ESR Cayman and ARA Asset Management’s Logos are setting up two complementary funds to raise as much as $2.5 billion to bankroll the enlarged group’s expansion into the booming data center space across the Asia Pacific, aiming to replicate their success as the biggest landlord for e-commerce giants across the region.
Hong Kong-listed ESR—which is in the process of merging with Singapore’s ARA Asset Management—and Logos are expected to complete the first closing for the data center development funds by the first half of 2022, ESR chairman, Jeffrey Perlman, said in a recent interview with Forbes Asia.
ESR announced the acquisition of ARA in August for $5.2 billion to create the biggest real estate asset manager in Asia Pacific with assets under management of over $130 billion. In October, the companies moved to combine their Singapore-listed units ESR REIT and ARA Logos Logistics Trust in a separate deal. Both transactions are expected to be completed in the first quarter of 2022.
The merger will transform the combined entities into the biggest new economy property platform in the Asia Pacific, with AUM of more than $50 billion comprised mainly of logistics assets. The group has been expanding into data centers to tap the growing demand for the digital infrastructure. E-commerce giants such as Amazon, Alibaba and JD.com are among the company’s biggest logistics tenants.
“The rapid growth of e-commerce has only accelerated during the pandemic,” Perlman says. “Digital transformation is ongoing in our daily lives. We’re using Zoom and Teams every day and all that data need to be stored somewhere. It’s stored in the cloud and so there’s a continued need for data centers.”
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ESR is developing its biggest data center project in Osaka, Japan, which will have a gross asset value (GAV) of more than $2 billion when completed. In Hong Kong, the company is also redeveloping an industrial asset it bought in May from the family of the late tycoon Tang Shing Bor into a data center, which will have a GAV of $675 million upon completion.
With these projects, the group could develop data centers with a combined server capacity of about 250 megawatts and a GAV of over $10 billion in the next few years across the Asia Pacific, according to ESR. Perlman expects data centers would eventually account for as much as 15% of the group’s new economy property portfolio which includes modern warehouses for e-commerce firms and cold storage facilities for cloud kitchens.
The rapid growth e-commerce, video conferencing and other digital platforms is spurring the growth of data centers across Asia Pacific. The market for data centers is expected to more than double to about $60 billion by 2027 from $26 billion in 2020, according to a study published by Research and Markets in August.
The combined ESR and ARA entity counts U.S. private equity firm Warburg Pincus and Canada’s Oxford Properties among its biggest investors. Other backers include ESR founders Jeffrey Shen and Stuart Gibson, ARA cofounder John Lim and Singapore billionaire Chew Gek Khim’s Straits Trading.