CPPIB Invests in $500M ESR South Korea Logistics Fund

The Canada Pension Plan Investment Board (CPPIB) announced this week that it is investing in a new $500 million investment fund targeting South Korean logistics assets in cooperation with ESR and its Korean subsidiary, Kendall Square Asset Management.

The deal is the C$$356.1 billion ($271 billion) pension giant’s fourth investment in an Asian shed platform, and comes just under three years after CPPIB teamed with Dutch pension fund APG for an earlier $500 million investment in ESR’s Korean platform.

ESR is seeding the new fund with its existing Korean portfolio of six logistics facilities which measure a total of 270,000 square metres (2.9 million square feet).

ESR Growing in South Korea, Regionally

After receiving the new round of funding from the Canadian pension fund manager, Kendall Square is tasked with identifying and acquiring new properties for the venture, as well as managing the growing portfolio. During 2017 Kendall Square made multiple new acquisitions in Korea, including paying 128 billion Korean won ($113 million) to acquire a logistics site in the South Korean city of Gimpo, in the country’s second-largest logistics transaction of the year, according to a report by Savills.

In its statement, CPPIB said that the new venture will acquire “grade-A facilities in key locations servicing diverse tenant demands,” while noting the country’s growing ecommerce sector as a driver of warehouse demand. Sources at ESR declined to respond to inquiries from Mingtiandi by the time of publication.

The new fund adds to ESR’s growing presence regionally, after the Shanghai and Hong Kong-based company officially expanded into Australia last month with its A$102.5 million ($76 million) buyout of Australian real estate heavyweight Charter Hall’s Commercial & Industrial Property Pty Ltd (CIP), as it established ESR Australia.

In May the logistics developer raised $1.2 billion of equity for new logistics projects in Japan, with backing from German insurer Allianz Group, as it adds to a regional portfolio of over $12 billion of assets under management in Asia, with over 10 million square metres of projects across Japan, China, Singapore, South Korea and India.

The company, which was formed by the merger of Japan-focused The Redwood Group and Shanghai-based e-Shang has backing from investors including Goldman Sachs and JD.com, in addition to CPPIB and APG.

CPPIB Continues Shed Deals

The Korean investment comes after CPPIB has formed a number of other logistics platforms in the region. In 2009, the Canadian fund created an initial $300 million 80/20 partnership with ASX-listed Goodman Group to develop warehouse facilities in China, which it has since expanded, and in 2016 it partnered with Singapore’s GLP in a 50/50 joint venture, GLP Japan Development Venture II which had acquired 13 facilities in Japan by March of this year, including GLP Soja, GLP Atsugi and GLP Ayase.

In addition to its investments with ESR, Goodman and GLP, in March 2017, CPPIB and its compatriots at Ivanhoé Cambridge, the real estate subsidiary of pension Caisse de dépôt et placement du Québec, formed a $484 million joint venture with pan-Asian developer Logos Property for the acquisition of logistics assets in Southeast Asia. Logos Singapore Logistics Venture’s purchase of 4 Pandan Crescent in Singapore earlier this month was its fifth deal.

A Focus on Regional Expansion

CPPIB’s exposure in Asia was C$72.5 billion, or 20.4 percent of total assets, as of 31 March and the pension group’s exposure to Asian private equity was C$17.1 billion, up from C$13.4 billion a year earlier. In its 2018 annual report, CPPIB said that Greater China accounted for half of its PE activity in the region during  calendar 2017, adding that it was continuing to seek large opportunities in the Asia in line with its strategy of increasing exposure to the emerging markets.

In addition to the logistics platforms, the pension has been busy with other types of property assets in the region. In July, it signed an $817 million deal with Beijing’s Longfor Group to develop rental properties in Tier I and II cities in the country. In May, CPPIB partnered with Singapore’s GIC to purchase an office tower in Seoul, and in January it invested $662 million with Longfor for the development of mixed-use projects in Shanghai and Chengdu. CPPIB bought 21.5 percent of Homeplus, Tesco’s South Korean Operations, in 2015.