Dexus raises $300m for opportunistic real estate fund

Property companies are getting into higher risk areas as returns from traditional investments like offices and shopping centres come under pressure.

Property company Dexus has put its ability to diversify into higher returning areas of property on display by raising more than $300m for its second dedicated real estate opportunity fund, and says it is on track to raise up to $1bn in equity.

The unlisted trust can use the funds to invest in property repositioning plays, development and special situations as well as real estate lending deals, which are providing higher returns than the group’s traditional office investments.

The move is part of efforts by the company to broaden beyond its base in office towers, and it is already diversifying its holdings in areas ranging from healthcare property to opportunistic plays, such as apartments, via its funds unit.

Dexus is due to update the market this week but analysts have said its strategy is to double its third-party funds beyond 2030, with significant growth opportunities also in infrastructure as it seeks to boost its $44bn funds empire.

The Dexus Real Estate Partnership 2 fund is the second in a series of closed-ended funds which target local real estate opportunities. The first fund had a capacity of about $1bn.

Further funding rounds for the second fund are expected to close this year and, all up, the fund expects to invest as much as $2bn, starting with the funds just committed.

The first fund has been a success and four deals it backed are expected to be exited this calendar year, with returns expected to be around an equity internal rate of return of about 15 per cent.

Dexus chief executive of funds management Deborah Coakley said the fund raising “illustrates the continued investment appetite for enhanced returns and investors’ support for the specialist Dexus team to identify and deliver successful transactions in this space”.

Dexus chief executive, funds management, Deborah Coakley.

The fund manager, Jason Howes, said there had been “substantial” investor interest from domestic and international investors who believe the “current market environment offers the right set of circumstances for opportunity style investing”.

Mr Howes said the fund investments would be split up to about one-third in credit opportunities, with the balance weighted toward equity repositioning and special situations strategies.

“We expect at least 60 per cent of the portfolio to be in Sydney and Melbourne and will cap gearing at 55 per cent of gross assets,” he said.

Originally published as Dexus raises $300m for opportunistic real estate fund