e-Shang Redwood (ESR), the pan-Asian logistics real estate developer, owner, and operator, is plotting its maiden Australia-focused vehicle, following the official launch of its Australia operations.
Philip Pearce, chief executive of ESR Australia, told PERE that the core-plus vehicle will have an initial equity target of A$500 million ($370 million; €316 million), in addition to a leverage of around 30-40 percent.
“With the public announcement [about ESR’s Australia expansion], we will now be able to talk concretely with investors about this vehicle, which will most likely be club style with three or four investors,” said Pearce.
Pearce said that the firm will also be looking to raise additional co-investment capital. He expects to close the fund within 12 months.
A real estate veteran, Pearce was appointed in December 2017 to spearhead the firm’s foray into Australia after being on the board of ESR Funds Management since April 2017. Previously, he was the Greater China executive director of the Sydney-based global industrial real estate firm Goodman Group.
Last week, ESR confirmed its acquisition of the Australian property development group, Commercial & Industrial Property Pty Ltd (CIP) for an enterprise value of A$102.5 million ($76 million; €65 million). Founded in 2003, CIP was previously owned by two distinct groups, each controlling 50 percent of the share capital. One group was a consortium of foundation members associated with CIP’s senior executive team and the remaining stake was acquired by Charter Hall in 2007.
Talking to PERE about ESR’s expansion strategy for Australia, Pearce said ESR would have been willing to build a team from scratch as an option for an entry point, which has previously been the case with the firm’s forays in Japan, China, and, to some extent, South Korea.
Talks of a CIP takeover emerged in early 2018. Pearce has been tasked with bridging ESR with CIP in terms of their fund management and asset management capabilities.
Paul McKenna, CIP’s chief executive and co-founder, will continue to lead the development and land sourcing business.
CIP’s annual development portfolio currently is around A$200 million ($148 million; €127 million) in asset value. According to Pearce, ESR is targeting to increase it to between A$400 and A$500 million within the next three years.
ESR’s new core-plus vehicle will follow CIP’s current focus of investing in cities such as Sydney, Melbourne, and Brisbane. Pearce also sees investing potential in Adelaide and Perth, although those markets will be more opportunistic.
ESR began its push into Australia with the successful acquisition of partial stakes in two prominent logistics businesses; an 18.06 percent stake in Propertylink and a 14.9 percent stake in Centuria. Both deals were done in October 2017.
ESR, headquartered in Hong Kong, was formed through the merger of e-Shang and Redwood in January 2016. Co-founded by Warburg Pincus and backed by investors such as APG, CPPIB, Goldman Sachs, PGGM, Ping An and SK Holdings, ESR manages nearly 96.8 million square feet in gross floor area of projects owned and under development across China, Japan, Singapore, South Korea, and India.