A piece of good news at the end of the year: CDH Investments, 5 billion, invests in logistics.
Article by | Xu Muxin
Edited by | Chen Zhiyan
CDH Investments officially announced a logistics investment with a scale of 5 billion RMB.
The latest logistics infrastructure fund under its real estate investment management has completed the fundraising. The underlying assets are high-standard modern logistics parks focused on strategic hub locations such as the Greater Bay Area and the Yangtze River Delta, with a total investment scale of approximately 5 billion RMB.
"DarkTides Waves" has learned that This fund is managed by CDH and JD Industrial Development in a Co-GP model, and the LPs are mainly insurance capital, including well-known insurance institutions such as China Post Insurance and China Italy Life Insurance.
In November 2022, the China Securities Regulatory Commission issued the "Five Measures for Optimizing and Adjusting Equity Financing of Real Estate Enterprises," allowing qualified private equity fund managers to establish private equity investment funds for real estate. In February 2023, the Asset Management Association of China released the "Pilot Filing Guidelines for Private Equity Investment Funds for Real Estate (Trial)." The introduction of these policies has solved at least two industry pain points. One is allowing investment in commercial residential properties, and the other is relaxing the equity-debt ratio restrictions for holding-type properties.
Under this guidance, it is reported that nearly 10 institutions, including CDH Investments, Shenzhen Capital Group, Highhope Capital, Zhonglian Qianyuan, Dingxin Great Wall, CCB (Beijing), China Merchants Bank International, and China Life Capital, have obtained the first batch of pilot qualifications.
Among the consecutively established private equity investment funds for real estate, the differentiated characteristics of CDH's logistics infrastructure fund can be summarized as: sufficient experience, good performance, and a global perspective.
CDH Real Estate Investment was established in 2009 and is one of the earliest established real estate equity investment funds in China. In the past 15 years, it has accumulated the management of about 20 real estate funds in China, the United States, Japan, and other places, with a management scale of nearly 10 billion.
In the more focused logistics and warehousing aspect, in March 2024, the CDH Warehousing and Logistics Phase I Fund announced the completion of the transaction. This fund is also the first fund established by CDH Investments after obtaining the qualification of the first batch of private equity investment fund managers for real estate. Its investment target is a modern high-standard warehouse park that is leased by the leading express delivery company for a long term, located in several important logistics node cities across the country, with a total construction area of more than 400,000 square meters.
Its stable income base is mainly based on two points: First, as the e-commerce industry has changed people's consumption habits, as its basic supporting facility, the subsequent valuation of the logistics park is guaranteed to a certain extent; Second, the high-standard warehouses selected by CDH Real Estate are more complete in terms of site selection and construction, which can support a higher order volume and turnover rate.
In the view of Wang Mei, a partner of CDH Real Estate Investment Management, "Projects like this that have both the market fundamentals and high-quality tenants have long-term investment value. The successful fundraising of the new phase of the logistics infrastructure fund reflects the continuous attention of top insurance investors to high-quality warehousing and logistics projects and their confidence in the long-term development of the Chinese economy." And the fundraising of this new phase of the fund will also continue CDH Real Estate's investment strategy in the logistics infrastructure field of "balancing high-quality underlying projects and high-credit tenants."
According to "DarkTides Waves," CDH Real Estate is covered by a team that simultaneously covers the global major real estate market businesses in China, the United States, Japan, and other places. In 2017, this team made an investment in a large-scale industrial logistics asset package in the United States and brought returns to investors when it exited in 2022.
How to avoid the risk of structural adjustment in the warehousing and logistics market after years of development? Sun Dan, the Managing Director of CDH Investments, told "DarkTides Waves," "Insurance institutional investors are very mature and professional, focusing on the core logic of investment. When making investment decisions, they will make a comprehensive judgment on the project fundamentals, the fund manager, and the asset manager."
Insurance capital has a large amount of funds and the investment needs to match the liability duration, so it will focus on asset categories with long-term stable returns.
Income-generating real estate has a large demand for funds and can generate stable returns for a long time. This "two-way pursuit" characteristic has made insurance capital's enthusiasm for income-generating real estate investment long-standing.
According to statistics from the CRIC Research Center, around 2006, insurance institutions with strong financial strength began to test the waters in real estate, and it has been nearly 20 years since insurance capital invested in real estate. Generally speaking, European and American insurance companies allocate a proportion of 20% of real estate assets. In China, it is generally believed that a proportion of 10% of real estate investment in the asset portfolio is relatively healthy, while the proportion of domestic top insurance capital in this area is only 4%-4.5%.
In addition to the funds with pilot qualifications mentioned above, some investment institutions have also begun to exert efforts in real estate investment, among which the presence of insurance capital frequently appears. In December 2023, Gaolu Group, the fund management platform established by Hillhouse New Infrastructure Fund, announced the completion of the fundraising of the industrial logistics RMB fund, and among its investors, there are also many insurance institutions. In January 2024, New China Life Insurance invested 9.999 billion to subscribe for the new fund of CICC Capital, mainly targeting enterprises with holding-type real estate project assets.
