LaSalle Investment eyes Singapore, sees opportunities in logistics space

/ The Edge Property |

May 24, 2016 9:00 AM SGT

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Over the past five years, LaSalle Investment Management has been shedding the assets it has held in LaSalle Asia Opportunity Fund III, including those in Singapore. Its latest divestment in Singapore was the remaining 16 units in 111 Emerald Hill in February 2015. The 40-unit freehold private condominium on Emerald Hill Road was developed by LaSalle Investment and completed in 2011. About 24 units in the high-end condo were sold between 2010 and 2014, at prices from $2,214 psf for a fourth-floor unit to $3,030 psf for an 11th-floor one.

The bulk purchase of 16 units at 111 Emerald Hill was reportedly made by a group of Singaporean investors who bought the shares in the development company, Emerald Land Pte Ltd. The purchase price was $75 million, or an average of $1,700 psf.

In 2011, LaSalle sold the Crowne Plaza Changi Airport, a 320-room hotel linked to Changi Airport Terminal Three, for $299.5 million. The buyer, OUE Ltd, is building a 10- storey extension that will add another 243 rooms to the property. OUE divested the hotel and the new extension to its hospitality REIT, OUE Hospitality Trust, for a total of $495 million in November 2014.

In February 2012, LaSalle Investment sold Twenty Anson, a Grade-A office building in the CBD, for $430 million, or $2,121 psf. The building with a total area of 202,696 sq ft was developed by LaSalle Investment and completed in 2009. The buyer was CapitaCommercial Trust.

LaSalle Investment divested the remaining 16 units in 111 Emerald Hill last year for $75 million

‘Contrarian view’ LaSalle Investment’s divestments, however, do not signal a lack of interest in Singapore property, says managing director Chris Chow. “We like Singapore a lot”. As most of the LaSalle funds have a fixed life, the assets will be sold when the returns have been achieved, he adds. LaSalle is an independent subsidiary of the New York Stock Exchange listed property consultancy JLL.

With LaSalle taking a contrarian view of the market, this could be the year that it reinvests in Singapore. “When the timing is right, we will go in,” says Chow. “We are looking into all sorts of investments — bulk purchase of residential units for example and, possibly, good specification logistics warehouses.”

The investment firm is paying close attention to the residential sector as it has softened significantly both in terms of rents and capital values. However, it may not necessarily be focusing exclusively on the prime condo market. It is open to the mid-tier residential segment as well. “We will focus on what will give the best risk-return trade-off,” adds Chow.

In July 2014, LaSalle Investment announced that it had successfully raised US$1 billion in equity to invest in Asia-Pacific. The amount raised has provided buying power of US$3 billion for assets in the LaSalle Asia Opportunity Fund IV, plus US$100 million coinvestment for China logistics property deals, and LaSalle Japan Logistics Fund III, which invests primarily in logistics ware houses in Japan. Meanwhile, the Asia Opportunity Fund IV focuses on assets in Australia, China, Japan and South Korea.

Chow: We are looking into all sorts of investments

Source: LaSalle Investment Management

Japan logistics In Japan, LaSalle Investment was one of the first fund managers to undertake development of top-tier logistics facilities and warehouses as there were very few such developers in that space. That was more than a decade ago. A big portion of the US$1 billion raised two years ago had therefore been invested in the Japan Logistics Fund III, says Chow.

This January saw the IPO launch of the LaSalle Logiport REIT with a market capitalisation of US$1 billion today. The REIT focuses on buying logistics assets in Tokyo and Osaka. In January 2015, LaSalle, in partnership with sovereign wealth fund China Investment Corp, purchased Meguro Gajoen commercial property complex in Tokyo for US$1.2 billion. That marked one of the largest asset acquisitions by LaSalle in its 17-year history.

According to Chow, Japan is attractive as an investment destination given its low cost of funds, which makes assets very yield-accretive. “The loan-to- value ratio is higher than anywhere else in Asia,” he notes. As a result, LaSalle has investments beyond Tokyo and Osaka, in cities such as Hokkaido and Nagoya, where it has invested in shopping mall and office building respectively.

Logiport Sagamihara, one of the largest-scale logistics facilities in the Tokyo Metropolitan area,

is part of the LaSalle Logiport REIT

China’s booming e-commerce Within the LaSalle Asia Opportunity Fund IV, there is a heavy focus on developing its logistics platform in China as well. Chow sees immense opportunities in this sector owing to the booming e-commerce market in China. E-commerce is the primary driver of the country’s retail sales growth, according to independent market research company eMarketer. It estimates that retail ecommerce sales in China hit US$672 billion in 2015, making it the world’s largest e-commerce market. By 2017, China’s online spending is projected to hit US$1.2 trillion.

For instance, last Nov 11, in celebration of “Singles’ Day”, Alibaba reportedly raked in US$14.3 billion within 24 hours by offering special “Double 11 deals” primarily through its websites, Taobao.com and Tmall. com. It’s no wonder that Jack Ma, founder of of Alibaba, is now one of the richest — if not the richest — person in China, and among the wealthiest in the world.

According to Chow, “The rising trend in e-commerce will boost demand for logistics properties in China.”

While there is is an exponential increase in supply logistics and warehouse facilities entering the market in China, it is coming from a very low base, Chow points out. LaSalle Investment has been entrenched in the space since 2008 and was one of the first fund managers to take on property development — acquire land and develop and divest assets. “When we approach China logistics properties, our goal is to turn around the investment quickly,” he says.

The pool of Asian buyers in the logistics sector has also grown, especially with the entry of the sovereign wealth funds, pension funds and also insurance companies. This means, there’s a bigger pool of buyers when it comes time to exit from an investment.

For instance, LaSalle Investment Management developed a logistics warehouse property in Chengdu International Aviation Hub 3, which was injected into the LaSalle Asia Opportunity Fund III. In 2014, the property in Chengdu was sold to Ping An Real Estate, a subsidiary of China’s giant Ping An Insurance (Group). “It was one of the first China logistics property investment made by a domestic insurance company at that time,” recounts Chow.

Phase 1 of a logistics warehouse property in Chengdu developed by LaSalle Investment and held in the LaSalle Asia Opportunity Fund III before it was sold to Ping An Real Estate

Elsewhere in Asia Chow feels there are opportunities to invest in the logistics sector in Hong Kong and Singapore as well. “For the right price and the right specification, it’s a good market to enter, especially in Hong Kong, where there isn’t much supply.”

Across the globe, LaSalle Investment has US$58.2 billion in assets under management as at 4Q2015. “Until a few years ago, the majority of the AUM in Asia were in opportunistic investments,” says Chow. “Now, we are close to bringing the level of opportunistic and core real estate almost on a par.”

The global market is seeing a lot of uncertainty this year with the Brexit referendum in the UK next month, the Upper House election in Japan in July, and the presidential election in the US in November. For LaSalle, the uncertainty also presents opportunities, says Chow.

This article appeared in the City & Country, Issue 729 (May 23, 2016) of The Edge Singapore.

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