ESR has closed on a $1 billion joint venture with longstanding partners Canada Pension Plan Investment Board (CPPIB) and Dutch pension manager APG Asset Management to develop industrial real estate projects 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 Thursday announcement by ESR.
The joint venture is 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 ($197 million) on completion.
$1 Billion in Initial Cash Commitments
ESR-KS II succeeds 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.
“The ESR-KS II close reflects the excellent relationship we have with our capital partners and is a testament to the strong track record we have achieved in previous collaborations, ESR’s co-founders and co-CEOs, Jeffrey Shen and Stuart Gibson, said in a joint statement.
The chief executive pair expressed confidence that their team in Korea would be able to produce favorable returns for the partners in the venture.
With allocation expansion options that could boost total investment in the vehicle 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 an ESR bourse filing on 22 April.
New Fund Follows 2015 Partnership
ESR renewed its JV with APG and CPPIB in South Korea after growing the trio’s 2015 deal to more than double its original $500 million target. That earlier venture invested in 17 projects totaling 2.2 million square metres across South Korea through ESR’s Seoul-based subsidiary Kendall Square Logistics Properties.
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.
In a March conference call the Warburg Pincus-backed logistics developer and fund manager announced that its 2019 profits rose 21 percent and predicted that the COVID-19 crisis will further accelerate the growth of e-commerce.
Gibson said at the time that over half of the company’s tenants were from the e-commerce sector and that ESR was “seeing a rush to secure high quality space”.
ESR Continues to Find Fresh Cash
The Hong Kong-listed warehouse specialist’s latest JV with APG and CPPIB follows a wave of fundraising announcements by ESR earlier in the year, as it pulled in capital from global investors to bolster its growth across Asia.
On 27 March, 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 announced a partnership with a $360 billion Singapore government vehicle for a $500 million joint venture to develop institutional grade logistics facilities in key cities across China.
Representatives from APG declined comment for this story while leadership at CPPIB did not respond to a request for comment Thursday.