ESR has set up a joint venture with longstanding investors Canada Pension Plan Investment Board (CPPIB) and Dutch pension manager APG to plough at least $1 billion into industrial real estate project in South Korea, as the Hong Kong-listed logistics developer and fund manager continues to corner institutional interest for the booming shed sector.
The JV, known as ESR-KS II, will develop a portfolio of institutional-grade warehouse assets in Seoul and Busan, tapping into the consumer spending power of South Korea’s two largest population centres, according to a joint announcement by the three partners.
The joint venture has been seeded with a site located between Seoul and the Incheon International Airport which will be developed into a logistics facility with a gross floor area of up to 154,422 square metres (1.7 million square feet) and a value of KRW 240B ($190 million) on completion.
ESR-KS II is the successor to ESR’s 2015 maiden South Korea JV with APG and CPPIB, which initially targeted $1 billion in total investments but was later upsized to $1.15 billion.
Supersizing to $2B
“Riding on the robust fundamentals of the APAC logistics sector, we will continue our strategy to expand our fund management platform across the region to grow our AUM while delivering solid returns for our capital partners and stakeholders,” ESR’s co-founders and co-CEOs, Jeffrey Shen and Stuart Gibson, said in a joint statement.
With allocation expansion options that could boost the total investment capacity to $2 billion, APG is making an initial investment of $350 million in return for a 35 percent stake in the JV, with CPPIB contributing $450 million for a 45 percent ownership interest.
ESR, which manages $22.1 billion in assets across Asia, will inject $200 million in cash in return for a 20 percent stake.
Should the partners choose to fully exercise the up-size options, each party to the deal could double their initial equity investments to bring cash contributions to the joint venture to $2 billion, according to ESR’s bourse filing.
Following Up on Shed Success
ESR is renewing its partnership with APG and CPPIB in Korea after being able to grow their 2015 deal to more than double its original $500 million target. That earlier venture invested in 17 projects totalling 2.2 million square metres across South Korea through ESR’s Seoul-based subsidiary Kendall Square Logistics Properties, with some of the projects still being developed.
“Following the success of our first joint venture with ESR and CPP Investments in Korean logistics, we are delighted to be able to repeat the partnership,” said Graeme Torre, head of real estate for APG Asset Management Asia.
Torre added that the latest JV intends to “capture the next wave of growth and opportunity in a sector that even in these uncertain times, is demonstrating resilience”.
Jimmy Phua, head of Asia real estate at CPP Investments, which manages investments on behalf of CPPIB, said that Asia’s consumer sector is one of the C$420 billion ($296 billion) Canadian pension fund’s key investment themes,
Phua noted that the growth of South Korea’s e-commerce market, which is among the demand drivers for logistics facilities in the country, underpins the latest joint venture with ESR.
South Korea’s e-commerce market ranked as the sixth largest in the world last year, after growing by 6 percent to reach $66 billion in value by the end of 2019, according to online statistics provider ecommerceDB.
Pulling in Capital From Big Players
The latest tie-up with APG and CPPIB follows a wave of fund raising announcements by ESR this year, as it continues to pull in capital from global investors to fuel its growth across Asia.
Less than a month ago, the Hong Kong-listed logistics specialist announced a A$1 billion ($610 million) JV with an institutional partner to develop logistics and industrial facilities in Australia, with that investment ally reported to be Singapore sovereign wealth fund GIC.
Two months before announcing that Aussie deal, ESR had unveiled that it had teamed up with the $360 billion Singapore government vehicle for a $500 million joint venture to develop institutional grade logistics facilities in key cities across China.