PGIM Real Estate, one of the world's top fund managers, has launched its first Australian real estate debt strategy, which is on track to achieve a $750 million target.
The investment firm has already raised approximately $300 million and has confirmed prepayment commitments from several institutional investors, which will help it exceed $600 million in the coming months.
PGIM Real Estate's first dedicated Australian real estate blended debt strategy delivers strong risk-adjusted returns and downside protection, the company said.
PGIM said in a written statement that its investments will focus on senior development loans, gap financing and financing of transitional real estate assets.
The strategy will be led by the portfolio management team consisting of Steve Bullock, head of real estate debt for Australia and Asia Pacific, and Emma Jack, head of debt portfolio management for the region.
Mr Bullock said long-term opportunities in Australian real estate debt were very attractive to investors due to structural and cyclical factors.
“Australia's property market is one of the most resilient in the world thanks to its strong economic fundamentals, growing population and limited supply,” he said.
“Investments in real estate loans will be further bolstered by peaking interest rates, which will provide strong risk-adjusted returns.”
PGIM said it expects a further shift from traditional bank lending to alternative capital sources as valuation pressures and approaching maturities of loans primarily held by banks are expected to create a large funding gap.
That could present an opportunity for the company's debt strategy.
▲ PGIM's headquarters, Prudential Tower, in Newark, New Jersey.
PGIM Real Estate's US$108 billion (A$160 billion) global debt business has invested through multiple credit cycles, leveraging its local origination and asset management capabilities, including extensive experience in value-add and high-yield debt strategies.
PGIM said the significant increase in benchmark interest rates in most parts of the world has made the absolute returns of fixed income investments increasingly attractive, especially on a risk-adjusted basis.
Block said he plans to put more than US$1 billion (A$1.48 billion) into Australia over the next few years in both traditional core senior debt and higher yield bonds.
PGIM is the New York Stock Exchange-listed global asset management division of Prudential Financial with assets under management of $1.34 trillion ($1.98 trillion).
PGIM has approximately $5 billion in equity and fixed income mandates under management in Australia, including logistics, office, retail, hotels, data centres, mixed-use properties and various forms of residential property.