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ADIA makes $750m follow-on bet in China logistics mandate – Exclusive

The stabilized assets in the existing mandate will be transferred to a new open-end vehicle set up by the same manager in China.

Abu Dhabi Investment Authority, the world’s third-largest sovereign wealth fund, through its subsidiary HIP China Logistics Investments, has committed an additional $750 million to Prologis to invest in logistics in China.

The investor decided to re-up its investment in its existing mandate with the San Francisco-based industrial real estate company during the fourth quarter, according to two sources close to the situation. The partnership began in 2011 when ADIA first committed $500 million into the mandate. Over time, ADIA has committed a total of $3 billion in the logistics development mandate with Prologis in China, according to the sources.

PERE also understands that the stabilized assets in the mandate will be sold to a new open-end vehicle set up by Prologis in China. ADIA is also an investor in the new vehicle, according to the sources.The partial sell-down of its ownership stakes in those stabilized assets also corresponds to the investor’s latest capital recycling strategy mentioned in its annual report. The report explains that the investor is “selling certain assets to make room for new investments in emerging or high-demand areas.”

Although logistics will remain to be a key sector for ADIA in China, the investor is also growing its exposure in the residential sector, according to its annual report. PERE can reveal that ADIA has committed $300 million in a residential development fund launched by Chinese developer Vanke earlier this year, according to a third source.

Apart from logistics and residential sectors, ADIA has also started looking into alternative real estate strategies in China such as data centers, multifamily and real estate debt, according to one of the sources. The source told PERE that ADIA currently does not have any investments in real estate debt or data centers in China.  At the same time, the source also noted that the investor has been rebalancing its portfolio and reducing its exposure in the retail sector globally.

The source told PERE that even niche sectors in China like multifamily are very scalable, given how big the potential market is. But to better understand these new sectors, the sovereign wealth fund will likely test the waters by investing in club deals or commingled funds at least initially.

According to its annual report, ADIA’s real estate exposure in China has increased by one-third in the past two years, based on the sovereign wealth fund’s conviction in structural growth drivers such as urbanization, a growing middle class and rising consumption levels in the market. Its larger allocation to China has been bolstered by the opening of an office in Hong Kong in 2016, which has helped ADIA strengthen its commitment and identify more new opportunities in the country.