AEW has raised €475 million of equity for a new closed-ended European urban logistics and light industrial strategy called ULLIS, PERE has learned.
The three main investors in the new platform, which is structured as a scalable partnership, are Dutch pension fund PGGM, Allianz Real Estate, the real estate investment management arm of German insurer Allianz, and French insurer Crédit Agricole Assurances. The real estate investment manager declined to comment on the ownership stake of each investor in ULLIS.
All three are long-term investors in LOGISTIS, AEW’s pan-European logistics strategy, which the firm launched in 1999 and now has grown to €4 billion in assets. “We thought we should create a platform complementary to LOGISTIS, but not targeting standard logistics, but targeting urban light industrial,” Rémy Vertupier, co-head of institutional fund management, separate accounts and club deals at AEW, told PERE. “After having discussed many times with municipalities, communities and so on, it seems kind of unrealistic to us that many pure logistics facilities with heavy truck traffic will be developed within cities… We think light industrial is a good compromise to accommodate industrial activities within cities.”
Light industrial typically refers to warehouses and manufacturing facilities that are less than 120,000 square feet and are focused on the distribution and production of smaller consumer goods, according to commercial brokerage CBRE.
AEW will target the development of an initial portfolio of approximately €800 million over the next three to four years, focused on urban logistics and light industrial assets in major metropolitan areas of France, Germany and the Netherlands. The firm has identified a pipeline of “a couple hundred million,” according to Vertupier. With ULLIS, the firm will be pursuing a build-to-core strategy with a targeted 35 percent loan-to-value ratio. AEW declined to disclose performance targets.
Most of the €475 million of equity is expected to be deployed across brownfield developments, along with the acquisition of some income-producing assets. The brownfield redevelopment projects will involve demolishing outdated and obsolete industrial plants or areas to develop new high-quality assets. The average transaction size will range from €25 million to €50 million.
Demand for urban light industrial space is expected to increase from the growth in urbanization, the rise in urban distribution and the impact of technology adoption in logistics and the greater need for skilled labor in light industrial facilities. “We see the industry being more and more driven by new technologies, robotics, advanced IT systems, software, etcetera. Industrialists are looking for small-sized units to have high-technology production capacity,” said Vertupier. “These units need skilled labor to be run.”
Vertupier is undaunted by the numerous real estate managers that have similarly launched last-mile logistics platforms in recent years, such as Blackstone with its Mileway business and MARK with its Crossbay platform. “Competition is much more intense than I have ever seen it,” he said. “But on the other hand, it is justified because when I look at the leasing market, it has never been as it is today. There’s very strong demand out there. So that justifies the competition. I’m not afraid of competition because the market has provided a lot of opportunities because of the demand. So I’m more concerned with avoiding missing market share today, which will have the greatest value tomorrow.”
AEW has a 20-year track record investing in industrial and logistics assets in France, Germany, the Netherlands, Belgium, the UK, Poland, the Czech Republic, Italy and Spain. Logistics represents 17 percent of the firm’s European property portfolio and 16 percent of its global portfolio. In addition to LOGISTIS and ULLIS, the firm’s European logistics platform also includes LOGISTIS UK, which has raised €290 million in equity, of which approximately 60 percent has been allocated to investment projects.
AEW is one of the world’s largest real estate asset managers, with €68.9 billion of assets under management as of September 30. Of that amount, €32.8 billion is in Europe.