Singapore-based CapitaLand has raised US$556m (€488m) at the first close of its inaugural Chinese cities real estate debt fund which targets a US$750m fundraise.
CapitaLand, which will hold a 10% cornerstone investment in the CREDO I China fund, said the fund will issue offshore US dollar-denominated subordinated instruments for real estate in China’s two-dozen or so first- and second-tier cities.
It will focus on loans and securities of real estate covering commercial, retail, residential, logistics and industrial properties.
James Lim, CEO of CapitaLand investment management, told IPE Real Assets that, given the deleveraging currently underway in China, quality borrowers had found it difficult to fund their investment.
“We will be offering additional gearing to high-quality borrowers on high-quality properties,” he said.
Lim, who joined CapitaLand in 2017 from his previous role as Asia-Pacific head of HSBC’s real estate finance group, added that the fund aimed to provide an augmented debt tranche of up to 20% of the value of a transaction.
He said this fund in China was different from mezzanine debt funds managed by private equity groups, some of which were funding developments in third- and fourth-tier cities.
“Our product is tailored more to capital preservation and to transactions which offer attractive risk-adjusted returns to our investors,” he said.
“Currently, there is no mezzanine fund playing in this space.”
Although marketing of the CapitaLand product has yet to begin, Lim said preliminary discussions with potential borrowers indicated that the fund’s capital would be fully deployed within its investment period of three years.
Lucas Loh, CapitaLand’s president in China and in charge of investment management, said CREDO I China had come at an opportune time, as a significant volume of China’s commercial real estate loans were due for refinancing within the next few years.
“We will tap CapitaLand’s operating capabilities and its network in China to source investment in quality property debt instruments for this debt fund,” Loh said.
Lee Chee Koon, CapitaLand’s president and group CEO, said: “CREDO I China will broaden CapitaLand’s fund offerings to real estate debts, going beyond our existing 15 private equity funds, which focus primarily on direct investment in property projects.”