2012: The Year of Maybe

Last year at this time, Prudential Mortgage Capital Co., had what it thought was a reasonable allocation to real estate of $5.5 billion. Halfway through the year, the company realized it had been too conservative and promptly readjusted. “Though there was and still is some degree of volatility, we found commercial mortgages attractively priced, compared to other investments and asset classes,” says Dave Twardock, president of PMCC.

The upshot? Twardock expects to close 2011 having made between $6 billion and $6.5 billion in commercial real estate loans.

As the life insurer puts the finishing touches on its allocations for 2012, PMCC is not making the same miscalculation it did last year, he says. “Spreads are still very attractive relative to other fixed-income investments,” he notes, “so we’ll be investing about the same amount as 2011, which for us has been a very active year.”

Yet as much as Prudential may be entering 2012 on a positive note, it doesn’t have blinders on. Twardock is fully aware that the market next year may not be ripe for the level of investment he’s planning, and that Prudential could be making a completely different miscalculation—by betting too heavily in favor of commercial real estate. If so, it will redial allocations yet again.

“Frankly, the current operating environment is unique and the most challenging in my 30 years in the business,” he says. “We just have to be ready if something major happens in Europe or the US. It could change the outlook considerably.” For his 2012 allocations, he notes, “check back with me in six months because it could be completely different.”

These indeed are challenging days, and not just for lenders and borrowers. Analysts—professionals who stake their reputations on forecasting trends for the commercial real estate industry—are collectively scratching their heads over 2012; hence the moniker “The Year of Maybe.”

To read the rest of the story, visit the December 2011 issue of Real Estate Forum.