Asia-based alternative investment firm Pacific Alliance Group (PAG) has partnered with South Korean brokerage company Meritz Securities to launch a 200 billion won (€163 million; $180 million) private debt fund to provide senior loans backed by properties in South Korea.
The fund will extend senior loans to help finance real estate purchases in South Korea in special situations, including where property development is being suspended due to a funding shortage. It will pick up properties in such special situations at 70 to 80 percent of the assessed value of collaterals.
The fund has set the loan-to-value (LTV) ratio at 50 percent of collateral and will aim to deliver a 5.5 percent return to investors.
Incumbent funds of PAG will take over the subordinated equity tranche of investments to absorb losses when asset prices decline and therefore to guarantee a stable annual return to investors.
POBA, a savings fund for South Korean public officials, is the lead investor, committing 70 billion won to the fund.
Meritz Securities will act as a financial arranger for the fund.
With growing interest in real estate debt, the fund will be the first domestic vehicle of its kind to be raised in the country. Samsung SRA Asset Management, the property investment arm of the Samsung Group, is also said to be planning to raise a 300 billion won real estate mezzanine fund in the US commercial real estate market.