Clarion Partners is to invest $400m-500m (€356m-445m) in US real estate debt strategies.

Current Clarion funds and separate account clients will provide capital, the company said.

Drew Fung, Clarion managing director and head of debt investments, said: “Subordinate debt strategies offer some very attractive risk-adjusted returns in today’s investing environment.”

Fung said returns could vary from 7% to 12%, compared with cap rates of 3-4% on core assets in prime US markets.

Clarion is raising capital for its first dedicated debt fund, with a final closing planned for next year.

The company recently closed a mezzanine loan deal in New York City, providing a $61.2m loan on 575 Lexington Avenue, a 678,783 sqft office building.

Some of the capital will be used to cover the recapitalisation of the property and planned improvements.

“This office building is located in a very strong market,” Fung said.

“While this property has a current occupancy north of 80%, this is a blip in the performance of the asset.”

The Midtown East sub-market of Manhattan, where the property is located, has a current vacancy level of 7-8%.

Clarion is investing in mezzanine loans, B-notes and preferred equity, targeting transactions of at least $10m, either on individual assets or portfolios of industrial properties.

Maximum loan-to-value on its deals will be 85%.

Clarion is looking at major markets and smaller markets such as Denver, Chicago, Austin and Philadelphia, with most deals in the four main property types, as well as in the hotel sector.

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