By Jon Peterson
As the economic impact of the coronavirus takes shape, it is starting to show the effect the global pandemic will also have on the commercial real estate industry. According to a conference call organized by the San Francisco-based Prologis earlier this week, the global industrial developer and property owner has decided to stop all new spec developments it was planning to start this year or had already started around the globe. The company did not specifically outline which properties are directly affected, but the move provides a glimpse into how deep the impact of the virus has been on the logistics industry, even with this industry being one of the largest beneficiaries of stay-at-home policies enacted across the world.
Some of the investor’s build-to-suit projects that were underway have also been impacted. Prologis currently has 30 build-to-suit developments in development around the world. 8 of them have been halted by local authorities, and Prologis expects a few more projects to be stopped with construction likely to resume gradually later this year.
Prologis is seeing interest in its open-ended commingled funds across the globe attracting new capital while at the same time having some of its investors filing redemptions to exit them. The real estate investor has commingled funds seeking investments in the United States, Europe and China.
The new commitments for the first quarter totaled $625 million through 15 commitments, as stated by Prologis in the conference call. There also are several hundred million dollars of additional commitments that are being considered for the future.
There have been some investors in the open-ended commingled funds managed by Prologis that have filed redemptions to exit the funds. There were six investors filing a total of $880 million worth of redemptions during the first quarter, as stated in the conference call. These redemptions were split with half coming from the United States and half in Europe.
Prologis does see that the denominator factor will come into play in its investment strategy. This occurs when an institutional investor becomes over allocated to real estate without making any new investments as its total plan assets drop in value. With the equities markets posting strong declines over the last few weeks, the percent of investors’ capital directed to real estate funds automatically increased well beyond their guiding percent allocations.
“There’s going to be a denominator effect, because as people’s stock and bond portfolios become less valuable, the percentage allocated to real estate will get smaller. And as a result, there could be some money that comes out of real estate,” says Hamid Moghadam, chairman of Prologis during the conference call.