Real estate private equity manager ElmTree Funds is partnering with investment firm Guggenheim Investments to buy industrial e-commerce assets in the U.S., with Guggenheim making a $600 million equity commitment to ElmTree as part of the transaction, Institutional Investor has learned.
ElmTree focuses on acquiring build-to-suit properties that are net leased to investment grade tenants, meaning that the tenants pay some of the taxes, insurance, and other operating costs. ElmTree will invest in industrial real estate that is tied to the so-called last mile of the e-commerce transaction pipeline, or the delivery of products to consumers from a central site.
Unlike commercial real estate overall, these sectors have been in high demand as consumers have shifted to online shopping during the pandemic and as companies needed to rework their global networks of suppliers to deliver products faster.
James Koman, founder and CEO of Elm Tree Funds, hasn’t invested in traditional retail for years. That early call paid off during the pandemic, as malls and other stores went dark when consumers shifted their purchases online and as companies buckled under global supply chain troubles.
“Our philosophy has been to invest in the bricks and mortar behind retail, which is logistics. That gave us a head start on this market,” said Koman in an interview with II. “Then 24 months ago, we really pushed that strategy, engaging more with corporate America, and it paid big dividends in the pandemic. By going into this side of the business model, we’re way out in front with corporate real estate.”
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Although commercial real estate has been hard hit overall, niches such as cell towers, industrial, and other sectors have been thriving.
“Three years ago, people talked about getting anything they wanted in two days,” Koman said. “Then it was down to one day. Now the argument is, ‘I ordered this morning, and it’s not here in four hours, what’s wrong?’ The mindset of a whole generation has changed, and it has to be resolved by e-commerce and the last mile.”
Guggenheim manages $233 billion in total assets. In a statement, Jennifer Marler, head of real estate at the firm, said the transaction will benefit its clients and stakeholders of the real estate projects.