Goodman Forms $890 Million Venture With Canadian Pension

Goodman Group, Australia’s biggest industrial real estate investment trust by market value, said it formed an $890 million partnership with the Canada Pension Plan Investment Board to develop and buy property in North America.

Goodman will contribute 55 percent of the equity capital, and Toronto-based CPPIB, Canada’s second-biggest public pension manager, will invest the balance, they said in a statement today. The Goodman North America Partnership plans to focus initially on development, with acquisitions to be considered as opportunities arise, Sydney-based Goodman Group said.

The partnership will be able to invest $1.5 billion to $1.8 billion, including debt, Chief Executive Officer Greg Goodman said. The venture will invest in areas close to major ports, railroads and highways, and in population centers where high-quality warehouse space is in short supply, he said.

“The U.S. market is the largest industrial market in the world, and it’s one we are not present in,” Goodman said in a telephone interview. “We have demand from big users that want to drive more efficiencies out of warehousing and save costs.”

The venture is part of an international expansion by Goodman Group as cargo shipments recover to pre-recession levels in some markets. While capital for development remains constrained following the financial crisis, demand from retailers, manufacturers and logistics customers is strong, Greg Goodman said.

Development Sites

Goodman Group said in June that it had secured four development sites, with more than 9.8 million square feet (910,000 square meters) of gross rentable space and a combined value of more than $700 million. Two are in the Los Angeles area, one is in Oakland on the east side of the San Francisco Bay and one is in the Lehigh Valley, north of Philadelphia. Seattle is another area where the company is looking, Greg Goodman said.

The company hopes to generate returns of at least 10 percent in North America, he said. Development offers higher yields than buying industrial properties, Goodman said. Capitalization rates for prime industrial real estate, a measure of yield that declines when purchase prices rise, have been pushed down to 5.25 percent to 5.5 percent as interest rates at historic lows drive investors to income-generating properties, he said.

“The investment market in the U.S. is very strong,” Goodman said. “We’d much rather develop” than buy.

Worldwide, Goodman Group plans to develop as much as $2.5 billion of industrial properties in the next 12 months, its CEO said. The company developed a record 900,000 square meters in Europe in the past year, he said. More than half of Goodman Group’s European business is in Germany.

Malaysia Venture

In June, Goodman Group said it formed a venture with Malaysia’s Employees Provident Fund to buy industrial assets in Australia. The company is pursuing other alliances in Asia as well, Greg Goodman said.

“I suspect this year we’ll introduce another one or two partners,” he said.

The North America partnership will be managed by a venture 90 percent owned by Goodman Group, with the balance owned by Irvine, California-based Birtcher Development and Investment Co., Greg Goodman said.

Goodman Group and CPPIB already had joint investments in Australia, China and Hong Kong. CPPIB is Canada’s largest public pension manager after Caisse de Depot et Placement du Quebec.

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