CapitaLand pivots to discretionary fundraising with $750m debt fund

The firm has already raised bulk of the capital raising target for its first real estate debt vehicle.

CapitaLand, the Singaporean group that recently made headlines with its mega $8.1 billion acquisition of Ascendas-Singbridge, has raised $556 million in the first close of a real estate-focused debt fund. The firm has set a $750 million capital raising target for CREDO I China.

CapitaLand has previously done opportunistic lending, but this is the firm’s maiden fund for real estate debt. The blind-pool commingled fund also marks CapitaLand’s move into discretionary fundraising. PERE understands the previous vehicles raised by the firm were non-discretionary and structured either as single investor vehicles, joint ventures or clubs involving a handful of investors.

With S$67 billion ($49.5 billion; 43.4 billion) in assets under management as of January, CapitaLand’s fund management platform was identified as a key pillar of growth for the firm when it announced its acquisition of Ascendas-Singbridge and the resulting creation of a S$116 billion AUM entity. The ground work for the platform’s growth started in late 2017 when CapitaLand announced plans to merge and consolidate all its private equity real estate funds into a new business unit called CapitaLand Investment Management, and appointed James Lim as chief executive. Until that time, different funds were run by different business units within CapitaLand.

CREDO I China is understood to have officially come to market last July when the firm appointed former Credit Suisse executive Arjun Pandit to spearhead its debt strategy. Pandit, who is the managing director for fund management at CapitaLand Investment Management, is based in Singapore.

In terms of investment strategy, the fund’s capital will be invested in offshore US dollar-denominated subordinate instruments for real estate in first and second-tier cities in mainland China and Hong Kong across commercial, retail, residential, logistics and industrial assets.

“As the market continues to deleverage and banks continue to tighten credit, there are opportunities to provide mezzanine debt financing to high-quality borrowers for high-quality properties,” Lim told PERE. “We will not venture into Tier 3 or 4 cities nor lend to obscure local developers.  The fund is intended to be an augmentation of capital made available by the senior banks.”

When asked about the competitive landscape for Asia-Pacific real estate debt strategies, Lim said it is mostly dominated by real estate private equity funds that have raised capital for equity investments but are also investing in high-risk and return mezzanine loans for residential development.

“This strategy excludes many investors that do not want to take such high risk,” he explained. “These opportunistic private equity real estate funds are expected to deliver high teens returns to investors. But such fund returns will increasingly be difficult if the manager makes mezzanine loans at high single digits or low double digits.”

Lim did not specify the exact return criteria for the fund but noted that the investments would target a lower risk/return range in comparison to the mid or high teens returns targeted by other fund managers operating a debt strategy.

Alongside CapitaLand, PAG is the only other firm currently in the market with a real estate debt fund – PAG Special Situations Fund III – in the region, according to PERE data. Meanwhile in 2018, five Asia-Pacific debt funds reached a final close, the same number as in 2017 and less than the 9 funds that closed in 2016, the data showed.