Keeping up with global logistics trends is a tall order for real estate investors wanting to provide facilities. After all, a twitch from China can cause a tremor in Europe. Little wonder then that some firms managing logistics funds are going to great lengths to position themselves effectively.
Last month, Paris-based real estate investment manager AEW Europe announced the creation of a massive €1 billion logistics fund, having decided to merge three existing vehicles with different vintages. Called the Logistics Fund, the new vehicle combines smaller funds raised in 1999, 2005 and 2008.
Rob Wilkinson, chief investment officer at AEW Europe, explained that the firm is trying to respond to logistics operators that “think globally” when it comes to the real estate they need. For one thing, third-party logistics providers and retailers are seeking to work with fewer partners that can provide them with facilities in different countries. “If you say that you are going to deliver a facility for them in Bremen, there needs to be a consistent approach in Lyon or Marseille,” he said.
The newly enlarged fund will target Western European markets, focussing on France, Germany and the Benelux countries. Documentation has been put in place to “re-set the clock” in term of the length of the vehicle, and there is a new five-year debt facility in place to fully refinance existing debt.
As well as trying to expand its offer, the merger of three funds also has the effect of diversifying assets for existing investors. For example, the first fund acquired assets only in France, while the second fund was more international.
The suspicion to outsiders might be that AEW has made the decision because it was in discussions with investors about whether it should extend the funds. Of course, there are precedents for asset or fund mergers from other parts of the world. For example, Pramerica Real Estate Investors devised a plan last year to continue managing 11 Asian shopping malls by consolidating them into a private, open-ended fund. Half of its limited partners wanted to exit, so a compromise was needed in that instance.
AEW’s Wilkinson, however, rejected any such notion. In fact, he pointed out that the 1999 fund had an open-ended structure and the 2005 fund still had around four years plus extensions to go. Finally, the 2008 fund was in the early stages of its life, albeit fully invested.
That said, the creation of a jumbo logistics fund can be thought of as the prelude to the next stage of growth. The most logical option would be to raise further equity, and AEW is in discussions with existing and new investors interested in committing further capital to the fund.
Jean Lavieille, deputy chief investment officer, said: “This merger represents the next phase in the evolution of our logistics platform. The combined portfolio, which has been built up over the last 13 years, provides a solid base from which to grow this platform and offer greater operational synergies and diversification.”
AEW is operating in a competitive logistics market, so it will need to act decisively.
The largest European unlisted logistics investment vehicle is the Goodman European Logistics Fund, which has €1.6 billion in assets. In November, the Goodman Group-managed fund launched a €400 million rights issue and approved a €800 million debt package to position itself for growth. Dutch pension fund asset managers APG and PGGM underwrote €200 million of the issue.
Another major competitor is listed fund ProLogis European Properties, which manages €2.8 billion in assets. It also managed to raise equity last year, raising €97.5 million to pay down debt.
Releasing its nine-month financial results in October, ProLogis said customer sentiment remained “cautiously optimistic,” with a focus on opportunities in emerging markets and mature Western European markets. “While there is recent evidence of more protracted decision-making from customers in light of the economic uncertainty, occupiers continue to pursue opportunities to optimise supply chain efficiencies and are moving from older, obsolete warehouses to more modern space,” it said.