Prologis Increases Development Capacity in China to $3.5B

The logistics real estate leader is boosting its presence in China in a series of major moves.
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Prologis Inc. has just made a couple of major moves in China. The logistics real estate giant has announced the expansion of Prologis China Logistics Venture 3 to approximately $3.5 billion and the creation of Prologis China Core Logistics Fund LP, a $1.7 billion open-ended investment vehicle.

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Venture 3 is Prologis’ development venture with HIP China Logistics Investments Ltd., a subsidiary of the Abu Dhabi Investment Authority. The partners’ expansion of the venture comes through their dedication of an additional $882 million of equity, leaving them with a leveraged development purse of roughly $3.5 billion.

Prologis’ newly formed PCCLF has raised approximately $445 million and will direct its efforts toward operating logistics assets in the company’s target markets across China. The perpetual life fund will kick off with the acquisition of Prologis China Logistics Venture 1’s 22 million-square-foot portfolio, which is valued at $1.7 billion. Venture 1 was formed with HIP in 2011, and with the partners’ additional investment in 2016, the vehicle reached committed equity totaling more than $2.6 billion.

Ongoing demand

Despite China’s economic slowdown, the country’s logistics market remains strong. As Hamid Moghadam, CEO of Prologis Inc., said during the company’s second quarter 2019 earnings call on July 16: “The dynamics of the industrial real estate market in China are much more driven by availability of land from the one seller that has land, the government. And they’ve always been reluctant to supply the market with what it needs in terms of industrial land, and the reason for that is that industrial users don’t generate taxes. So, there is always a shortage of land in the key markets in China. So even with a more modest economic growth, there is just not enough supply of product in a lot of these markets.”

The call for logistics/industrial space persisted in the third quarter, with e-commerce platforms accounting for nearly half of new leases (although a large percentage of them were short-term to accommodate the Double 11 online shopping festival), and third-party logistics companies and retailers displaying a steady presence, according to a report by CBRE.