Valor Real Estate Partners has launched a new long-term investment fund, Valor Industrial Partners 1, in partnership with American International Group, with an initial tranche to fund €300m (£268m) of assets.
VIP1 will target investment and development opportunities across the UK and Europe, with a focus on last-mile and infill locations close to cities and large populations in order to capitalise on increasing demand for logistics space, especially from the growth of e-commerce.
The initial amount of committed capital from AIG will fund €300m of assets. Valor’s existing UK assets, which includes a 7.7acre development site near Heathrow airport and a 206,968 sq ft distribution hub in Milton Keynes, will be transferred into the venture and will simultaneously be refinanced by Deutsche Pfandbriefbank.
Valor Real Estate partners was founded in 2016 as an industrial real estate platform with KSH Capital – an investment and development business focussed on industrial property in North America, which was acquired by Prologis in 2015 for $5.9bn.
Now that it is working with capital partner AIG, which has invested an initial tranche of €100m, the new joint venture is looking to grow the portfolio to a NAV of €300m within the next year.
Christian Jamison, managing partner at Valor, said: “The intention was always to bring third-party capital on board to continue to grow the platform. We see fantastic long-term potential within industrial real estate. We think we will find good ways to invest and make risk-adjusted returns at any point in the cycle. The market in Europe is still fragmented and there is a lot of M&A happening, so there is plenty of ocean for us to swim in.”
The fund will be steering away from big-box industrial assets and will instead be focusing on smaller assets nearer populations in order to capitalise on last-mile demand.
“At the moment we see better value for money in smaller boxes,” said Jamison. “That’s not to say that couldn’t change back to larger boxes should the market environment change. We are seeing big premiums being paid for large distribution units, but actually the risk of obsolescence in some of those assets is there, and so for us it represents too much risk. We see more opportunity to deploy capital in areas where we see more of a supply constraint and potential for growth.”
Jeffrey Kelter, chief executive at KSH Capital, said that this was a trend that KSH had witnessed across the pond.
“I have learnt everything that you could imagine in the US, and what became very clear to me through operating cycles and investment cycles is that the closer you are to a major operation, the better the value.”
The new fund will target investing and developing such assets throughout the UK and across the continent, with a focus on major cities including London, Paris, Amsterdam, Rotterdam, Berlin, Frankfurt, Munich, Leon, Birmingham and Manchester.
Kelter said London would be a particular target: “I have a very strong belief that people will always live in London. Brexit or not, population is what determines goods flowing through logistics.”
“The more urban you are, the more bullet proof you are,” he added. “We are investing in the long-term proposition that people want goods faster. Therefore clustered around cities rents are going to go up and values are going to go up and that’s a long-term view over the next 10-20 years. It is a trend we intend fully to take advantage of in Europe’s biggest cities.”
E-commerce in the UK has grown exponentially and is showing no signs of slowing down. According to EG data, in November 2007, online shopping accounted for 4% of all retail in the UK. By November 2016 the market share had increased to 16%.
The UK is ahead of some of its European counterparts, but Jamison said these markets were not far behind.
“You will see Europe catching up with the UK, which has one of the biggest rates of penetration for ecommerce in the world,” he said.
“How that manages itself around logistics, including driverless cars and automation, are all things which could affect the supply pattern. That’s why I feel very comfortable with our strategy. However you set up the supply chain, you still have to deliver the product to the people. If you’re located next to the people then that is where demand will be sustainable. But that last mile is the biggest challenge.”
To send feedback, e-mail amber.rolt@egi.co.uk or tweet @AmberRoltEG or @estatesgazette