Real estate investment has a large volume, a long cycle, and is closely linked to the real industry, which is a rather special investment category in the primary market investment. What is the special investment logic? Has the structural opportunity emerged? "DarkTides Waves" had a chat with Sun Dan, the Managing Director of CDH Investments, about the changes, opportunities, and methodologies.
The following is the conversation -
"DarkTides": A 5-billion investment scale is a very large figure this year. Why has it received such a generous support from insurance capital?
Sun Dan: Our total investment scale for this time is 5 billion, which is not easy in the current market environment. Insurance capital is currently the backbone of China's real estate investment. This is because insurance capital pursues long-term stable returns and has the attributes of rational decision-making and patient capital. The warehousing and logistics industry that our fund invests in is very much in line with the needs of insurance capital.
"DarkTides": What is the logic of insurance capital investing in warehousing and logistics?
Sun Dan: First, the essence of logistics is infrastructure, serving the real economy, and is supported and encouraged by policies. Second, the layout of this fund project is mainly in the Greater Bay Area and the Yangtze River Delta. At the same time, the tenants served by the project are all industry leading enterprises, with a long-term stable operation tone, which matches the demands of insurance capital.
"DarkTides": Then why CDH?
Sun Dan: Our real estate team was established in 2009, covering the global major real estate markets in China, the United States, Japan, and other places. We have completed the investment management and exit of multiple funds in various markets, and our Track record has been recognized. CDH also continuously strives to respond to the call of industry development and is one of the first batch of units in China to obtain the pilot qualification for private equity investment funds for real estate. The first fund that was landed after obtaining the pilot qualification acquired multiple high-standard warehouse parks located in several logistics hub cities in China, serving the leading tenants in the industry, and the response has also been very good. Based on these points, the successful fundraising of this new phase of the logistics infrastructure fund will also continue our stable income investment strategy in the logistics infrastructure field of "balancing high-quality underlying projects and high-credit tenants."
"DarkTides": How does the Co-GP model with JD Industrial Development operate specifically?
Sun Dan: The basic premise for conducting Co-GP is that both parties have a consistent understanding of the industry and a consistent concept of cooperation, and the ultimate goal is to achieve good investment returns and create an ideal return for investors. The cooperation model between CDH Real Estate and JD Industrial Development is transparent and mutually trusting, with each party performing its own duties, and establishing a market-oriented management mechanism to maximize the interests of investors.
"DarkTides": You have been doing real estate investment for 16 years. What is the core difficulty?
Sun Dan: My feeling is that in real estate investment, first, the pricing of assets needs to match the value, and the cost must be well controlled; second, the attributes of the funds and the attributes of the assets need to match to avoid challenges to the project's cash flow and getting into difficulties; third, equally important is that the transaction arrangement needs to match the demands of all parties, and the value of the assets should be maximized under a reasonable mechanism. Different projects have different difficulties in different stages of economic development. We need to respond flexibly according to the actual situation.
"DarkTides": Pricing assets is a very important link. What is CDH's method?
Sun Dan: The CDH Real Estate team has made investments in different properties and in different forms in China, the United States, and Japan. It is our characteristic and advantage to have the opportunity to compare and verify various markets through first-hand information. Taking stable income-generating assets as an example, on the one hand, we need to have as accurate a grasp as possible of the project's cash flow, including whether it is sustainable and whether there is room for improvement; on the other hand, a reasonable valuation logic needs to be adopted, and the valuation logic is different for different types of assets and different economic cycles. Referring to the performance of the logistics assets we invested in the United States, we can see that in a low-interest-rate environment, the valuation of stable income-generating assets will benefit, which is also one of the reasons why we increase the allocation of stable income-generating infrastructure.
"DarkTides": Will the willingness of insurance capital to invest in real estate change with market changes?
Sun Dan: I believe that insurance capital will continue to be an important participant in the real estate market. We can see that the domestic real estate market is becoming more mature and rational, which is inseparable from the active participation of institutional investors represented by insurance capital. There may be a certain ebb and flow in the short term, but in the long term as a whole, there is still a lot of room for insurance capital to allocate in the real estate and infrastructure fields.
"DarkTides": Previously, Fu Wei, the CEO of CBridge Capital, said, "Mergers and acquisitions are a blue-collar job." If mergers and acquisitions and reorganizations are blue-collar jobs, and equity investments are white-collar jobs, then what is real estate investment?
Sun Dan: We are both "blue-collar" and "white-collar." The investment characteristics of real estate is that each project is a complete small ecosystem. The project's engineering construction, investment promotion and operation, property management, financing arrangements, etc., all need to be considered without blind spots. At the same time, there are also requirements for physical fitness. I remember that during a business trip last year, our team went to 8 cities in 5 days. The single investment in real estate is relatively large. As a real estate investment practitioner, every time an investment is made, the sense of responsibility is even greater. We also hope to bring good returns to investors through continuous efforts.