Asia Pacific investment manager PAG has reached a $1.8 billion final close for its latest pan-Asia core-plus/value-add real estate fund, PERE has learned.

While the size of PAG Real Estate Partners Fund III is smaller than its $2.25 billion predecessor PAG Real Estate Partners II, the fundraising is still expected to be regarded as significant given how challenged the office sector has become.

It is understood the fundraising includes commitments from 18 institutional investors globally, including sovereign wealth funds, pension funds and endowments.

The fund has a target return of 12 percent net IRR. Launched in June 2021, the firm has already deployed nearly half of the capital raised.

Outlays include office buildings such as Cross Street Exchange in Singapore and 44 Market Street in Sydney. According to a report by Asian real estate news provider Mingtiandi, PAG paid $603 million for the former in January 2022 and, according to the business newspaper Australian Financial Review, the firm paid A$393.1 million ($257.6 million; €235.3 million) for the latter in June 2023.

Just as for its predecessor, the firm is expected to make investments for the fund in the gateway cities across Asia-Pacific including Auckland, Hong Kong, Seoul, Singapore, Sydney and Tokyo.

“The dynamics of the office sector in Asia are much different from the US and Europe, particularly regarding working-from-home,” a person familiar with the firm’s fundraising told PERE. “We have seen a full return to office post-covid in nearly all of our markets with strong underlying fundamentals, and we have a positive forward outlook for the sector.”

While office investment in the US and Europe was down 25 percent and 35 percent respectively between 2019 to 2022, the adjustment in Asia-Pacific was milder, according to broker CBRE’s latest Asia-Pacific office report in June 2023. The region recorded $63 billion of investment in the sector in 2022, just 3.8 percent below the pre-pandemic level in 2019.

Besides offices, the firm is also expected to invest PAG Real Estate Partners III’s capital in multifamily assets in Japan on a selective basis.