PGIM Real Estate Launches $750m Debt Strategy

One of the world’s top fund managers—PGIM Real Estate—has launched its first Australian real estate debt strategy and is on track to meet its target of $750 million.

The investment house has closed on about $300 million and confirmed it has advanced commitments from several institutional investors that should result in it surpassing $600 million in the next few months.

The first dedicated, commingled Australian real estate debt strategy for PGIM Real Estate would provide strong risk-adjusted returns and downside protection, the business said.

In a written release, PGIM said investment would focus on senior development loans, gap financing and financing of transitional real estate assets.

The strategy will be led by a portfolio management team of head of Australia and Asia-Pacific real estate debt Steve Bulloch and head of debt portfolio management in the region Emma Jack.

Bulloch said that driven by structural and cyclical factors, the long-term opportunities in Australian real estate debt was very compelling for investors.

“The real estate market in Australia has been one of the most resilient globally thanks to its strong economic fundamentals, population growth and limited supply,” he said.

“The investment case for real estate debt is further bolstered by the peak interest rates resulting in strong risk-adjusted returns.” 

PGIM said it anticipated a further shift from traditional bank lenders to alternative capital sources as pressure on valuations and the upcoming wave of maturities for loans mostly held by banks are set to create a meaningful funding gap.

That would bring opportunities for its debt strategy.

▲ Prudential Tower, PGIM’s headquarters in Newark, New Jersey.

The $US108 billion ($A160 billion) global debt business of PGIM Real Estate has invested through multiple credit cycles with its on-the-ground origination and asset-management capability, including significant experience in value-add and high-yield debt strategies. 

With base interest rates having risen substantially in most parts of the world, the absolute return for a debt investment was increasingly attractive, PGIM said, particularly on a risk-adjusted basis. 

Bulloch said they expected to deploy more than a billion US dollars ($A1.48 billion) in Australia over the next few years, across both traditional core senior debt and higher-yield debt.

PGIM is the global asset management business of New York-listed Prudential Financial, which has $US1.34 trillion ($A1.98 trillion) in funds under management. 

In Australia, PGIM has about $5 billion in equity and debt mandates, across logistics, office, retail, hotels, data centres and mixed-use, as well as a variety of housing forms.