PGIM Real Estate has launched its first Australian real estate debt strategy. The new strategy is on track to meet its target of AU$750 million with a first close of approximately AU$300 million and confirmed advanced commitments from several institutional investors which should see it surpass AU$600 million in the next few months.

The first dedicated, commingled Australian real estate debt strategy for PGIM Real Estate aims to provide strong risk-adjusted returns and downside protection with an investment strategy focusing on senior development loans, gap financing and financing of transitional Australian real estate assets.

The strategy is managed by an experienced portfolio management team led by Steve Bulloch, head of Australia and head of Asia Pacific Real Estate Debt, and Emma Jack, head of Debt Portfolio Management in Asia Pacific at PGIM Real Estate.

Bulloch commented, “Driven by structural and cyclical factors, the long-term opportunities in Australian real estate debt are currently 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. The investment case for real estate debt is further bolstered by the peak interest rates resulting in strong risk-adjusted returns.”

“We anticipate a further shift from traditional bank lenders to alternative capital sources. Pressure on valuations and the upcoming wave of maturities for loans mostly held by banks are set to create a meaningful funding gap, bringing opportunities for debt strategies like ours”, he said.

The US$108 billion global debt business of PGIM Real Estate has invested through multiple credit cycles with its strong on-the-ground origination and asset management capability, including significant experience in value-add and high-yield debt strategies. Building upon the robust infrastructure, it has established strong  capability in debt originations in Australia  for over a decade, with extensive experience across all asset types and major cities.

With base interest rates having risen substantially in most parts of the world, the absolute return for a debt investment is increasingly attractive, particularly on a risk-adjusted basis. Bulloch added, “Many of our global institutional investors are seeing this as a good entry point to diversify their portfolios with real estate debt”.

PGIM Real Estate has been investing in the Asia Pacific markets for nearly 30 years, with a strong presence on the ground in Australia since 2011. The team has built a solid track record of over 50 debt and equity investments in Australia, with a total loan and transaction volume in excess of AU$5 billion to date.

“With the strength of our global platform and a proven investment track record in Australia, PGIM Real Estate is well positioned to meet the projected demand for real estate debt. We expect to deploy in excess of US$1 billion over the next few years in Australia, across both traditional core senior debt and higher-yield debt,” he added.  PGIM Real Estate is the US$206 billion real estate investment and financing business of PGIM, the US$1.34 trillion1 global investment management business of Prudential Financial, Inc. (NYSE: PRU).