ESR, the pan-Asia logistics real estate developer, owner and operator, has raised $1.2 billion in equity for its Japan-focused logistics development vehicle, on the back of a differentiated investment strategy and continuing demand for quality industrial facilities in the country.
The record capital raise includes $575 million raised for the Redwood Japan Logistics Fund 2 (RJLF 2), a commingled discretionary logistics fund launched in early 2016, and the remainder for co-investment vehicles tied to the fund.
The final closing includes an upsize by the German insurer Allianz, taking the investor’s total equity commitment to around $185 million. Allianz had initially approved a $100 million commitment to RJLF 2 in September. Other institutional investors that have backed the fund include Azerbaijan’s state oil fund SOFAZ, which made a $100 million commitment, and an undisclosed Southeast Asian pension fund that committed $200 million. Meanwhile Ping An Real Estate, the real estate investment and asset management platform of the Chinese insurer Ping An, invested $300 million through a co-investment partnership formed in July 2016.
RJLF 2 is over three times the size of its predecessor vehicle, RJLF I that raised around $330 million, including co-investment capital, in 2014. PERE understands that three of ESR’s investors from RJLF I and past projects re-upped in the latest vehicle.
With RJLF 2, ESR is betting on what its executives call a “develop-to-sell” strategy. The fund, which is being invested in logistics development projects in Tokyo, Nagoya and Osaka, will have an intermediate fund life of approximately five years, unlike RJLF I that had a develop-to-core approach and a longer investing period. Investors have also granted ESR the right to recycle the capital from the fund, which means that the firm can buy assets held by RJLF 2 once they have matured.
Explaining the investment strategy, Charles de Portes, ESR’s co-founder and president, told PERE: “This is the first time in Japan that a shorter-term “develop to-sell” (vs “develop-to-hold”) strategy is accessible to smaller LPs via a commingled discretionary fund so they can share profitability of the developments.”
“Several of our competitors are tied up with very large sovereign wealth or pension funds that have opt-out rights, which can make approvals more challenging or time consuming for the GP in terms of moving forward with the development pipeline,” he further added.
According to Pierre-Alexandre Humblot, head of private capital at ESR, this strategy also helped in attracting a broader set of investors than those usually associated with investing in Japan logistics.
“Some investors are less enamoured with Japan’s very long term (several decades) investment prospects,” he noted. “But they are discriminate enough to take a view on sector-specific strategies in Japan over the next five to 10 years including focusing on the opportunities created by the undersupply of corporate industrial facilities and continued urbanization in the major cities.”
ESR’s equity haul, its executives say, is in aggregate the largest single commingled fundraise on record for Japan logistics. Indeed, according to PERE data, significant capital has been raised for club vehicles or joint venture partnerships. In 2016 for instance, GLP and Canada Pension Plan Investment Board (CPPIB) GLP and CPPIB formed their second development venture GLP JDV II, which is expected to reach $2 billion by 2019.
ESR has $12 billion in assets under management in Asia-Pacific, and over 10 million square meters of projects owned and under development across China, Japan, Singapore, South Korea and India. For Japan specifically, the firm expects ESR’s combined portfolio of prime logistics properties, stabilized and under development, to grow to over $5 billion in value in the next two years.