Allianz Invests $100M in E-Shang Redwood Japan Fund

Global insurance giant Allianz Group is adding to its portfolio of Asia Pacific logistics investments, by committing $100 million to a Japan-specific fund managed by pan-Asian warehouse builder e-Shang Redwood (ESR).

Allianz Real Estate announced on Friday that it had completed the investment into Redwood Japan Logistics Fund II (RJLF2) on behalf of three Allianz companies. The deal marks the group’s first foray into Japan’s logistics sector, after earlier investments in the asset class in China and Australia.

Through the deal, the German-headquartered insurer joins a roster of global investors backing ESR, including Warburg Pincus – which co-founded the developer in 2011 – along with APG, CPPIB, Goldman Sachs, Morgan Stanley, PGGM and Ping An.

Allianz Sees Enticing Yields in Japan’s Sheds

“Japan is experiencing on-going modernisation of supply chains with strong demand for efficient logistics facilities,” commented Rushabh Desai, CEO of Allianz Real Estate Asia-Pacific in a statement. “This combined with an attractive yield gap, and relatively low development risks provide compelling reasons for Allianz to consider the Japanese logistics sector as a part of a balanced portfolio, together with ESR which is one of the most active logistics players in the region.”

Headquartered in Munich and Paris, Allianz Real Estate manages around 53 billion euros ($63.5 billion) of real estate assets, and aims to allocate about five percent of its global property portfolio to Asia Pacific.

Set up last year, ESR’s RJLF2 vehicle is a build-to-core, closed-end fund focussed on developing institutional-grade logistics and distribution properties in tier-one locations in Japan. The yen-denominated fund has brought in more than $400 million in commitments to date, including raising $100 million in February from the State Oil Fund of Azerbaijan (SOFAZ).

ESR Continues to Pull in Cash

ESR has also reportedly secured about $600 million of sidecar commitments during this most recent fundraising round, and is said to have generated over $2 billion in equity, including leverage.

This latest fund follows the developer’s RJLF1 vehicle, which raised over $300 million in 2014. That fund has now been fully deployed on logistics development projects in Tokyo, Osaka and Nagoya, according to ESR.

ESR manages over 8 million square metres of logistics projects across China, Japan, Singapore and South Korea, including a portfolio of 17 properties completed or under development in Japan. In August, the developer unveiled its latest product in the country, a state-of-the art, 178,00 square metre facility around the city of Osaka.

“The lack of well-located class A space with high throughput efficiency in which ESR specializes continues to provide tremendous opportunities for deployment of sizeable investment capital with returns amongst the most profitable of real estate products nationally,” commented Stuart Gibson co-CEO of ESR and head of Japan in the statement. “We look forward to a long-term and strategic relationship with Allianz for investment in the region.”

ESR, which was formed in January 2016 by the merger of Shanghai-based e-Shang and Singapore’s The Redwood Group, has leveraged the sharp demand for modern logistics in Asia to attract funding from a series of global investors. Leading South Korea conglomerate SK Holdings made its first bet on logistics real estate by agreeing to invest $333 million for a ten percent stake in ESR in August.

This past January, ESR closed on a $300 million round of financing led by a group of mainland Chinese investors, as the developer reportedly prepares for a potential IPO.

Allianz Real Estate Deepens Its Asian Commitments

Allianz Real Estate’s tie-up with ESR is part of a strategy announced in June 2016 to invest up to $3.3 billion in the region’s property markets within three years.

This past August, the real estate investment and asset manager finalized a co-investment with Singapore’s Keppel Group to buy the 70,042 square metre Hongkou SOHO project in Shanghai for $525 million. As part of the deal, Allianz Real Estate invested in Keppel’s Alpha Asia Macro Trends Fund (AAMTF) III.

The firm hired former General Electric executive Desaii to head up its Asia Pacific business last September. Allianz already has significant investments in logistics assets in China and Australia, as well as across Europe through various funds and joint venture deals, the group stated.