Global Logistic Properties is doubling down on its investment in China’s logistics real estate market with a new $7 billion fund dedicated to building more distribution centres across the country.
China Logistics Fund II, or CLF II, officially closed today at more than double the size of the company’s previous China fund, and reflects both the Singapore-based warehouse developer’s ongoing faith in the market, and the increasing costs of achieving scale in what has become a fiercely competitive sector.
GLP, as the company is commonly known, became the market leader in China by snatching up bargain priced assets after it was first formed during the global financial crisis in 2007. Now, however, it finds itself competing for warehouse sites in China not only with its traditional shed-building foes from around the world, but with a growing cadre of local market entrants eager to feed China’s hunger for retail distribution centres.
GLP Retains Focus on China
Seven leading global institutions, including some of the world’s largest national pension and sovereign wealth funds, are investing alongside GLP in China, the company said in a statement.
To date, $3.7 billion of equity has been committed to the Fund by GLP and investors, which would allow the fund, with leverage, to reach an investment capacity of $7 billion. GLP China will be the manager of the fund, and is taking a 56 percent stake in the vehicle.
Commenting on the company’s plans for its new funding, Ming Z. Mei, Chief Executive Officer of GLP said, “China remains our primary market for development. The fund management platform is an important source of capital for GLP and we remain focused on leveraging it to scale our business effectively while driving higher risk-adjusted returns.”
The developer estimates that its new cash hoard should be sufficient to build 13 million square meters of new distribution centres over the next four years.
GLP did not name the institutions that will be investing with it in CLF II, but did indicate that five of the investors are from Asia, one from North America and another from the Middle East. Of the seven, four investors are partners in CLF I and two are new to GLP’s fund management platform.
CLF I, which was established in 2013, raised $3 billion in capital. M3 Capital Partners (HK) Limited served as exclusive financial advisor to GLP in the formation of CLF II.
New Fund to Build New Projects
GLP says that its new fund will be put to work developing new projects in China, for which it aims to start acquiring new land later this year and to commence construction of new warehouses in 2016.
When the company does start breaking ground on these new facilities, or more importantly, looking for ground to break, it will be doing so under conditions much different than when it first began buying up sites seven years ago, or even when it began deploying CLF I two years ago.
From Blackstone to Vanke, Everyone Wants to Get into China’s Warehouses
Since the company closed on its previous fund, traditional competitors such as Goodman have been joined by a number of new players in the market both international and domestic. The sector has also become a leading target for private equity investors.
GLP itself says that, thanks to demand from China’s expanding retail sector – in particular ecommerce, its portfolio globally has grown at a 61 percent compound annual growth rate since it was founded, and now encompasses 11.8 million sqm of completed facilities, the majority of which are in China.
Just last month Canadian fund manager Ivanhoe Cambridge and CBRE Global Investment Partners committed to a joint venture with industrial developer Logos China that could invest up to $400 million into the country’s warehouse market.
That deal came just one week after Gaw Capital Partners announced that it was partnering with Italian-based warehouse developer Vailog to invest at least $300 million, and up to $1 billion into the same sector. And earlier in that same month, China Vanke, which has backing from the Blackstone Group, announced that it was launching its first two logistics projects in China.
Besides these latest investments, traditional competitors such as Australia’s Goodman, as well as startup funds and developers such as the Redwood Group and Warburg Pincus-backed e-Shang have all received international backing to pursue more logistics projects in China.