Deutsche Finance International, a pan-European private equity real estate platform, has launched a UK urban logistics business in joint venture with Argo Real Estate, with the £177 million acquisition of two portfolios in separate transactions.
The portfolios seed DFI’s platform with 1 million square feet of space across 11 assets located in urban logistics hubs including London, the South East and Manchester. The assets are 90% occupied, with a single vacant asset where a comprehensive repositioning will be undertaken, DFI said. The platform will aim to build a portfolio of around £400 million of value over the next few years.
It says the recent "rerating" of the asset class in the UK, provided a window to allow it to enter the sector at a level where it believes it can deliver opportunistic returns for its clients while taking core-plus risk.
DFI said the assets range from institutional-quality urban warehouses, including the 147,000 square feet facility in Theale, which is let on a long lease to Amazon, through to those on shorter leases that offer opportunities to capture rental reversion. The overall portfolio’s market rent is over 80% above the average passing rent, with a weighted average unexpired lease term of 5.7 years and tenants including Royal Mail, Greencore, GXO Logistics and Aldi.
The vendors have not been disclosed but one of the portfolios is the £82 million portfolio sold by Workspace in May. It has been selling around £180 million of logistics it took control of via its recent acquisition of McKay Securities.
The assets are: Oakwood Trading Park, Crawley (52,000 square feet), Poyle Trading Estate, Heathrow (74,000 square feet), Theale Logistics Park, Theale (134,000 square feet), Willoughby Road, Bracknell.
Gerald Eve acted for the purchasers.
The second is Project Libra, a portfolio of six assets sold by Tesco Pension Investment for £95 million. The assets are: Boreham Interchange, Chelmsford; the Morrisons hub at Solar Way in Enfield; Centre Point Industrial Park, phases 1 and 3 at the Trafford Centre in Manchester; Brinklow 80 in Milton Keynes; Greencore Food to Go in Park Royal and 1-3 Longwall Avenue in Nottingham.
DFI and Argo have committed over £30 million of capital expenditure investment to "create value and ensure optimum investment liquidity". The upgrades are focused on improving the occupier experience and improving environmental, social and corporate governance performance, targeting EPC A rating on each asset, as well as net zero carbon in operation.
DFI said logistics is a "conviction asset class" being underpinned by strong occupier fundamentals, record low vacancy rates, as well as a limited pipeline of new development and in many areas a reduction in existing supply as space is lost to alternative uses.
DFI and Argo will continue to source investment opportunities, focusing on supply constrained urban logistics markets in and around the UK’s largest cities, they said.
Jonni Glick, vice-president at DFI, said in a statement: “We have been monitoring the European logistics sector for some time and the recent rerating has provided us with an opportune moment to enter the market via the acquisition of two UK portfolios, capitalising on the geography and sector where values have repriced fastest. We believe there is a strong opportunity to create further value in our portfolio through considered asset management to both capture substantial rental reversion potential and by investing capex to improve the environmental performance of the properties. We are excited to work with the exceptional team at Argo, who have a strong track record assembling, managing and exiting logistics portfolios, and we look forward to building out the platform further together.”
Deutsche Finance International is a pan-European private equity real estate platform with offices in London, Munich, Madrid, and Luxembourg and is part of the Deutsche Finance Group. It manages €4 billion of assets.