ESR Closes $1.5bn Industrial Fund

Hong Kong-listed logistics platform ESR is eyeing new opportunities in the Asian industrial sector after announcing a US$1 billion fund alongside joint venture partners APG and Canada Pension Plan Investment Board.

The vehicle, to be known as ESR-KS II, will be seeded with a US$197 million 154,422sq m logistics facility in Incheon City.

The new fund aims to raise US$1 billon (A$1.5 billion) of equity and will be anchored by an initial US$200 million commitment from a global institutional investor.

ESR, which is backed by private equity firm Warburg Pincus, will now use the fund to further invest in and develop a “best-in-class” industrial and logistics portfolio across South Korea, specifically in Seoul and Busan.

The consortium have allocation expansion options that could bring the total equity investment capacity to as much as US$2 billion over time.

ESR co-founder Jeffrey Shen said the close reflected the relationship between its partners built over a number of previous collaborations.

“We are confident that the state-of-the-art developments of ESR-KS II will set another flagship vehicle for the Group that provides our investors with solid returns,” Shen said.

Although South Korea has one of the world’s highest rates of online shopping, many of the country’s warehouses and distribution centres have failed to keep pace with consumer or investor demand.

South Korea is also the fourth largest third-party logistics market in Asia Pacific and is growing at an annual rate of 7.8 percent—faster than Japan, Australia and Singapore.

The newly appointed chief executive of the fund Thomas Nam said the constrained supply in Incheon City and need for access institutional quality development opportunities South Korean market had been the driving factor in its formation.

Since the global financial crisis South Korean logistics yields have compressed, currently sit around 6 percent, reflecting ESR's focus on the region, as well as the real estate needs of the ecommerce market.

Recently, ESR entered into a strategic partnership with Singapore’s sovereign wealth fund GIC to set up a joint venture with a total equity commitment of $500 million.

The joint venture, which marks ESR’s latest launch in a series of development vehicles, focuses on building institutional-grade logistics facilities in key cities across China.