GIC, ESR team up on $500m China venture
ESR, an Asia Pacific-focused logistics real estate platform, has formed a joint venture with Singapore’s GIC Private with a view to investing $500 million in high-quality facilities in China.
ESR was founded in China as a service provider for e-commerce players. The company is now responsible for warehouses with 6.62 million square meters in gross floor area (GFA) - which includes landbank as well as properties in operation and under construction - and its largest customers include JD.com and Amazon. Assets under management (AUM) in the country total $4.39 billion.
ESR operates under an asset-light model, raising third-party capital to support projects once it has demonstrated proof of concept and begun to achieve scale. The company launched its first US dollar-denominated China logistics fund in 2014, with APG Asset management serving as the anchor LP. As of June 2019, funds and other investment vehicles accounted for 72% of ESR's GFA and 85% of its AUM. It gets fees for managing these vehicles.
Joint ventures are another means of leveraging third-party capital. For example, in 2018 ESR established a JV with Allianz Group’s real estate division that committed $1 billion – comprising equity and debt – to invest in India. GIC previously collaborated with ESR on an unspecified project in China. The Singaporean sovereign wealth fund also established a $2 billion China logistics fund with ESR's rival warehouse operator GLP.
Jinchu Shen, ESR’s co-founder and co-CEO told AVCJ in a previous interview that a new opportunity for logistics providers is online-offline integration. Inventory streams must be brought together to further bring down delivery costs. Nike or Adidas might rely on DHL to serve its brick-and-mortar outlets in China and establish a virtual storefront on Alibaba’s Tmall for digital customers. These channels do not have to be served by separate storehouses.
“As the size of our warehouses gets larger, delivery of online and offline goods can come from a single physical location instead of several warehouses in different cities,” says Shen.
Manufacturers of consumer brands are expected to become key customers for ESR. As of June 2019, three of the five largest tenants were manufacturers, up from two in 2018 and zero in 2017.
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