Canadian giant PSP Investments forges into industrial sector with $800m commitment to Aliro fund

The largest industrial property deal of the year will make a Canadian fund a top player in the sector, and more transactions are tipped to follow.

Aliro Group co-founders Daniel Wise and David Southon announce PSP Investments will back their flagship industrial fund.

Canada’s Public Sector Pension Investment Board will pour up to $800m into a prime industrial real estate fund run by the Aliro Group, giving the local firm firepower to grow in the increasingly competitive market for warehouses and distribution hubs.

After a burst of e-commerce growth fuelled by the pandemic, industrial property activity slowed due to high interest rates and vacancy levels evening out to a more normal level. Suddenly, it is hot again.

The drivers range from companies investing in their supply chains as they look for ways to boost efficiency and cut costs, to the ongoing scramble for land as industrial players vie with data centre operators and residential developers.

The pandemic was not the peak for industrial property, which is drawing in billions.

There is also growing demand for industrial space, given the rising population, and the sophistication of assets ranging from last mile distribution centres, e-commerce hubs, cold storage, multi-storey facilities and robotic applications.

Aliro’s Public Sector Pension Investment Board (PSP) commitment opens a partial exit for investors that backed it when it set the fund up seven years ago, ahead of the sector rocketing. It will buy more assets with the Canadian group’s support.

Aliro, founded by former Charter Hall joint managing director David Southon, and senior Orica executive Daniel Wise, has rapidly grown its presence in industrial real estate pitting it against some of the largest listed Australian companies. It also faces a series of new entrants that have poured into the attractive sector, which has made finding sites more competitive.

PSP Investments will allocate its $800m into the Aliro Group Industrial Vehicle (AGIV), which is the company’s flagship open-ended industrial fund. The fund targets “core plus” returns by investing in and developing top quality assets and its 12-strong portfolio has an end value of $2.2bn.

It is focused on the eastern seaboard and has estates in areas including Sydney’s Caringbah, Dandenong South and Tottenham in Melbourne and Geebung in Brisbane, and will likely chase new acquisitions, partcularly where demand for big boxes in some city fringe areas has softened.

PSP Investments will come in alongside the manager and clients of CBRE Investment Management’s indirect private real estate strategy, which backed the fund from day one. The Canadian group is already a large investor in Australian offices, farming and energy infrastructure.

It will both take an undisclosed stake in the AGIV and then provide the capital for its growth. It is behind Aliro as it sees strong market conditions to acquire, manage and develop prime institutional-grade assets, particularly in supply-constrained infill areas.

An Aliro property in Dandenong South

“This investment gives us immediate scale and access to a high-quality portfolio and development pipeline, complementing our already extensive investment portfolio in Australia, and aligning with PSP Investments’ Real Estate global sector convictions,” PSP Investments managing director, head of Europe and Asia-Pacific, Stephane Jalbert, said.

Mr Southon is bullish about the sector’s outlook: “The enlarged partnership strengthens our ability to scale with discipline, while leveraging the momentum we have generated in the build-up of AGIV’s high quality portfolio and the outperformance already delivered for our existing investors,” he said.

Mr Wise said there was strong demand for industrial specific strategies in the Australian market. “This partnership further strengthens our ability to identify and execute on high-calibre investments, ensuring we continue to access and deliver enduring value for our customers,” he said.

CBRE Capital Advisors and Macquarie Capital acted as financial advisers to Aliro.

CBRE’s Stuart McCann and Macquarie Capital’s Alex Rouse said that Aliro had built a differentiated platform and was attracting “best-in-class” institutional capital.

“This transaction demonstrates continued interest in the Australian industrial market as capitalisation rates have stabilised and low vacancy, strong demand drivers and lagging supply, particularly in infill locations, continue to support rental and capital value growth,” they said.

Others to get big overseas commitments include Asian warehousing giant ESR, which recapitalised a portfolio last year with Japanese and Malaysian capital, and Stockland, which earlier this year struck up logistics partnerships with private equity firm KKR and British funds manager M&G.

Originally published as Canadian giant PSP Investments forges into industrial sector with $800m commitment to Aliro fund