Prudential Exec Sees Office Prices Falling 15%

At Prudential, commercial mortgage loans and other real-estate-related investments account for $51 billion of the $438 billion of the company’s $438 billion in investments.

In February, when going over results for 2023, Falzon estimated that office prices had fallen by about 30% from peak prices and might fall 10% to 15% more.

“The portfolio remains resilient,” Falzon said. “It’s high quality. It’s broadly diversified, looking at both geography and underlying property types.”

PGIM originates real estate loans directly, and they have made loans where the typical loan value amounts to an average of only about 58% of the properties’ value, Falzon said.

Office-related assets account for about $7 billion of the commercial real estate investments, or 14% of those investments, and the ratio of loan values to property values there is still a respectable 74%, Falzon noted.

Some commercial real estate analysts have suggested that large amounts of office mortgage loans will mature this year, and that, based on building revenue figures and what high interest rates have done to the cost of new mortgage loans, half of the borrowers will have trouble refinancing their mortgages.

Prudential had $2 billion in real estate portfolio maturities in 2023, and the company needed to provide modifications for borrowers that accounted for about $400 million of the maturities, Falzon said.

In the rest of 2024, he said, Prudential has about $2 billion of real estate portfolio maturities in the pipeline.

After that, the portfolio will see an average of about $5.5 billion in maturities per year through 2028.

“We expect that there’ll be episodic issues that we’ll need to deal with in the way of ongoing loan modifications and extensions,” Falzon said. “But overall, we are quite comfortable with the quality and resilience of the portfolio.”

Robert Falzon. Credit: Prudential