The red-hot U.S. industrial real estate market is starting to draw more international investment. Mapletree Investments, the property investment arm of Singapore's sovereign wealth fund, recently made two deals to grow its holdings in the country.
Here's a closer look at these deals and what they mean for the market.
Increasing its wager on industrial real estate
Mapletree is no stranger to the logistics real estate market. The company manages billions of dollars' worth of properties around the globe, including sizable portfolios in the U.S. and European markets.
It's now boosting its U.S. bet by investing $3 billion to acquire 141 additional logistics properties in two deals. The first acquisition includes 24 properties in Dallas, Chicago, Central Florida, Boston, and Memphis, Tennessee. The other portfolio features 117 assets located in Chicago, the Carolinas, Memphis, Houston, and the Washington, D.C./Baltimore metro area.
Overall, the two portfolios feature a blend of major metro areas and fast-growing cities in the Sun Belt region. Large institutional investors and industrial REITs are gobbling up properties in both areas. For example, Brookfield (NYSE: BAM) recently made a billion-dollar bet on the Chicago logistics market. Meanwhile, KKR (NYSE: KKR) has been buying and selling industrial properties across the country this year.
These portfolios will combine with 14 properties Mapletree already owns. That will give it the scale to seed a portfolio for a potential new private real estate investment fund focused on logistics properties. Overall, this deal brings its total U.S. investment to $6.9 billion across 355 properties, some of which it holds in a private fund focused on the U.S. and European logistics markets.
Tapping red-hot investor demand
Demand for warehouse space is at an all-time high these days. The accelerating adoption of e-commerce, low retail inventory levels, and supply chain issues are driving businesses to lock up as much logistics space as they can. That's pushing occupancy levels and rental rates to all-time highs.
These catalysts are boosting the value of existing warehouse properties, making them excellent investments. And that's drawing investors to pour more capital into the sector.
Mapletree is looking to tap into this investor demand by acquiring portfolios of properties to seed a new private fund. That follows a noticeable trend of other institutional investors allocating more investor capital into the sector.
For example, Blackstone's (NYSE: BX) BREIT, a diversified non-traded real estate investment trust (REIT), recently upped its bet on the industry by agreeing to acquire WPT Industrial Real Estate Investment Trust (TSX: WIR.UN) for $3.1 billion in cash. That's the largest of several industrial real estate portfolio acquisitions the REIT made this year as it expands its allocation to that sector.
Meanwhile, other large private equity players like Brookfield and KKR are making investments in industrial real estate this year due to increased investor demand for these properties. For example, KKR recently closed a $4.3 billion real estate fund that will take a thematic investing approach. One of the major themes it intends to focus on is industrial real estate.
Investors are pouring capital into private equity funds focused on real estate megatrend themes like industrial real estate because they offer opportunities to potentially earn outsized returns. Industry fundamentals are excellent. Because of the expected demand for industrial real estate, the U.S. needs to build 1 billion square feet of additional warehouse space by 2025.
That goes against a backdrop of several headwinds to building a new supply. Those two factors position the sector to experience high occupancy and strong rental growth rates for years to come. That should provide investors with growing rental revenue and the potential for outsized price appreciation.
Cashing in on investor demand
Mapletree knows that investors want more opportunities to participate in the upside of the industrial real estate industry. That's leading it to buy two U.S. logistics portfolios to seed a new dedicated investment fund. Despite increasing competition from other major private equity players working to serve their clients' desires to invest in the sector, it likely won't have any problem getting investors on board.