ASIA NEWS: Warehousing relationships

There is a queue of large institutional investors seeking strong operating partners for sizeable investment programmes in China, according to a financial advisor familiar with the country’s property market. The issue, however, is that strong operating partners in China, particularly those either developing or acquiring real estate well-positioned to benefit from China’s growing consumer base, are extremely limited. 

That is the case particularly for logistics real estate. The largest international logistics firms currently active in China already are in longstanding partnerships with investors via exclusive ventures, their own ownership structure or both. “ProLogis is with the Abu Dhabi Investment Authority, Global Logistics Properties – China’s biggest logistics landlord – is half-owned by the Government of Singapore Investment Corporation, which is not selling, and the Goodman Group is with the Canada Pension Plan Investment Board (CPPIB),” the advisor counted. 

At the end of August, the latter of these three partnerships announced it was ready to consummate its union further with a third capital injection to its China joint venture business. The Canadian investor has committed another A$400 million (€323.5 million; $417.7 million) to Goodman China Logistics Holdings (GCLH) from its copious coffers, adding to the partnership it launched with the Sydney-based logistics developer and investment manager in 2009 expressly to capitalise on China’s growing demand for consumer goods.

According to Greg Goodman, chief executive officer, the company currently has a development pipeline in China extending to 43 million square feet. Having generated returns of more than 20 percent from initial outlays, CPPIB is optimistic its latest capital commitment will fare well. Mark Machin, president of the pension’s Asia division, added: “We expect that GCLH will continue to perform well over the long term through its participation in the rapid growth of the market.”

Furthermore, CPPIB has no intention of loosening its grip on its Australian partner anytime soon. As part of the arrangement – and similar to certain other partnerships between Goodman and large institutional investors in its other markets – CPPIB has the right of first refusal on everything the company develops in the country via this vehicle. 

Goodman’s Greater China managing director Philip Pearce said GCLH is to be reviewed by Goodman and CPPIB every five years. While he does not envision any alterations to the venture for the foreseeable future, he predicted CPPIB eventually would step back. “They want to see the vehicle to continue to grow,” he said. “But, at the appropriate time, they will be open to us bringing other investors into the vehicle. I don’t think we can expect CPPIB to continue to fund us in perpetuity.”

One placement agent suggested Goodman paid too high a price for CPPIB’s money, taking on capital concentration risk. “CPPIB could, for whatever reason, say they aren’t doing any more and then Goodman would be completely caught out,” he argued. 

For its part, CPPIB is keeping its cards close in terms of how long it envisions its exclusive participation in Goodman’s China platform to last. Graeme Eadie, senior vice president and head of real estate investments, said in a statement: “Unlike most other investment management organisations, CPPIB does not have asset allocations.” Instead, the pension plan evaluates each investment “on its own merits” and measures it against alternative uses of the capital in its “passive portfolio” of equities and fixed income. “That said, our continued support for the Goodman China Logistics Holdings joint venture indicates that we continue to see opportunities in the China logistics sector.” 

Far from a hindrance, Goodman’s Pearce believes CPPIB’s initial commitment of A$150 million into the platform in 2009 (followed by A$250 million last year) influenced other large institutional investors to engage the firm in similar ventures elsewhere. In June, Malaysia’s $148.3 billion Employees Provident Fund committed more than A$500 million to an Australian-focused vehicle and, last month, the Abu Dhabi Investment Council injected US$250 million into a Japan-focused development venture. 

Goodman does not manage a pooled investment product in China to the chagrin of the queue of institutional investors wanting real estate closely correlated to the Chinese consumer. That is of no concern to CPPIB, which got there first.