M&G to Invest Up to $350M in Japan Development Partnership With ESR

M&G Real Estate has set up a long-term partnership with industrial giant ESR to develop a portfolio of logistics properties in Japan, with the UK-based fund manager to deploy up to $350 million in equity towards the cause.

The partnership is expected to increase the ESR-managed and M&G-invested logistics portfolio to more than $1 billion in gross asset value, Hong Kong-listed ESR said Tuesday in a release.

The new vehicle will focus on the cities of Tokyo, Osaka and Nagoya, the latter of which will host the inaugural project, Nagoya Minami 2 Distribution Centre. The announcement comes after M&G previously invested in two ESR logistics centres in Ichikawa and Nagoya.

“We are excited to solidify our partnership with this third transaction and the first development in Japan with M&G Real Estate Asia, an experienced global investor in the sector,” said ESR co-founder and co-CEO Stuart Gibson.

Manufacturing Hotspot

M&G will hold a majority interest in Nagoya Minami 2 Distribution Centre on behalf of its open-ended M&G Asia Property Fund. The four-storey project will commence construction in November, with ESR to manage the facility upon completion in October 2023.

Situated in Minato-ku, an industrial area about 9 kilometres (5.6 miles) from Nagoya’s central business district, the distribution centre will provide a net rentable area of 44,897 square metres (483,267 square feet) to multiple tenants.

Greater Nagoya leads Japan in output of manufactured goods, ESR noted, with the urban infill project targeted at tenants prioritising fast access to the city centre.

With over 95 percent of the area’s current warehouse stock at least 10 years old, and as supply of logistics properties isexpected to remain constrained in the medium to long term, ESR and M&G are betting on continuing demand for modern distribution facilities in the area.

“The logistics sector is an important part of Japan’s economy and demand for state-of the art facilities remains robust,” said M&G Real Estate’s chief executive and chief investment officer for Asia, Jing Dong Lai.

Sold on Sheds

In a deal announced in May of last year, M&G Real Estate acquired a 25 percent interest in ESR Ichikawa Distribution Centre, the Hong Kong firm’s largest building under operation in the Tokyo area, for $216.6 million. M&G bought the stake from ESR-managed Redwood Japan Logistics Fund II.

Three months later, M&G picked up a 40 percent interest in ESR Yatomi Distribution Centre for $91 million, valuing the Nagoya-area property at $227.5 million. The stake was sold by Redwood Japan Logistics Fund II and Redwood Investor Kawajima Ltd.

Richard van den Berg, manager of the M&G Asia Property Fund, said the new Japan partnership strengthens M&G’s commitment to Asia logistics, one of the firm’s central investment themes.

“Increasing our allocation to Japanese logistics will enable us to further diversify our portfolio and provide our investors with a resilient income stream,” van den Berg said. “This build-to-core strategy additionally enhances the overall building age of the portfolio.”

With £33.5 billion ($39.3 billion) in assets under management, M&G Real Estate upgraded its local team in Japan with the promotion of Seiko Ikeda to country head in May. She had served as director of acquisitions in Japan since 2018.