PAG Confirms $1.8B Fund as Largest APAC Core-Plus/Value-Add Vehicle This Year

PAG Real Assets on Tuesday confirmed its $1.8 billion final closing on its PAG Real Estate Partners Fund III (PREP III), with the real estate and digital infrastructure division of one of the region’s largest private equity firms declaring a fundraising milestone in a challenging year.

The third fund in the firm’s core-plus/value-add strategy, PREP III is the largest such vehicle to be raised this year, PAG said, citing data from market information provider Preqin. The fund focuses on the office sector, as well as on select multi-family assets in Japan, the company said.

With the office assets being revalued in many markets around the world, PAG has already been using its new cash to shop for bargains, including picking up a Sydney property recently at a 17 percent mark-down, with the fund’s manager expressing optimism for more deals.

“While each of our key Asia-Pacific markets is different, current conditions in the region are creating a strong pipeline of opportunities for our local teams,” said PAG partner Broderick Storie, who serves as co-head of the firm’s real assets division.

Staying in Office

“We see this fundraising as a validation of our successful approach to investing in real assets in the region, particularly in the office sector which is our focus,” Storie added.

PREP III aims to generate attractive risk-adjusted returns by focusing on key gateway cities across Asia Pacific where it has a demonstrated track record, including Auckland, Hong Kong, Seoul, Singapore, Sydney and Tokyo, the company said.

PAG is proclaiming its enthusiasm for the office sector at a time when many other investors are looking elsewhere, with data provider MSCI this week declaring that the April through June period was the weakest second quarter for trades of office assets since 2010.

In Australia, average prices for office assets are now 5 percent below the market’s most recent peak, according to MSCI, with the company expecting that mark-downs of around 18 percent are necessary for investors to begin making acquisitions again.

PAG closed on its purchase of 44 Market Street in Sydney this past week, with the seller, Australian fund manager Dexus, noting that the A$393.1 million ($257.8 million) price for the 30,000 square metre (322,917 square foot) grade A office tower represented a 17 percent discount from its book valuation as of 31 December.

The acquisition, which was made via PREP III, was completed at a cap rate of 6.6 percent, Mingtiandi understands.

In January, PAG announced that it had teamed up to buy the Goldin Financial Global Centre in Hong Kong’s Kowloon Bay area from the property’s receivers for HK$5.6 billion ($713 million).

In January of 2022 PAG acquired the Cross Street Exchange in Singapore for S$810.8 million (then $603 million), with that acquisition also said to be made on behalf of the PREP III vehicle.

Scaling Back

PREP III received backing from 18 institutional investors from North America, Europe, the Middle East and Asia Pacific, including major sovereign wealth funds, pension funds and endowments, according to PAG, which did not name any of its limited partners in its statement.

From public disclosures, Mingtiandi can confirm that the California State Teachers Retirement System (CalSTRS) committed $200 million to the strategy in mid-2022. The Employees Retirement System of Texas also contributed $50 million to the vehicle.

By the beginning of this year, PAG had reached $270 million in pledges to PREP III, according to a filing with the US Securities and Exchange Commission at the time.

With private equity fundraising falling globally, the $1.8 billion which PAG raised for PREP III is 20 percent less than the $2.25 billion it gathered for PAG Real Estate Partners II by its final close in 2019.

Reports earlier this year indicated that the company had also scaled back fundraising for its latest buyout strategy, aiming to raise $6 billion for the fund instead of the $9 billion originally targetted.