Crossing the infrastructure line for good, if different, reasons

GLP and ARA have different primary purposes for expanding the brief to include infrastructure but there’s plenty of sense in doing so.

In the space of less than a week, two of the private real estate market’s bigger investment managers have expanded into the world of infrastructure. Besides their expansions, there are other common threads between GLP and ARA Asset Management: both originate from Singapore and both recently underwent multi-billion-dollar privatizations. But their respective reasons for expanding are rather different.

On Wednesday, GLP announced a tie-up with Toronto’s Brookfield Asset Management which will see the pairing plow as much as $2 billion into solar panels, initially to be installed on GLP’s copious rooftops in China and eventually onto others elsewhere. At the heart of GLP’s expansion is capitalizing on opportunities in what founder Ming Mei calls “adjacencies” – business areas connected to GLP’s heartland of distribution warehousing.

The move should be interpreted as part of a bigger plan to switch from being a provider of accommodation to the world’s e-tailers and third-party logistics businesses, to providing them a bespoke and holistic service that includes accommodation and a whole lot more. This particular foray, which will see GLP and Brookfield fund the installation of 1.1 million solar panels in the first three years, capable of generating enough energy to power 200,000 homes, has multiple beneficiaries, including the Chinese government. But foremost, the firm is keen to help its tenants whose trucks will be able to charge from this energy source. Its move is centered in the belief that if you benefit the customer, the investor – which will also be able to co-invest with the joint venture – will benefit in turn.

PERE revealed ARA’s plans to launch an infrastructure funds management business last Thursday. The firm of entrepreneur John Lim is thinking first of its investors and second of swimming with China’s regulatory tide. Since 2016, Beijing has been imposing measures to stem the overflow of capital from the country to maintain a stable currency and prevent speculative overseas investments, specifically by highly-leveraged conglomerates. And while real estate and hospitality investments are in the crosshairs, infrastructure and other assets supported by the government’s ‘Belt and Road’ initiative remain fair play. Subsequently, the $40 billion AUM ARA is intent on servicing this curtailed capital source and has launched an infrastructure business to do so. Hiring is happening now and the first investments, in Asia, but also in Europe where it has just expanded, are slated for 2018.

Whatever the catalysts, news of these expansions will be welcomed by an institutional investor base largely underserved when it comes to fulfilling its infrastructure ambitions. According to PERE’s parent PEI’s 2017 Investor Survey, 27 percent of investors polled said they were under-allocated to the asset class, versus 21 percent at allocation and just 3 percent overallocated. The remainder either had no fixed allocation or no allocation at all. According to PERE’s sister publication Infrastructure Investor, meanwhile, approximately $60 billion a year has been raised for infrastructure funds for the past three years. While consistent, that is still an annual total some 30 percent less than was raised for private real estate funds last year – the lowest amount for bricks and mortar since 2011. And, in keeping with private real estate, the money is being raised by a decreasing number of managers. GLP and ARA will no doubt regard that as an invitation to join the fray.

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