ESR Boosts Japan Logistics Development Fund by $675M With Help From APG

Hong Kong-listed warehouse builder and fund manager ESR has expanded its Japan development venture by JPY 75 billion ($675 million), effectively doubling its capacity for building new facilities.

ESR’s Japan Logistics Fund III (RJLF3) has now raised JPY 150 billion in committed capital, bringing the fund’s total investment capacity to JPY 470 billion, ESR said in a Tuesday press release.

The joint venture was set up with Dutch pension fund APG and an unnamed Asia-based sovereign wealth fund in 2019 with a focus on developing large-scale logistics facilities in Japan’s key metro areas.

“Institutional investment in Japan and APAC’s logistics sector has been very strong, as e-commerce acceleration and structural shifts in supply chain management continue to fuel demand for well-located, large-scale modern logistics properties,” said ESR co-CEOs Jeffrey Shen and Stuart Gibson.

Five and Counting

Since RJLF3’s inception two years ago, JPY 65 billion has been committed to five projects with a total gross floor area of 870,000 square metres (9,364,602 square feet).

The projects include development of the ESR Ukishima Distribution Centre in Tokyo at an expected investment of JPY 24 billion, as well as the ESR Higashi Ogishima A Distribution Centre — at nine storeys, one of Japan’s tallest warehouse structures — near Haneda Airport.

The others are ESR Sachiura Distribution Centre in Tokyo, ESR Aisai Distribution Centre in Nagoya and ESR Fukuoka Asakura Distribution Centre in Fukuoka.

ESR, which manages logistics facilities in Japan valued at $7.9 billion, considers the market undersupplied in terms of modern institutional-quality logistics assets, as household online shopping usage in the country grew 19 percent in 2020 and is already up 11 percent this year.

“This imbalance is common across the APAC region, which is why we are seeing increasing capital targeting the sector in APAC,” said Josh Daitch, ESR’s head of fund management and capital. “The upsize of RJLF3 reflects the collective confidence of our institutional investment partners in ESR’s ability to continue to capitalise on this robust secular opportunity.”

Long-Term Commitment

Co-founded by Shen and Gibson with backing from US private equity major Warburg Pincus, ESR grew out of the 2016 merger of Shanghai-based e-Shang and Japan’s Redwood Group. The developer previously launched a pair of Japan-focused funds, Redwood Japan Logistics Fund and Redwood Japan Logistics Fund 2, as RJLF3’s precursors in the series.

Other investors in ESR’s Japanese ventures have included Dutch pension fund PGGM, Chinese insurer Ping An, UK financial services firm Aviva and US asset manager Mercer.

Longtime investor APG said logistics development in Asia Pacific continues to offer risk-adjusted returns that are attractive to long-term investors.

“Our partnership with ESR extends across many jurisdictions and we are delighted we’ve been able to extend our strategy in the prime locations of Japan,” said Graeme Torre, head of real estate for APG Asset Management Asia.