The Asian division of UK-based M&G Real Estate has acquired a 25 percent stake in warehouse developer ESR’s largest building under operation in the Tokyo area, providing an exit opportunity for investors including Allianz Real Estate, which financed the development of project.
M&G bought the stake in the joint venture that owns ESR Ichikawa Distribution Centre from ESR-managed Redwood Japan Logistics Fund II, ESR said in a statement released Tuesday.
Stuart Gibson, co-founder and co-CEO of ESR, called the transaction “doubly significant” as an endorsement of the group’s proprietary product by one of Asia’s most discerning direct investors, as well as a testament to ESR’s ability to recycle development projects into long-term open-ended ownership mandates and maintain continuity with tenant relationships.
M&G paid $216.6 million for its share of the 2019-vintage project, according to a company statement. At that rate, M&G, which made the investment on behalf of the M&G Asia Property Fund, would be paying the equivalent of $4,306 per square metre.
Supplying Central Tokyo
The investment puts M&G’s fund alongside ESR, which will continue to hold a small slice of the asset on its own balance sheet, and two other investors, one of which is reported to be Dutch pension fund manager PGGM, in holding the asset.
M&G, which also announced a Japanese rental apartment investment the same day, pointed to the durability of the Japanese economy as a driver for the deal.
“Japan’s logistics and residential market, particularly in key metropolitan cities remain robust and resilient with the growth of e-commerce and continued demand for high quality apartment accommodation,” said Richard van den Berg, fund manager of M&G Asia Property Fund. “These assets will refresh M&G’s Japan portfolio, extend our market share in Japan, and allow us to strengthen our portfolio to provide strong returns over the long term for our investors.”
Hong Kong-listed ESR had acquired the 103,627 square metre (1.1 million square foot) Chiba prefecture site for the project in January 2017, with the company reaching a final closing on $1.2 billion for its Redwood Japan Logistics Fund II (RJLFII) in mid-2018.
“The strong fundamentals of the Japanese market offer compelling opportunities for investors,” said Pierre-Alexandre Humblot, ESR’s managing director for fund management and capital. “At ESR, we will continue to leverage our best-in-class asset portfolio and integrated fund management platform for capital recycling using different strategies in order to further grow our footprint in Japan.”
The facility in Ichikawa City is 20 kilometres (12.4 miles) east of central Tokyo.
The building attained a CASBEE A rating on Japan’s scale for sustainable buildings and received the Chairman’s Award from the Organisation for Landscape and Urban Green Infrastructure for its green technology, including the capacity to produce up to at 4.5 megawatts of electricity from roof-mounted solar panels.
RJLFII is a $575 million vehicle backed by Allianz Group. Investors in RJLFII included Allianz Real Estate, the State Oil Fund of Azerbaijan, a fund managed by Aviva Investors, an unidentified German pension fund advised by Mercer and a major Southeast Asian pension fund.
In addition to the Ichikawa exit, RJLFII last year sold the 151,501 square metre ESR Kuki warehouse near Tokyo, leased by e-commerce giant Amazon, to a joint venture of ESR and France’s AXA Investment Managers for $368 million.
In 2019, M&G Real Estate paid $131 million to acquire a logistics facility near Seoul, with the company picking up that 100,000 square metre property from Korean logistics specialist LB Asset Management, also on behalf of its Asia Property Fund.
M&G Real Estate’s other East Asia deals include the acquisition of a portfolio of Japanese residential buildings for $83.7 million and the purchase of the Centropolis Towers in Seoul for $1 billion, both in 2018.
Those transactions were led by former chief investment officer and Asia CEO Chiang Ling Ng, who departed this year to become chief investment officer for Asia at US developer Hines. Lai Jing Dong was elevated to chief investment officer and interim Asia CEO in February.