ESR Japan Income Fund Buys Nagoya Shed From Development Vehicle for $110M

ESR Japan Income Fund has acquired a warehouse in Nagoya’s western suburbs from ESR Japan Logistics Fund III for JPY 16.4 billion ($110 million), Hong Kong-listed ESR announced Wednesday.

ESR Aisai Distribution Centre is a four-storey, single-ramped facility with a net rentable area of 58,000 square metres (624,307 square feet) and a diverse mix of well-known third-party logistics firms, the developer said in a release.

The deal marks Japan Income Fund’s first acquisition in the manufacturing hub of Nagoya and brings the strategy’s portfolio to 676,000 square metres of net lettable area. JIF was launched in 2021 and reached a first closing of $750 million in equity from investors including France’s AXA Investment Managers and Singapore sovereign wealth fund GIC.

“This transaction is a strong testament to ESR’s integrated platform that provides real estate development products and real asset investment solutions for investors,” said ESR co-founder and co-CEO Stuart Gibson. “It also demonstrates JIF’s exacting governance mechanisms which has made possible a win-win transaction between the involved parties.”

Risk-Free Handoff

The seller, Japan Logistics Fund III, is an ESR-managed development vehicle set up in 2019 alongside Dutch pension fund APG and an unnamed Asia-based sovereign wealth fund with a focus on developing large-scale logistics facilities in Japan’s key metro areas.

With the income fund purchasing the Nagoya asset, the RJLF3 development fund will have a very certain exit timing and no execution risk, Gibson said, while JIF can enjoy preferred access to more than $5 billion worth of state-of-the-art assets.

“This helps JIF to fulfil its original promise to provide institutional investors with a most flexible allocation tool of investing in core Japan logistics properties with a focus on income performance,” he said.

JIF senior fund manager Aileen Teo said the Nagoya market provides portfolio and tenant diversification, with a greater percentage of occupiers being involved in supply-side logistics linked to the city’s automotive industry.

“JIF will look at adding further assets in Greater Nagoya such as in the northern and southern submarkets,” Teo said. “This will allow ESR’s in-house leasing team to leverage its prized 3PL relationships to cover all their distribution routes.”

As of June, ESR managed $29.9 billion worth of assets across 4.7 million square metres of gross floor area in Japan.

Market Turning Point

Asia’s second-largest economy is undergoing a radical transition involving adoption of e-commerce, omnichannel distribution and cloud-based services, with that change creating long-term demand for warehouse space, according to Pierre-Alexandre Humblot, managing director and head of private capital at ESR.

“Japan’s market is really at a turning point — for the longest time, it’s a market where there was no rental growth rate,” Humblot told MTD TV in May. He said asset managers were seeing positive and possibly accelerating rental growth, which is a “big deal” in Japan.

With that improving trend in mind, ESR last month announced a fresh capital raise of JPY 150 billion ($1.35 billion) for RJLF3 in order to develop a 306,000 square metre logistics project in Greater Tokyo.

ESR Higashi Ogishima Distribution Centre 2, the follow-on project to the company’s Higashi Ogishima Distribution Centre 1 in Kawasaki City, is to begin construction in 2025, with the eight-storey shed designed to be just slightly smaller than the 349,640 square metre first phase of the development. The two phases of the project are expected to have a value in excess of $2.5 billion once completed.