ESR Raises Fresh Capital to Expand Greater Tokyo Project to $2.5B in Value

Asia Pacific industrial giant ESR is set to develop a 306,000 square metre (3.3 million square foot) logistics project in Greater Tokyo after raising fresh capital for its JPY 150 billion ($1.35 billion) ESR Japan Logistics Fund III (RJLF3), according to an announcement by the company this past week.

ESR Higashi Ogishima Distribution Centre 2 is the follow-on project to the company’s Higashi Ogishima Distribution Centre 1 in Kanagawa prefecture’s Kawasaki City, with the project being developed under the RJLF3 fund after the strategy received a commitment from an Asian investor which is understood to also have been a backer of the RJLF2 strategy.

“We thank our capital partner for their continuous support and confidence in our expertise in developing high-quality logistics assets with strong long-term income potential,” said ESR Group co-founder and co-CEO Stuart Gibson. He added, “We are delighted to be part of this commitment to drive Japan’s hub status in global e-commerce and supply chain flows amid an undersupply of modern large-scale logistics facilities.”

Japanese logistics continues to be one of the preferred plays for the world’s largest institutional investors, as statistics from CBRE show that logistics rents in the Greater Tokyo area rose 0.2 percent in the third quarter as net absorption of warehouse space outstripped the 2022 average.

Mega-Project by the Bay

ESR plans to commence construction on ESR Higashi Ogishima Distribution Centre 2 in 2025, with the eight-storey shed designed to be just slightly smaller than the 349,640 square metre first phase of the development. Together, the two phases of the project are expected to have a value in excess of $2.5 billion once completed, the company said.

Occupying a six hectare (14.8 acre) site 27 kilometres (16.8 miles) south of the Japanese capital near Tokyo Bay, the logistics project is within 10 kilometres of Haneda airport and benefits from easy access to the Bayshore Route highway which connects Yokohama to Tokyo.

Like the first phase of the Higashi Ogishima development, the new warehouse will feature seismic-base isolation for earthquake resistance, as well as further improvement in sustainability, including onsite energy production and facilities for fostering adoption of electrical mobility, the company said.

ESR Higashi Ogishima Distribution Centre 1 achieved a CASBEE S rating – the highest possible under Japan’s system for sustainable buildings and a top-level 5 star certification under the country’s BELS regime for energy efficient properties.

“We look forward to developing ESR Higashi Ogishima Distribution Centre 2, which will be a landmark project with an appealing architectural design as well as comprehensive amenities and space solutions for tenants,” Gibson said.

To bolster recruitment and staff retention for tenants, the project will also include a daycare centre and staff recreational areas.

Capital Commitment

ESR did not release financial details of the fundraising connected to the expansion of its Higashi Ogishima scheme, however, the new commitment is understood to have brought the RJLF3 platform fund to a final close. The target for the 2019-vintage joint venture, which focusses on development of large-scale logistics facilities in Japan’s largest cities, was expanded from $675 million to $1.35 billion in 2021.

ESR had acquired the Higashi Ogishima site from PAG and has used the two-piece plot to develop a trophy logistics scheme with support from third party capital. The first phase was developed under the RJLF2 strategy, with the project later being sold to RJLF3.’

With the acquisition of the final phase of the Higashi Ogishima project, the single investor under RJLF3 is understood to have provided liquidity for exiting RJLF2 . The transaction also allowed ESR to materially reduce its balance sheet stake in the scheme, the company said.

RJLF2 closed on total discretionary commitments of $575 million in 2018, topping its $500 million target, after European insurer Allianz Group boosted an earlier contribution to around $185 million. With co-investment vehicles, capital raised for that strategy reached $1.2 billion with the strategy nearly fully exited following the ESR Higashi Ogishima Distribution Centre 2 transaction.

As of 30 June this year ESR had total assets under management in Japan of $29.9 billion with its portfolio spanning 4.7 million square metres.