PGIM Real Estate has shifted its senior housing investment strategy to adopt a more “open-ended” fund model.
That’s according to PGIM Managing Director Steve Blazejewski, who recently spoke to digital publication Wealth Management about the company’s shift in strategy.
Of note is that the shift will change PGIM’s senior housing investment strategy from closed-end funds to investing in open-ended funds. The reason, Blazejewski explained, is that investors in the space have grown more savvy as the product type has become more mainstream. He added the company’s senior housing investment strategy must develop a “more perpetual structure.”
“We have over $30 billion invested in various open-ended fund structures,” Blazejewski said in the interview with Wealth Management. “There is an opportunity for the senior housing sector to move in that direction.”
In a nutshell, open-ended funds are different from closed-end funds in that there is no limit to the number of shares they can issue or redeem with shareholders. While the company’s investment strategy is changing with the move, Blazejewski said it would not impact the way the company works with its operating partners.
Creating a more “evergreen structure,” Blazejewski said, gives investors “semi-permanent exposure with liquidity, taking away so-called ‘vintage risk.'”
He added in his interview, “We think it’s time for the industry to have permanent capital available to operators to capitalize their communities and their projects that is not a publicly-traded real estate investment trust and is not subject to public reporting requirements.”
A PGIM representative was not immediately available to elaborate on the company’s shift in strategy.
PGIM is the real estate asset management component of life insurance company Prudential Financial (NYSE: PRU), and the company has invested almost three quarters of the $996 million it raised for its last close-ended fund for senior housing, the article states.
The shift in strategy is due to rapid change in the senior living industry over the last three decades, Blazejewski said, highlighting senior living’s past as a “very niche-type product” becoming “more sophisticated and institutional.”
“We’re at a point where there is sufficient size and liquidity within seniors housing to be able to create liquidity for an investor if and when they want to exit that investment,” Blazejewski told Wealth Management.
Private equity and venture capital has been flooding into the senior living space recently, with a study by the Journal of American Medical Association (JAMA) showing value of investment in 2022 by both venture capital and private equity is far lower, under $1 billion, than the deal value reported in 2021 when venture capital invested in deals worth well-over $2 billion.
But the overall rate of investment was comparable between 2021 and 2022 as private equity outpaced venture capital investment last year and venture capital outperformed private equity investment this year.
In 2021, PGIM invested $1.6 billion in senior living, driven by increased demand largely by the aging U.S. population, Blazejewski told Senior Housing News. The firm is also prioritizing Environmental, Social and Corporate Governance (ESG) as a main component of its future development plans, and aims to be carbon net zero by 2050.