PGIM Real Estate has launched its first Australian real estate debt strategy, which is on track to meet its target of A$750 million (US$505.7 million), with a first close of approximately A$300 million and confirmed advanced commitments from several institutional investors, which should see it surpass A$600 million in the next few months.

The first dedicated, commingled Australian real estate debt strategy for the property firm 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, the company says, 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.

The company 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 A$5 billion to date.

“Driven by structural and cyclical factors, the long-term opportunities in Australian real estate debt are currently very compelling for investors,” Bulloch says. “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.”