Global Logistic Properties has already begun discussions with Gazeley’s management team around advancing its development pipeline for the next year, having agreed a deal at the start of the week to buy Gazeley from Brookfield for €2.4bn (£2.1bn).
Gazeley expects the UK market to be a particular focus for speculative development, and now has its hands on an 11.3m sq ft pipeline. Much of this is concentrated around Magna Park, near Lutterworth, Leicestershire.
The company looks to start speculative development when it perceives demand to outstrip supply by 50% or more.
“We will have a number of projects starting next year given the strong demand. We will look for 1.5x demand in order to put a shovel in the ground,” says Steve Schutte, the chief operating officer of GLP, who is responsible for its expansion into new markets.
“We feel that the UK market is very strong and are already sitting down with the team and mapping out a strategy there.”
The equity underpinning Gazeley will be absorbed into GLP’s fund management platform. Although not yet determined, GLP’s typical model suggests it is most likely that two separate funds will own Gazeley – one holding its standing assets for low-risk investors and another holding its development pipeline for investors looking for a higher return.
GLP to retain stake
GLP is likely to retain a stake of around 15% across the portfolio on its own balance sheet. It expects to sell down most of the remaining position by the time deal closes, which is scheduled for December.
“There is a tremendous amount of investor interest. We have $40bn (£30bn) under management across 12 funds with 18 capital partners from North America, Asia, and the Middle East including the likes of CPPIB, GIC and CBRE [GI]. It is a model we are very focused on going forward. The Gazeley platform is perfectly synergistic with it and is a method and means of scaling it up,” says Schutte.
GLP was attracted to Gazeley not just by its assets and development pipeline but by its management team. Led by Pat McGillycuddy, the company has five offices across Europe.
As part of the purchase GLP has agreed that it takes the Gazeley brand with it, which will then continue to be utilised within Europe. Brookfield still retains assets under the IDI Gazeley brand in the US and Asia but it is expected that these will be changed to just IDI after a transition period.
“We love the Gazeley brand, which is synonymous with quality and state-of-the-art facilities. We’ve been impressed with the team and their reputation, which we think are unrivalled in Europe.”
Now that GLP finally has a platform to live up to its global name, the company expects to be able to utilise its network to work more closely with occupiers across regions and lure them across continents as they expand.
“I think that is going to be a process that works both ways. The relationships we have and knowledge and expertise we can share will help, and bringing occupiers from Asia to Europe we think will help scale the platform. Likewise the team at Gazeley will be able to deploy their expertise in other parts of the world,” says Schutte.
The price of European logistics has soared in recent years as investors have looked to diversify their portfolios away from offices and retail, the sector has matured and e-commerce has boomed. The €2.4bn paid for Gazeley reflects a sharp yield of around 4.4%. Its large, non-income producing development pipeline skews this, however, but the price paid for the standing assets still yields only a touch above 5%. GLP believes that there is still a long way to run.
Compelling fundamentals
“Unemployment in Europe is still falling and with historically low interest rates, spreads with yields for prime assets are 350-400 bps. Absorption has outpaced new construction for the past 10 years and vacancy is at 5%. These fundamentals, combined with the rise of e-commerce, we find very compelling,” says Schutte.
The past year has seen four major takeovers of European logistics platforms – P3’s €2.4bn takeover by GIC, Fraser Property’s €365m Geneba deal, the gargantuan purchase of Logicor by China Investment Corporation and now GLP and Gazeley. All four have been made by Asian buyers looking to utilise the relatively high yields on offer in the sector, and some of these buyers have been able to make profits by syndicating equity in their home markets.
Schutte says that the string of mega-deals was partly to do with an exodus of the market by private equity and partly to do with a recognition of the power of e-commerce in Asia.
“It is similar to what we have seen in the US where you have some rare opportunities to amass scale quickly. That is not at all easy to do in the warehouse market and there is a unique window. In the past five years or so compounded annual growth in e-commerce has been booming, starting in Asia. It has started to grow dramatically in the US and it is starting to take off here. A lot of Asian investors see this overall dynamic as a very opportunistic time to get in to take advantage of further growth.”
With insatiable demand from its investors for the asset class, it is unlikely that it will be Gazeley’s last major deal under GLP’s ownership, according to Schutte.
“The initial focus will be on the existing portfolio but we will look to expand into new countries and we will continue to invest our investors’ capital and expand our fund platform through all types of single assets, portfolios and large-scale M&A.”
The Gazeley portfolio
■ UK
By value: 57%
Standing assets: 2.5m sq ft
Pipeline: 11.3m sq ft
■ Germany
By value: 25%
Standing assets: 7.3m sq ft
Pipeline: 2.7m sq ft
■ France
By value: 14%
Standing assets: 5.1m sq ft
Pipeline: 1.5m sq ft
■ Netherlands
By value: 4%
Standing assets: 2.3m sq ft
Pipeline: na
Expert view: Philip Marsden, international director – UK & EMEA capital markets at JLL and adviser to GLP
The demand for logistics and the number of portfolio and platform deals for logistics businesses is being driven by multiple factors.
There is substantial new capital chasing property generally and allocations to property from existing investors has increased.
New investors and those who are already in property have generally increased their allocations, driven by the anticipated future out-performance of the sector as a result of demand from e-commerce and from companies improving their supply chains. This is likely to produce better returns from logistics than from other sectors.
There is the potential for plenty more consolidation. Private equity investors continue to agglomerate portfolios and build new management teams and there are still many longer-term investors out there who would like to own a platform.
Many large overseas and regional investors who are underweight in logistics will invest in the newly created vehicles directly or indirectly and the party has a way to go yet.
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