Prologis Teams with ADIA to Launch $5.2B in China Logistics Initiatives

The world’s largest industrial real estate firm has teamed up with a unit of the Abu Dhabi Investment Authority (ADIA) to launch $5.2 billion in China logistics initiatives, according to an announcement by Prologis yesterday.

RMB 12.3 billion ($1.7 billion) of the fresh capital is in the form of a new open-ended fund that Prologis has established to invest in core logistics properties in China, while the second element of the two-pronged initiative is a $3.5 billion expansion of a warehouse development joint venture first set up with the Abu Dhabi sovereign fund in 2011.

“China represents the largest consumption opportunity in the world, with a sophisticated and rapidly growing e-commerce market,” said Prologis chief investment officer Eugene F Reilly. “Our strategy in China is to invest in the highest-quality logistics assets located in the most important consumption markets in the country.”

Prologis’ announcement of the new fund raising comes just one week after its rival GLP announced a RMB 15 billion China fund as institutional investors increasingly turn to logistics opportunities in search of yield.

Setting Up a $1.7B Core Logistics Fund

The New York Stock Exchange-listed warehouse developer has dubbed its new perpetual vehicle Prologis China Core Logistics Fund (PCCLF), and has already raised RMB 3.1 billion ($445 million) for the new initiative.

That cash has been put to work acquiring a portfolio of assets from Prologis China Logistics Venture 1, a JV between AMB Property Corp and ADIA set up in 2011 to build, acquire and manage logistics properties in China prior to AMB’s merger with Prologis that the same year.

PCCLF will acquire Prologis China Logistics Venture 1’s approximately two million square metres (22 million square feet) of existing assets, which according to the announcement have a fair value of approximately RMB 12.3 billion.

Prologis said that the company will maintain its 15 percent ownership percentage in the new venture, while ADIA’s China-focused real estate unit, HIP, which established the joint venture with what is now Prologis eight years ago, will continue to hold a stake in the new fund.

“Investor demand for China logistics is exceptionally strong and we are delighted to be able to offer our institutional investor partners access to this important market opportunity through our new perpetual life fund, PCCLF,” said Prologis managing director and global head of capital raising Martina Malone.

ADIA JV to Develop $3.5B in Sheds

As it launches its new fund together with ADIA, Prologis revealed in the same announcement that it is expanding its eight-year association with the sovereign fund through through an $882 million additional equity commitment to the Prologis China Logistics Venture 3, its third iteration of its warehouse cooperation with ADIA, together with the sovereign fund’s HIP China Logistics Investments unit.

The capital injection will allow the Prologis China Logistics Venture 3, with leverage, to develop $3.5 billion in logistics properties across China.

Although the exact split between the two parties has not been disclosed, Prologis said in a statement that the respective ownership percentages in the JV would remain the same after the new capital commitment.

The infusion of fresh cash comes three years after the two parties made a joint commitment of the same amount – $882 million – to the joint venture, with the company saying at the time that HIP had contributed 85 percent and Prologis 15 percent of the equity.

At the time that the two partners ramped up the development joint venture in 2016, Prologis revealed that, together with HIP China, it had committed more than $2.6 billion to the strategy since it formed Prologis China Logistics Venture 1 in 2011.

Riding the Logistics Wave

The rapid growth of China’s logistics market, fueled by the demand for e-commerce, has attracted a wave of fundraising deals this year.

Just last week, Global Logistic Properties, which was formed around China and Japan assets purchased from Prologis in 2009, announced the formation of a new RMB 15 billion fund to invest in stabilised logistics assets in China.

The vehicle, GLP China Income Partners I, is expected to invest in about three million square feet of logistics properties in roughly 20 cities across the country, and follows the Singapore-based company’s two other China-focused fund series, GLP CLF and GLP China Value-Add Venture.

In addition to the GLP venture, in September CBRE Global Investors and Australia’s Logos Property partnered to raise $800 million for a China logistics vehicle, according to a report by PERE.

Chicago-based LaSalle Investment Management has also been ramping up its shed efforts in the middle kingdom, with the company filing documents in June indicating that its LaSalle China Logistics Venture LP had raised nearly $359 million. That government filing came after PERE had reported in June that LaSalle was planning a $1 billion China logistics fund.