell these assets. We feel industrial is the core of Mexico and the main driver of other real estate sectors. Residential, both for-rent and multifamily, has been a very successful part of our business. Now, Mexican culture is becoming more aligned with that of the US so people are beginning to favor renting apartments over buying. Compounded by the younger population that is no longer interested in purchasing property, we are seeing strong demand for these types of properties.
Q: What are you doing to raise sector confidence and how do you plan to continue raising capital from Mexican institutional investors?
A: Mexico has been a particularly difficult market in which to raise money. I believe the fact we were able to raise MX$4.422 billion for our PruMex IV CKD means Mexican Afores are starting to see the value of investing money with an established, household name. Our parent company and PGIM Real Estate are viewed as extremely strong and stable, and we are doing things the right way with our investors at the forefront of our decisions. As a principle, we never blur the lines or do business in a way that our actions could be ethically questioned. I think this is what has kept us in the market for 17 years.