Dexus is teaming up with Commercial & General to launch a healthcare fund, which it intends to grow to AUD2bn (€1.33bn) in three years.

The Australian-listed property group is looking to raise AUD260m from Australian and offshore pension funds to launch the wholesale vehicle by the end of the year.

The unlisted fund will be seeded with a 343-bed private hospital under construction and a medical centre in South Australia worth a combined AUD370m.

Graham Pearson, executive general manager of funds management at Dexus, told IPE Real Estate: “We are looking for four institutions to co-invest with us.”

In addition to the initial fundraise, Dexus will seek further commitments to fund future acquisitions. It has a pipeline worth approximately AUD390m.

“We’re certainly looking for investors who want to grow with this fund,” said Pearson.

“Our vision is a fund of significant scale, approaching AUD2bn or more over the next three years.”

Dexus and developer Commercial & General – which is building one of the seed assets, the Calvary Adelaide Hospital – are establishing a jointly-owned entity to manage the fund.

Pearson said Dexus would not be involved in the operation of healthcare assets. “What we are providing here is real estate investment exposure,” he said.

Dexus’ initial co-investment will be about AUD80m, but it intends to sell down the interest. Dexus and Commercial & General are committed to retaining at least a 10% each in the vehicle.

“We have spoken to a number of large institutional investors in Australia and offshore and there is very strong interest,” said Pearson.

Although healthcare is recognised as an emerging asset class, Pearson said investors are attracted to the potential and scale of the sector.

“We are talking about a market which is potentially as big as the industrial sector,” he said.

“Healthcare, including aged care, is a market of about AUD125bn worth of real estate. It is, by far, the largest of what you might call the alternative sectors.”

Pearson said Dexus has identified healthcare as a “fourth pillar” to built alongside its office, retail and industrial platforms. It currently manages AUD22bn of assets in these sectors.

The fund will invest in hospitals, medical centres, laboratories and aged-care facilities, but will avoid retirement villages.

“The assets provide very long leases of more than 20 years-plus for hospitals and 10 years-plus for medical centres. This gives us a long-term secured income stream.”

Pearson spoke of compelling underlying demand for healthcare, driven by population growth and an ageing population.

“This means demand for healthcare is, to a very large degree, non-discretionary,” he said. “And that demand provides insulation from fluctuations that you might get in other sectors.”