Soultana Reigle knows quite a bit about investing. As head of U.S. equity and the senior portfolio manager for U.S. value-add strategies at PGIM Real Estate, Reigle applies more than 20 years of CRE investment knowledge into her leadership positions. Her firm’s assets under management is a staggering $57 billion, while Reigle herself oversees an $11 billion book and more than 180 professionals.
CO sat down with Reigle to discuss her career, PGIM’s equity strategies across the United States, and the hands-on nature she applies to value-add investment and property management.
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This interview has been edited for length and clarity.
Commercial Observer: How did you break into CRE?
Soultana Reigle: I went to Northwestern University, and at the time LaSalle Partners, a local Chicago-based real estate company, was really the only real estate group interviewing at Northwestern. For me, I wanted to do something in financial services, and the tangibility of real estate is what really attracted me to it as a career. I then went into an opportunity fund at a small Chicago-based company, from LaSalle, and then from there, the opportunity fund group that I was working for was a venture partner with Prudential, with PGIM, and that’s how I got sort of into Prudential. We just kind of had a great relationship, and they had an opening, and I interviewed and moved to the East Coast and started here almost 25 years ago.
What makes equity kind of your bread and butter?
Because I’ve always been in the equity side of the business, and to be honest, even within PGIM, equity was always very separated. It wasn’t like I was even working with the debt side of the business, outside of just putting debt on our investments. So I think it was just the lane I started in and has been the lane I’ve stayed in. And then recently, we have brought our debt and equity sides of the business together to cohabitate. So we’re still very separate, but I sit on the debt investment committees and have been more integrated into that side of the business. And likewise, my debt counterpart has done the same, and it’s been great. It’s added a dimension to PGIM.
Were you also always comfortable in the value-add space, or is that something that came recently?
Oh, yes, I’ve always been in the value-add since, I mean, outside of the first three years where I was at LaSalle, everything I’ve done has been development or something in value-add. I really enjoy it. What’s interesting about it is you always have a ball up in the air, there’s always something going on. And maybe I’ll take a step back by saying, when I think about risk and return, we get paid to take risks, right? So it’s about calculated risk, it’s about being able to really underwrite a market opportunity and limit your exposure. And I’ll give you an example of what I mean by that. When we underwrite a new development, we consider ourselves to be experts on underwriting the market: leasing, pace, rents, demographics, demand, travel. But we’re not in control of the day-to-day construction. We’re not the developer, we’re not swinging the hammer. The joint venture partner, who’s a developer, that’s their business, they get paid a fee, they get paid some upside if the project is successful. But we don’t take that risk from a budget perspective. So cost overruns, guarantees to the bank, those risks, which could represent exposure to our equity, those are partitioned, and they sit elsewhere within the capital stack. So that’s the approach: We really focus on what we can underwrite, what we think we’re good at, and then what we’re not in control of, and what we’re not doing day to day, like development, we’re trying to put that risk off on others.
So with that strategy in mind, which asset classes have you always been comfortable and have targeted in your career?
Multifamily is really the outlier as far as what we do, going back 30 years. In terms of multifamily development, we have a pretty tremendous track record in that regard. We’ve done it across all sectors, but multifamily stands out.
What have you learned from the recent market upheavals?
There’s some pretty obvious structural opportunities, and they’re going to be there whether rates come down 25 basis points, or 50 basis points, or not at all. There are some demand drivers giving us confidence. But we really didn’t see a valuation issue during COVID. I mean, we had other issues in terms of protocols, but from a valuation perspective, it wasn’t the same as when interest rates started going up. The other thing we’ve experienced, when we look at core multifamily valuations, they obviously have come down because cap rates went up. On the development side, you have a buffer built in that is what you’re expecting from a development return versus what the cap rate for a stabilized asset is, and that’s your profit, that gap. So, you’re underwriting something at the development margin that’s higher than the spot cap. And so when cap rates go up, you have diminished your profit, but you still have some profit, or you’re at the very worst break-even. So our value-add performance was better than our core, over those two years where rates were going up. So it’s kind of interesting, right? Because all it meant was diminished profit. It didn’t mean a negative return.
So how do you see multifamily evolving for the rest of the decade?
Well, I think just from a demographic standpoint, you have the rent-versus-own dynamic going on, where people are just priced out of homeownership because rents are high, because down payment expectations are high, because single-family homes are up 50 percent from where they were five years ago. So there are some factors that are preventing people from getting into that homeownership that keep the demand story for multifamily really good. At the same time, supply is like a half a percent of the total inventory rate, which is historically low. So the next couple years, we see a really good opportunity for multifamily. And I would say even the next three years call for rent growth, for retention rates. So, we’re really happy with both our existing book and the multifamily space, but we’re also very focused on new development at this point, because we think there will be an opportunity. When we look at same-store NOI growth in our portfolio, so assets we own 12 months ago versus today, and how the NOI compares, across multifamily, it’s 7 percent. So it’s a good opportunity for multifamily.
What is the next asset class in your career that you would say you’re pretty comfortable expounding on and having done a lot of investment, too?
Probably the next biggest category for us has been industrial, but then I’ll also say senior housing. It’s not my background necessarily, but as a platform we have almost a 30-year history and dedicated senior housing strategies. It is very much of interest to investors because there’s just such a clear demographic story there.
Are you worried senior housing will become unaffordable to many Americans down the line?
I think some of it is the same case of why younger couples are priced out of homeownership because homes have risen so much in value, those same sellers of homes, who are maybe ready to go into that next phase of their living, maybe they’re downsizing, maybe they are ready for an assisted living or independent living, they have a tremendous amount of equity in their homes. So [senior housing] is not for everybody, for sure. And I think it depends on what your care needs are in terms of the cost, but it’s not unaffordable to everybody.
Where do you see industrial going over the next couple of years?
Coming out of COVID, even before COVID, there was a lot of momentum around those big warehouse spaces that are a million square feet or more, that are either fulfillment centers for the Amazons of the world or just general distribution, general warehousing. And that’s what we’ve seen fall off, more in some markets than others, in terms of demand. We had a lot of supply built, and I think we’re still seeing demand, but we’re still interested in development of smaller industrial projects, like a shallow bay that might mean a 50,000-square-foot tenant versus a 1 million-square-foot tenant, right? You’re getting somebody who might be doing more manufacturing, kind of less of a true warehouse use. Those tend to be smaller, you can build those more in-fill. We’re going to see more of that.
Brian Pascus can be reached at bpascus@commercialobserver.com