ESR Boosting Korea Development JV With APG, CPPIB to Potential $2B

Logistics giant ESR is beefing up its second Korean development joint venture with APG and the Canada Pension Plan Investment Board, with plans to increase the vehicle’s total equity investment capacity to as much as $2 billion.

Known as ESR-KS II, the JV was set up in June 2020 by Hong Kong-listed ESR, Dutch pension fund manager APG and Toronto-based CPPIB with $1 billion as the initial equity allocation. The upsizing will add up to $1 billion in equity to the venture, ESR said Wednesday in a release.

The initial investments in ESR-KS II by ESR, APG and CPPIB amounted to $200 million, $350 million and $450 million respectively, with more than 80 percent of the $1 billion equity allocation having been deployed across 1.3 million square metres (14 million square feet) of warehouse space now under development.

“Institutional investment in the Korean logistics sector remains very strong as investors continue to rebalance their allocations towards logistics assets against the backdrop of e-commerce acceleration,” said Thomas Nam, CEO of ESR-Kendall Square, ESR’s South Korean platform. “The upsize of ESR-KS II reflects the collective confidence of our capital partners in ESR’s ability to capitalise on this secular opportunity.”

Continuing Partnerships

ESR-KS II invests in and develops industrial and warehouse assets in South Korea’s two largest metropolitan areas, Seoul and Busan. The JV is the successor vehicle to the $1.15 billion ESR-KS I, a 2015-vintage partnership of the same investment trio.

The two ventures have a total of 3.9 million square metres of warehouse space either developed or under development, ESR said. ESR-KS I has sold 30 percent of its completed properties (in terms of equity) to KRX-listed ESR Kendall Square REIT, generating proceeds of more than $1.38 billion.

In addition to their APG tie-ups, ESR and CPPIB have their Korea Income Joint Venture, which was formed in 2018 to invest in income-producing logistics assets in South Korea. The two partners added $500 million to Korea Income JV in 2021, effectively doubling the size of the vehicle to $1 billion in total equity allocation.

“Korea is one of the most sophisticated internet and e-commerce markets globally,” said Gilles Chow, managing director and head of real estate for North Asia at CPPIB, which has assets under management totalling C$539 billion ($413.4 billion). “We continue to see strong demand for quality logistics assets in the country.”

ESR-Kendall Square is the largest logistics owner in South Korea, with $9.2 billion in assets under management and 4.3 million square metres of gross floor area at the end of 2021.

Global Investors Make Moves

Sanghwoi Bae, the CEO of ESR Kendall Square REIT’s manager, told MTD TV in May that the next 24 months would serve as a “reshuffling period” in South Korea for many investors, developers and general contractors, with some players likely to stay on the sidelines waiting for construction prices and leasing rates to settle.

Bae said investors with deeper pockets, including foreign firms, could take advantage of the window of opportunity to acquire assets or set up ventures as domestic players with more limited resources struggle with challenging financial conditions.

In April, industrial specialist Logos announced the launch of its first South Korean development venture alongside Dutch fund manager Bouwinvest and two unnamed institutional investors, aiming to deploy up to $1.3 billion to build logistics facilities in Greater Seoul. Sydney-based Logos has been a unit of ESR since the HKEX-listed group’s January acquisition of Logos parent ARA Asset Management.

In March, Singapore’s CapitaLand Investment joined forces with US fund manager PGIM Real Estate on a Korean value-add warehouse investment vehicle seeded with a cold storage centre in Gwangju city, just four months after the partners set up a core logistics strategy in the country.

In early 2022, US developer Hines revealed plans to develop its second cold chain warehouse in South Korea, a four-storey facility in Greater Seoul with 1 million square feet (92,903 square metres) of cold and ambient storage space.