The Redwood Group, the Singapore-based real estate investment firm specializing in the logistics and transportation sectors of Asia, has held a first close on its Redwood Japan Logistics Fund at approximately $187 million, PERE has learned.
Redwood declined to comment on fundraising, but a statement from Netherlands pension fund service provider PGGM confirms a €100 million commitment to the fund. A $50 million co-investment from Redwood itself brings the fund's capital total to $187 million now, and it is understood that the firm is in talks with a handful of US and European institutional investors regarding a subsequent close in the coming months. The yen-denominated fund is also understood to have no Japanese investors yet, but the firm is in talks with domestic groups as well as investors from other countries in its effort to increase the vehicle’s capital.
The firm has scaled back its capital raising target slightly. Redwood originally launched the fund in 2011 with a target of $600 million. But, like for other Japan-focused private capital fund managers, its capital raising efforts were hampered by the 2011 Tohoku tsunami and earthquake, and so the firm opted to shorten its fundraising effort in order to deploy the capital more quickly during the Abenomics growth period.
Nonetheless, with private capital markets improving the firm is now understood to be confident it can raise the remaining capital within the next six months.
The fund is expected to adhere to a develop-to-hold strategy, generally steering away from auctions for its transactions, and is expected to achieve an overall IRR north of 15 percent.
This fund close comes just after Redwood received an investment from Equity International (EI), which gives the Chicago-based emerging markets investment firm a significant minority stake.
Redwood has already closed a number of deals in Japan as seed assets for the fund, meaning that the vast majority of the first close’s capital is invested already. The firm is expected to announce another $100 million deal in the next week, which PERE understands would bring the total value of its deals to about $500 million. The firm’s typical leverage on deals is between 50 percent and 60 percent.
Redwood chose to focus on Japan as one of its markets because most of the country’s logistics assets are obsolete, co-leader of EI’s investment team and now Redwood board member Vijay Jayaraman told PERE earlier. Less than 10 percent of Japan’s warehouses would qualify as institutional quality, he said, and most of those assets are in Tokyo, leaving a large gap between supply and demand in the rest of the country.
Redwood is also raising a China-focused club fund, targeting RMB 2.5 billion (€302 million; $408 million). Last July, PGGM committed €95 million to that fund for its first close also. All of that capital is understood to have been committed now, and Redwood expects to at least double the size of the eight-year fund by the end of the year.