Can somebody provide a high level of the different functions of a Real Estate investment arm of an insurance company (such as PGIM RE)? I understand there are equity and debt functions, but what are typical institutional investors and how does the deal flow work? I guess I'm having a disconnect between these types of firms and a typical boutique private equity firm.
Thanks!
By asking how does deal flow work, are you asking what type of deals are they looking for? It depends on the institutional investor. PGIM may be looking at a core office building for their General Account, but may have a separate account, which they manage, which invests in development / value add deals. Deal flow will come through the door by way of the acquisition officers and than it will get screened / underwritten like any other deal. Deal flow will work like a PE firm, it may come off market, it may come from a broker, etc. Is this what you were asking?
Thanks pudding. Yes, makes sense, and what I was thinking. I'm currently interning at a small PE firm with a niche investment strategy. As I interview, just want to make sure I have fundamentals down.
Whats the connection with managing the LIfco's $ from premiums and the deal. Is this simply just where they derive their owner stake in the deal? How interconnected in the $ sitting from premiums and the dollars thrown into RE investment strategies (sorry for lack of industry terminology)?
Life Company's will take the premiums they sell from selling insurance policies and invest them. For example, if they have $100 to invest, 5% may go to equities, 5% debt, 3% real estate, etc. The money is interconnected in the sense that the premiums which eventually get invested, a certain percent are allocated to real estate.
Insurance RE Investment analyst (Originally Posted: 06/20/2011)
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To address your concerns: 1. I was wondering if RE within an insurance company is the same as RE PE?
Same skillset, but the deals you work on will be more conservative and therefore more boring. Regardless, people often go from one to the other.
I think it'd be respected as solid experience but wouldn't put you in the same tier as the applicants from the Blackstones of the world. Just my opinion.
RE at an insurance company is similar to RE PE in so far as at both places you will develop skills related to how to analyze potential acquisitions. Where the BIG difference is lies in the type of RE strategy the firms take. Insurance companies invest in "core" RE, while RE PE invests in "value-added" and " opportunistic” RE. I recommend reading up on these terms, but basically there are four types of RE investments (besides land, which can fall under opportunistic). From least return/least risk to high return/most risk - core, core plus, value-added, opportunistic.
Core strategies are those that have a stable yield. Think of a high rise office building in a CBD (central business district) with 95% occupancy rates, great tenants with high credit ratings, etc. On the other end of the spectrum, an example of an opportunistic strategy is a retail shopping center with low occupancy, no anchor tenant (think of a large retailer such as a Best Buy) and is in an emerging market. The job of the investor is to team with developers to bring in an anchor tenant, increase occupancy rates and invest in extensive tenant improvements.
Hope this helps.
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