Pan-Asian warehouse investment platform ESR has gone full APAC with its A$102.5 million ($76 million) buyout of Australian real estate heavyweight Charter Hall’s Commercial & Industrial Property Pty Ltd (CIP), as part of the group’s formal establishment of ESR Australia.
In a statement, ESR referred to the CIP acquisition as “the seed platform for the launch of the Australian business,” with plans to leverage its $12 billion Asian warehouse platform to transform CIP into a leader in Australian logistics property.
Warburg Pincus-backed ESR, which was formed by the 2016 merger of China-based logistics startup E-Shang with the Japan-focused Redwood Group, has brought on board former Goodman Group executive Phil Pearce to run its new Aussie subsidiary as chief executive officer of ESR Australia.
Finally Gaining a Foothold Down Under
The CIP acquisition gives ESR the substantial Australian presence that it has been looking for since at least early 2016 when it entered ultimately unsuccessful discussions with Goodman Group for the purchase of a set of three Australian logistics portfolios worth some A$1 billion from the Aussie industrial developer.
“ESR has been looking for the appropriate entry,” Pearce told Mingtiandi. He added that Australia had been the missing piece for ESR in the region, pointing out that, “If you are doing an APAC play then you need to have a presence in Australia.”
The executive pointed to the growth of ecommerce, which is still in its early stages in Australia, as presenting a potential driver for ESR’s expansion in the country. “Amazon just entered the market at Christmas time,” Pearce explained. “JD.com is our shareholder, while Alibaba, and Amazon are among our tenants in the region.”
Last October ESR had paid A$50.8 million to acquire a 14.9 percent stake in Australian fund manager Centuria Capital Group, just one week after it had purchased an 18 percent in stake in affiliated real estate investment firm Propertylink. Company representatives now say they are keeping their options open regarding those stakes, but are now focused on their new 100 percent owned business.
Buying a Business With a Management Team
Among the key reasons for acquiring CIP, was the opportunity to work with an experienced team, after the builder had been involved in developing over $2.5 billion in projects since 2006, covering some 1.5 million square metres of GFA.
“If you buy a billion dollars of assets, you need a team to run it, Pearce said. “So we’ve bought a business.” CIP co-founders Paul McKenna and Therese Lynch, who have been serving as the company’s CEO and Deputy CEO will now lead ESR Australia’s development platform.
“ESR’s support will also be important in developing an Australian funds management platform that complements our combined development and construction business,” CIP’s McKenna said in the statement. “We have a robust pipeline of projects over the next five years and will leverage ESR’s high quality pan-Asian customer base, capital strength and strategic relationships to further enhance our pipeline.”
Pearce, who has been with ESR full time since the end of last year and had joined the board of ESR Funds Management (S) Limited, the manager of Singapore-listed ESR REIT since April 2017,expressed enthusiasm for developing CIP’s 600,000 square meter land back into income earning assets. The former managing director for Greater China at Goodman, adds that he is “fit, healthy and working hard” at his new role running ESR’s Australian business, after suffering a health scare during his time based in Hong Kong.
Turning a Warehouse Developer into a Real Estate Investment Platform
“We bought this business with a very competent management team,” Pearce pointed out. “Now we will bolt on a fund a management element and access to capital.”
ESR, which is backed by some of the world’s leading pension funds and investment managers, including APG, CPPIB, Goldman Sachs, PGGM, Ping An and SK Holdings has over 10 million square meters of projects owned and under development across China, Japan, Singapore, South Korea and India. The company also runs capital and fund management offices in Hong Kong and Singapore.