With its latest China fundraise, the global logistics powerhouse GLP is now focusing on acquiring completed logistics and industrial assets in China, a different investment approach than its previous two China-focused logistics vehicles that were invested in development projects.
On Friday, GLP announced the launch of its first value-add fund in China with a single investor, China Life Insurance. The GLP-China Value-Add Venture I has total equity commitments of 10 billion yuan ($1.6 billion; €1.28 billion).
GLP China is the asset manager and will seed the vehicle with some of its stabilized logistics assets. This move continues GLP’s global capital recycling strategy, through which the logistics firm has so far recycled close to $8.1 billion of assets over the last six years, according to an official statement.
GLP diversifying into a value-add fundraising comes at a time when many logistics operators are exploring potential investment strategies beyond the development and construction of warehouses in China, on the back of a limited land supply for logistics development in tier 1 cities coupled with unfavorable government regulations. According to PERE data, out of the 18 China-focused industrial vehicles that have closed in total since the year 2011, 12 have been opportunistic in terms of their investment strategy, while only have been four value-add.
According to Louisa Luo, head of CBRE China’s advisory and transactional services for industrial, the Chinese government is reluctant to offer greenfield land to logistics developers. Consequently, many of them have turned to acquiring existing properties with a core-plus or value-add strategy.
“In China, there is a limited land quota, which varies from city to city. And the government prefers to offer the limited land to some manufacturing or high-tech projects, and spare only a small piece of land for logistics development,” she explained.
“Logistics developers often find it impossible to achieve the kind of bottom line that the government expects,” she added. “For example, in a place like Shanghai, the government has around 750 yuan per square meters of a tax requirement.”
In September, Invesco Real Estate made its debut China logistics deal when it acquired a portfolio of core logistics assets in China from the pan-Asia logistics developer and operator e-Shang Redwood for $308 million. The transaction marked ESR’s first joint venture vehicle on stabilized assets in China. ESR continues to act as the project and property manager of the assets.
GLP operates income funds in the US, and in late 2016 raised $620 million for the GLP US Income Partners III, which was seeded with the $1.1 billion US logistics real estate portfolio it acquired from Dallas-based Hillwood Development Company in September. In China, however, both its previous vehicles were development-focused, wherein the firm first acquired land for development and then commenced construction. In July 2015, GLP set up the largest China-focused logistics vehicle to date when it raised $3.7 billion in equity for China Logistics Fund II.
Commenting on the latest value-add capital raise, Teresa Zhuge, vice chairman of GLP China, said that the firm plans to establish additional income funds in China.
The push towards an income-focused play also comes after many of these developers have significantly expanded their development footprint and are now looking to exit some of the warehouses that have been stabilized. CBRE’s Lou said a logistics asset is typically considered stabilized and ready to be transferred to fund or joint venture partnership once it reaches an occupancy rate of 80 percent.
According to CBRE’s estimates, the top 10 logistics developers in China would collectively own close to 43 million square meters of warehouse stock by 2019. GLP is estimated to own 44 percent of this overall pie, followed by the Goodman Group that would own 8.1 percent.