Author: Forest Logistics Properties
Editor: Pinyang Paul Chen (MRE' 24, MLAUD' 23)
All Photos Courtesy of Forest Logistics Properties
The Entrepreneurial Journey
As a GSD graduate alumnus (MDes REBE), Hank Hsu is the co-founder and chief executive officer of Forest Logistics Properties. Hank Hsu started by sharing his entrepreneurial journey to create Forest Logistics Properties, a platform that has developed 2 million square meters of grade A warehouse space worth $2 billion in assets under management in China since its inception in 2018.
“I used to be Head of Investments, China for Ascendas-Sinbridge, an industrial real estate investment platform under Singapore’s sovereign wealth fund, Temasek Holdings,” Hank said. “In 2016, Ascendas-Sinbridge planned to launch a few new business initiatives in China, and I was responsible for spearheading the logistics sector investments. In the end, with the right timing and resources, I decided to build my own logistics real estate platform in China after being convinced that the surging 20% y-o-y demand from China’s already world's largest e-commerce industries and undersupply of high-end warehouses in China’s tier one cities near Beijing, Yangtze River delta region and Greater Bay Area, our target investment markets.” Hank shared his story with enthusiasm.
“Taking an entrepreneurial journey is challenging but rewarding, “after graduating from college with an architectural degree in Taiwan, Hank switched to the development side and worked as a development manager for a few residential projects before he applied for his MBA from UC Berkeley and his MDes REBE Degree from GSD. He has acquired relevant experiences and skills for a smooth transition to real estate investments.
China
Hank has provided his long-term positive perspectives in China. “In terms of investment, we don’t want to miss the second largest economy and the largest trading partner for over 100 countries in the world”. China has been experiencing constructive destruction by transferring an investment-led economic growth model to a consumption-driven one, including following the market practice to restructure individual overleveraged residential real estate companies, deleverage local government debts, and avoid aggressive easing monetary policy not to create the next asset bubble.
With all the challenges ahead, China's economy still has ample room to grow with strong urbanization, ample middle-class workforce, and ongoing industrialization. High-quality development remains the top priority, with a focus on innovation and productivity to ensure sustainable growth in the next decade. The US-China relationship gradually shifts to constructive competition, as both sides recognize they can benefit from continuous economic integration and cooperation.
Logistics Real Estate in China: Recovering Demand
Hank then introduced Forest Logistics properties; in summary, China's logistics real estate sector has been the greatest beneficiary during COVID-19, when most customers shop online daily for used items, from grocery items to pre-cooked food, medicines, and electronic products. “More than 70% of our warehouse users are a variety of e-commerce platforms and 3rd party logistics companies that service e-commerce platforms, manufacturers, and retailers, with the remaining niche users such as cold storage companies. Strong e-commerce demand in China comes from the traditional Alibaba, JD.com, discounted PDD during COVID-19, cross-border e-commerce giants such as Shein post-pandemic, and new format live-streaming e-commerce platforms such as Douyin and Xiaohongshu, which all echo a consumption-led economy growth modal in the future. And our big box warehouses can easily adapt to these demands for niche uses such as cold storage companies.
Post covid, although China’s consumption momentum hasn’t recovered as fast as expected, logistics still benefit the most among all real estate asset classes, as products stored in warehouses are not big-ticket items. “We have seen occupancy rates across China’s key economic hubs continue to rise steadily, along with limited supply for the last two years. Consumer confidence is expected to come back higher after a flurry of easing measures announced following the July Politburo meeting. “
Diminishing Competitions
“Besides the demand picking up, we have witnessed the diminishing competition from foreign capital amid geo-political tensions and cyclical downturn; thus, the next 18 months would be a golden opportunity for us to make the strategic move”, Hank explained. “Land prices in our target locations have come down by 20%, plus overall reduced construction costs in China will support our investment returns.” By 2021, Forest Logistics properties had attracted $1.2bn equity for our China strategy. “We will continue to deploy capital to develop half a million sqm in Shanghai and Greater Bay in the next year; our investors recognized China’s long-term growth and believe with the right strategy and managers, China is a deep market much easier to scale up.”
Capital Market
“China is developing fast with its domestic capital market, with insurance core capital, and emerging C-REIT favoring income-producing infrastructure and logistics assets, “ Hank explained, “Exit to domestic capital is a good option for foreign capital; we have seen GLP and JD property successfully listed their portfolio at C-REIT and their stocks have been traded at a premium. “C-REIT’s market capitalization is now only 2% of U.S. level; the C-REIT market can have huge potential to grow by just following Singapore and US growth model to add more asset classes, simplify the structure and streamline the approval process.” Also, China is one of the few economies that still have positive carry or spread for logistics real estate investments, which means the sector’s development yield of 7% is higher than the borrowing costs of 5%.” The cap rate compression story also applies to China's logistics real estate sector, with a 200bps cap rate compression for development projects to exit at a 5.0% to 5.5% cap.
the Differentiators: Green Building, AI, Technology, and ESG
Incorporating ESG across the investment life cycle has been a KPI for us, not only for fundraising purposes. We do believe implementing ESG can bring long-term value to our investors and tenants. We deliver LEED certification warehouses across China. Green buildings reduce day-to-day costs year-over-year which have lower maintenance costs than typical buildings. We install solar panels on the rooftop of all Forest facilities as long as weather conditions allow, which reduces our monthly energy bills by 15% and carbon emissions by 11%. Last but not least, we implement AI technology to create a proprietary smart warehouse system for all our logistics parks; the system digitalizes and visualizes all asset management and property management tasks, which greatly reduces our daily maintenance costs and thus increases operating efficiency and transparency, also a great way to build trust with our tenants.
Thus, we are proud to receive the "Outstanding Performance Award - Green Building" from the China Real Estate Chamber of Commerce Hong Kong and International Chapter.” In addition, Forest participated in the GRESB assessments just for the first time and received a good rating beyond the global average with our good performance in ESG governance, information disclosure, climate risk response, and green operation. We will continue to integrate ESG into our overall business strategy and are committed to a sustainable growth model for all our investments.
