On the surface, it would appear that Sam Zell’s growth markets investment house Equity International has revised its perspective on Asia’s logistics market. Less than three years after it sold its 50 percent stake in Shanghai Yupei, a Chinese industrial and logistics development company, to Global Logistics Properties (GLP), the Chicago-based investment firm re-entered the space with its investment in Singapore-based Redwood Group last month.
Judging by the rhetoric concerning its latest Asian foray, Equity International is keen not to waste any time getting its program up and running. Taking a “rapid, disciplined” approach, the firm’s investment – believed to between $50 million and $100 million – is intended to be the catalyst for Redwood to build out its Chinese and Japanese strategies. An early fund-raising and transaction in Japan by Redwood suggest it is matching its aspirations with action.
Vijay Jayaraman, co-leader of Equity International’s investment team, has taken a seat on Redwood’s board and said he would play an active role in “helping the company grow in scale and further institutionalize.” Indeed, bringing aboard further third-party institutional capital is one major part he expects to play, although the firm is not expected to have direct control over Redwood’s funds.
Redwood’s target markets are under-supplied in institutional-quality industrial real estate, the kind sought after by multi-national corporations. While Japan has seen a recent spate of development, it still is considered a market where demand for space outstrips supply. In China, that dynamic is magnified. Global property services firm Jones Lang LaSalle recently compared the supply of Grade A logistics real estate across the entire country to that of Boston in the US or the Netherlands.
That fact was not lost on Equity International when it made its foray into Chinese logistics in 2008 through its investment in Shanghai Yupei, a deal worth $46 million. However, the firm’s hold on its stake in the developer was limited to the life of its fund at the time, Equity International Fund IV, and so it became a seller.
Nonetheless, Jayaraman felt that original investment ticked the prerequisite boxes that Equity International requires before making any outlay. “You need two things for a deal to come together: the fundamental market opportunity and a partner that needs capital,” he told PERE. The exit of Yupei made sense given Fund IV’s lifespan, but he admitted: “We didn’t know for sure that we would get an opportunity to get back in.”
As providence would have it, another opportunity has come along in the form of Redwood, which was founded by former ProLogis executives Stuart Gibson and Charles de Portes five years ago. This investment, in which Equity International holds a significant minority stake, was made on behalf of the firm’s latest vehicle, Fund V.
While Equity International’s relationship with Redwood has started at a canter, the same cannot be said of the partnership between its former investment and GLP. Indeed, Shanghai Yupei is understood to be in the midst of buying out GLP’s stake and, with a recent $200 million commitment from The Carlyle Group and The Townsend Group, clearly is indicating its own ambition to expand its footprint in the sector.
Given the scale of opportunity for private real estate investment in this nascent period for Asian logistics, Equity International is unlikely to mind that is former partner is strengthening its market presence. More important for Zell’s firm is that it has found another partner with which it can return to the market.