Baring Private Equity Asia Raises $480M for China Logistics Venture

Baring Private Equity Asia has closed a $480 million commitment to a mainland China logistics joint venture, as the Hong Kong-based firm dials in on the accelerating appetite for warehouse space in the country.

Forest Logistics aims to build and operate institutional grade warehouse facilities in gateway cities across the country to meet growing e-commerce-fuelled demand for distribution space, according to a statement from the company.

“With COVID-19 accelerating the shift from the traditional retail model to e-commerce, there is a growing appetite from institutional investors for investments in the sector,” BPEA’s head of real estate, Mark Fogle, told Mingtiandi.

Zooming into Commitments

Despite the COVID-19 pandemic restricting travel in China this year, Mingtiandi understands that $180 million of the total equity was raised from institutional investors between January and March of this year, with subscriber appetite said to be strong despite the disruption.

According to a source familiar with the matter, pension managers, sovereign wealth funds and other institutions representing that slice of the total capital committed to the platform notwithstanding having to carry out due diligence virtually after the coronavirus paralysed the country before executives were able to present their recommendations to investment committees.

One quarter of the total $480 million in equity came from BPEA Real Estate Fund II, which closed on $1 billion in total capital commitments in 2018, while the balance was provided by LP co-investors.

Logistics Veterans Link with Fund Manager

Led by a group of logistics veterans including CEO Hank Hsu, who was formerly with Ascendas China, and former Ping An head of logistics Addy Chen as chief investment officer, Forest Logistics linked up with BPE Asia around three years ago, with the private equity firm investing directly into the Shanghai-based company.

At that point, Forest Logistics had not yet made any acquisitions and was looking for a capital partner, according to Fogle. Both Hsu and Chen have known Charles Lam and Alex Tse of Baring Private Equity Asia Real Estate through their many years of investing in China.

After BPE Asia invested an initial $300 million tranche into the platform in 2018, Forest has since acquired eight sites in Beijing, Shanghai, Xi’an and Chengdu with a combined gross floor area on completion of 683,000 square metres (7.4 million square feet).

The first facility has just completed, while the venture has a second project under development, with both distribution centres almost fully leased.

Forest was unable to provide the names of the tenants due to confidentiality agreements, but they include one of China’s largest wholesalers of consumer products, with a top five third-party logistics provider also committing to space in the projects.

Fogle said that, with the closing of this second equity tranche, the platform now aims to acquire another two or three sites, bringing the portfolio’s gross floor area to one million square metres once all projects are completed, which the partners predict will take place by the end of 2022.

Once that pipeline is consummated, Baring expects to source more investment for the platform, although the timeframe of that future equity fund raise has not been revealed.

Upgrading Old Warehouse Stock

With consumers depending more heavily on e-commerce as a result of stay-at-home guidance and social distancing, leasing enquiries from e-tailers have increased significantly in China, according to Baring Private Equite Asia’s Alex Tse, who was formerly an investment director at Goodman Asia.

“The primary driver for the increased demand for logistics space is definitely e-commerce, with e-tailers taking up most of the new enquiries,” said Tse.

Tse added that a general undersupply of modern logistics facilities across the country also has helped to speed leasing of projects, with an increasing number of tenants seeking to upgrade to institutional grade facilities from what are known as substandard “farmer grade” warehouses in China.

“Whereas many developers five or ten years ago built facilities that were only marginally better than existing stock, Forest Logistics is developing best-in-class facilities that will withstand the test of time,” said Fogle.

Crowding into Sheds

Baring’s fresh commitment to its Forest Logistics platform comes after a more than $4 billion wave of investments in China logistics within the last month.

Just under two weeks ago, Logos Group reached a first close on its fourth China logistics venture, teaming up with  Ivanhoé Cambridge, Dutch property fund manager Bouwinvest and an undisclosed investor from an Arab state to raise $800 million for warehouse developments across the country.

In the same week, Asia’s biggest warehouse player, GLP announced it had reached a final close for GLP China Income Fund I (GLP CIF I) — a new China-focused fund with a total investment capacity of RMB 15 billion ($2.1 billion) in assets under management.

Just eight days before that announcement, LaSalle Investment Management said that it had raised $681 million for a China warehouse development and management fund dubbed LaSalle China Logistics Venture (LCLV).

That deal by the Chicago-based fund manager came less than two weeks after Logos Group and CBRE Global Investors said that they had reached a final close of RMB 5.5 billion ($786 million) on a China-focused logistics vehicle, CBRE Logos China Logistics Club Fund.