APG Commits $400M to ESR Korea Perpetual Logistics Core Fund With CPPIB

Dutch pension fund manager APG has committed more than $400 million to a Korean logistics core fund set up with longtime partners ESR and the Canada Pension Plan Investment Board.

ESR Korea Logistics Core Fund is a continuation of the nearly decade-long cooperation between industrial giant ESR and the two pension funds, APG said Tuesday in a release. The new vehicle, billed as South Korea’s first perpetual open-ended core fund, is seeded with seven assets built during the past three and half years with a combined gross floor area of 1 million square metres (10.8 million square feet).

The fund aims to acquire high-quality income-producing stabilised assets, including those from an extensive development pipeline managed by ESR Kendall Square, the Hong Kong-listed group’s Seoul-based subsidiary.

“With logistics and e-commerce tenants seeking high-quality modern warehouse space that can service growing domestic and global supply chains, we see significant long-term potential in South Korea,” said Graeme Torre, head of Asia Pacific real estate at APG, which manages $613 billion in pension assets. “The fund enables our clients to maintain long-term exposure to a fast-growing, high-value sector with an experienced local management team focused on long-term returns and strong ESG practices.”

Resilient Partnership

The perpetual fund’s seed assets are described as best-in-class warehouses in strategic prime locations, mainly in the Greater Seoul and Greater Busan areas. An ESR source identified the flagship asset as Bucheon Logistics Park, a 304,916 square metre facility in suburban Seoul’s Gyeonggi province.

ESR first revealed the newly formed fund last week in an announcement that didn’t identify its institutional partners. The fund manager’s Korean platform with APG and Toronto-based CPPIB dates to 2015, when the pension managers forged a $500 million development joint venture with ESR precursor e-Shang.

The partnership expanded in 2020 to launch a second development JV with $1 billion as the initial equity allocation. The partners upsized the venture to a potential $2 billion in equity investment capacity in 2022.

ESR and CPPIB, which manages $437 billion in assets, also have their 2018-vintage Korea Income Joint Venture as a vehicle to invest in income-producing logistics assets in Asia’s fourth-largest economy. The two partners added $500 million to Korea Income JV in 2021, effectively doubling the size to $1 billion in total equity allocation.

“We expect modern logistics facilities, such as those in our core fund portfolio, to be increasingly sought after as they provide operational efficiencies for tenants,” said ESR Korea CEO Thomas Nam. “With this milestone, we believe that the seven trophy assets will lay the foundations for a core vehicle that will deliver long-term sustainable growth for our investors.”

Trust Set to Shift Sheds

ESR’s latest fundraise comes after the boss of its sponsored ESR Kendall Square REIT said last month that the trust had tabbed up to five assets for potential sale this year as South Korea’s industrial market begins to normalise following a surge in supply during the pandemic.

EKSR, which listed in December 2020 as Korea’s first pure-play logistics REIT, expects its capital recycling strategy to benefit from profitable disposals amid strong demand for high-quality logistics assets from core and value-add investors.

“We have a large pool of potentially lucrative dispositions for our capital recycling objective — roughly four to five candidates — that would create a very strong appetite from potential buyers and would hand us an even better profit margin than the 25 percent we generated from our disposal last year, especially given the market expectation on the normalising rates,” EKSR CEO Sanghwoi Bae told Mingtiandi.