Temasek, the Singapore sovereign wealth fund, is ramping up its presence in commercial real estate debt, teaming up with Pennsylvania-based asset manager CenterSquare Investment Management ( CenterSquare ) in a US$100 million co-investment vehicle targeting high-quality subordinate real estate loans.

This latest move, Temasek says, builds on growing interest in real estate-backed lending as traditional lenders pull back in a higher-rate environment.

The investment vehicle, once fully funded, will have US$200 million at its disposal to take advantage of dislocated debt markets, particularly in multifamily housing.

The first tranche of capital will be deployed, alongside CenterSquare’s existing debt funds, focusing on pre-identified transactions. While multi-family assets remain the priority, the fund, the companies point out, maintains flexibility to pivot as market conditions evolve.

Temasek’s interest in real estate debt comes as the sovereign fund recalibrates its property exposure. In recent years, it has moved beyond traditional equity stakes in developers to focus on structured investments, such as lending against high-quality assets.

Last year, the fund backed Goodman Group’s expansion in Asia-Pacific logistics and participated in CapitaLand Investment’s credit fund for transitional properties. More recently, it has explored distressed opportunities in the US and Europe, targeting assets that have been hit hard by rising interest rates and shifting demand fundamentals.

This latest venture with CenterSquare underscores Temasek’s confidence, the sovereign notes, in real estate credit as a risk-adjusted alternative to direct property ownership. With capital markets still constrained and valuations resetting, the fund, it states, could remain active in this space.

“Many borrowers are facing funding gaps as loans mature, and they can’t secure the same level of financing as before,” notes Michael Boxer, CenterSquare’s managing director for private real estate debt vertical. “For disciplined investors, this presents an opportunity to achieve equity-like returns through mezzanine debt and structured equity.”

Richard Gorsky, the firm’s managing director, private real estate debt, adds: “Now is one of the best times I’ve seen in my career to invest in commercial real estate debt. The convergence of several factors, including the reconstitution of the borrower’s capital stack and resetting valuations, combined with the favourable fundamentals across residential subsectors, underpin this timely co-investment opportunity.”