FROM: Don Pierce, Chief Investment Officer
SUBJECT: PRECap VIII Commitment
RECOMMENDATION:
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Recommend that the Board approve a commitment of ?50 million to the PRECap VIII fund managed by PGIM Real Estate, subject to completion of due diligence and legal document review.
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BACKGROUND:
SBCERA has been investing in real estate managed by PGIM Real Estate (Prudential Global Investment Management) since 2003 and the PRECap team since 2016. SBCERA's previous commitments were ?20 million and ?50 million to the last two vintages. PGIM is a strategic relationship manager in SBCERA's real estate portfolio. Staff recommends a commitment of ?50 million (currently about $68 million) to PRECap VIII.
The portfolio management has been stable since our initial investment. Andrew Radkiewicz, Andrew Macland, and Mathew Crowther continue to lead the team. The PRECap real estate debt team is responsible for origination, structuring, and execution of its investments.
The PRECap strategy aims to fill a structural void in the real estate finance market that is a result of tougher bank regulations. The team seeks to build a diverse junior debt and preferred capital portfolio secured by real estate assets located in the UK, Germany, and other Western European Markets. The focus of PRECap VIII will continue to be primary origination of single asset loans or cross collateralized loans in situations where traditional banks are unable to provide funding. The approach targets investments with the following characteristics: attractively priced, good fundamentals, sustainable income potential, and asset management potential.
The results over the last two funds have been very different to date. PRECap VI invested capital between 2016 and 2020 and thus faced multiple headwinds: Brexit, pandemic, and the meaningful shift in demand for some property types - such as office. The first fund we committed to with this team has returned about -90 basis points net as o...
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