On Tuesday, TPG, the 29-year-old private equity giant that manages $85 billion in client assets globally, announced that its $5.7 billion dedicated real estate practice, TPG Real Estate Partners (TREP) has launched a fourth industrial platform that will focus on commercial properties in the (post-Brexit) U.K. The new venture, to be called 4i, was founded in partnership with industrial real estate investor Derek Heathwood, formerly U.K. Property Director of European industrial REIT Hansteen Holdings.
4i has already acquired 1.13 million sq. ft of urban multi-let industrial real estate in strategic locations in the North West, Yorkshire, West Midlands, and South East. The portfolio consists of 125 units across seven sites and is to be let to 89 tenants including DHL, SIG, Encon Insulation and Softbox. The properties were acquired in four separate transactions. 4i has also entered into agreements with industrial real estate developer Network Space to develop a further 176,000 sq ft of multi let property across two sites in the North West.
Properties in the initial portfolio include Crendon Industrial Estate in Thame, Alpha Business Park in Birmingham, Melford Court in Warrington, Faraday Park in Swindon, Moorbrook Park in Didcot, Tunstall in Stoke-on-Trent and Ashroyds Business Park in Barnsley. The development sites are at Estuary Prime and Brookfield Drive in Liverpool.
Sellers are real assets giant Nuveen (which owned the Crendon Industrial Estate), funds managed by U.K. commercial real estate investor DTZi (Alpha Business Park), Knight Frank Investment Management (Melford Court, Moorbrook Park and Faraday Park), and Network Space (Tunstall and Ashroyd Business Park ).
TREP says there are several near-term lease events across the highly reversionary portfolio, which along with 240,000 sq ft (21 %) of vacant space, will provide immediate opportunities for value enhancement.
Recent research from esteemed U.K. property agency Savills points to a very robust outlook for U.K. logistics properties, particularly in the North West, where the warehouse vacancy rate in January 2021 dropped to an all-time recorded low of 5.19 percent, with just 0.98 years of industrial real estate supply (down 29 percent in the past 12 months) for the entire region.
Savills expects a similar level of demand from the U.K. as a whole, particularly from the manufacturing and automotive sectors. Even if warehouse demand doesn’t spike dramatically in early 2021, Savills says “there is every likelihood” that industry talk of near-shoring moves beyond the realm of media chatter to actual demand. Their own research indicates that every GBP 1 billion of investment by U.K. manufacturers triggers a ripple effect for 175,000 sq ft of additional warehouse space needed in the supply chain.
“We expect that 2021 will see much more considered thinking from occupiers who need to adapt their supply chain and distribution models to the post-Covid world,” Savills wrote in a January report. “This will entail greater thinking about future levels of online retail and the required inventory levels, but also the changing geographies in terms of customer delivery.”
Speaking about the new venture with TREP, 4i Managing Director Derek Heathwood, said: “Our strategy focuses on buying quality multi-let light-industrial properties in key UK submarkets. These initial acquisitions will provide a strong foundation on which to build a platform of scale, placing 4i firmly on the map. We can already see a pipeline of new opportunities to grow the portfolio.”
During its ownership, TREP’s value creation strategies focus on driving returns across three critical dimensions: optimizing property-level performance, curating and aggregating strategically aligned portfolios, and enhancing platform capabilities. TREP often pursues these goals by building around an existing management team. TREP closed its third opportunity fund at $3.7 billion–oversubscribed past its $3 billion target–in March 2019.