Oxford Properties Group has struck its seventh platform deal with an agreement to acquire European logistics manager M7 Real Estate.
The real estate investment subsidiary of Toronto-based Ontario Municipal Employees Retirement System will acquire 100 percent of M7, which is majority owned by senior management, with Hong Kong’s billionaire Kwok family and Hong Kong-based investment and advisory firm TTB Partners holding 25 percent and 6 percent, respectively. A deal agreement is expected to be announced this week, with the transaction slated to close during the first half of the year.
The transaction marks a major push by Oxford into the European logistics sector. “I would say logistics is one of our highest conviction strategies globally and it’s a major focus of where we’re trying to grow the business,” James Boadle, senior vice-president, Europe at Oxford Properties, told sister title PERE in the organisation’s first interview since the agreement was signed. Oxford’s aspirations are to have a third of its global real estate balance sheet in logistics, he said.
Oxford and its portfolio companies manage approximately C$80 billion (€51.64 billion) of assets with 25 percent of the firm’s capital invested in logistics, warehousing and digital commerce strategies across North America, Europe and Asia-Pacific.
As part of that investment drive, Oxford plans to deploy £3 billion (€3.37 billion) of Oxford equity into European logistics over the next five years, with much of that capital to be invested through M7. “M7 will be our primary vehicle for deploying capital into the European logistics space, alongside selective other ventures,” he noted.
Jo McNamara, Oxford’s head of Europe, added: “We have been focused for probably a year and a half to really try and increase our exposure to logistics in Europe. We’re still below target.” Oxford’s European business has 5 percent allocated to logistics, compared with a 20 percent target, she said. In contrast, its North American business has already reached its 20 percent allocation target in the sector.
Oxford aims to more than double M7’s assets under management from approximately €4 billion to €10 billion in the next five years, through a combination of Oxford and third-party capital, according to Boadle.
Oxford’s acquisition of M7 is its first platform investment in European logistics and follows its first direct logistics investment in the region, where it acquired a 15 acre development site in London alongside Logistics Capital Partners last year, and its debut investment in the sector, a £200 million commitment to GLP’s GLP European Development Partners I in 2018. The M7 deal would round out its global holdings in industrial real estate managers, as it has invested in US cold storage logistics provider Lineage Logistics, US logistics company IDI Logistics and Hong Kong-based logistics real estate firm ESR.
Entering the ‘first tier’
Oxford and M7 had known each for more than a year before beginning discussions during Q4 2020. Both parties had previously pursued other mergers and acquisitions deals that fell through.
“We wouldn’t have done this deal with many parties,” M7 executive chairman Richard Croft told PERE, adding he had been phoned daily for the past five years by interested buyers that included private equity firms and sovereign wealth groups. What appealed about Oxford’s ownership was “they wanted to achieve the same things that we did. It felt like a very easy deal to do”.
With Oxford as its new owner, M7 will be focusing on three areas of business. One will be for M7 to support Oxford’s logistics strategies, including building an urban logistics platform after October. The second will be the formation of club deals, typically with a core-plus risk and return profile, where the pension plan will be a significant investor. Third, Oxford will also provide general partner capital to M7 for its real estate funds, which are typically more value-add and opportunistic.
The Canadian pension plan’s investment in M7 will consist primarily of non-discretionary capital with a small amount of discretionary general partner capital. It will also hold seats on M7’s board and investment committee.
However, M7, which is best known in the industrial space as the joint venture partner for Blackstone’s Mileway last-mile logistics platform, will not begin acquiring urban logistics assets for Oxford until October, when the London-based firm’s asset acquisition advisory mandate with Blackstone expires.
In addition to providing its capital, another advantage of Oxford ownership is that “their connectivity around the globe is extraordinary”, Croft said. “The combination of Oxford’s brand and how highly regarded it is, coupled with what we bring, which is a high level of energy and new ideas, I think that makes it a very appealing combination for third-party capital. Institutional capital that might not have partnered with M7 previously would now very much consider us as part of the go-to management set.
“The truth is that, prior to this deal, we were second-tier. The world in which we want to operate is the first tier.”
Going the platform route
For Oxford, getting to scale in a strategy either involves building a team internally, which costs time and money, or doing so through platforms or partnerships. The company opted to focus on the latter about a year and a half ago, Boadle said. “If you look across the opportunity set, there really aren’t that many opportunities out there where there isn’t already a captive capital partner in the logistics space,” he said.
The M7 acquisition was the last of four platform deals that Oxford executed in 2020, coming after the purchase of a 50 percent ownership interest in Australia’s Investa Office Management in November, a $360 million investment in Lineage Logistics in September and a follow-on investment in ESR in July.
The transaction also is the first time Oxford has acquired 100 percent ownership in a manager. As Boadle explained, IDI, ESR and Get Living were too large for the pension plan to acquire on its own. “This was within our sweet spot in terms of check size,” he remarked. “In an ideal world, we’d rather take things down on our own because you have that control of the platform. So it’s really been because of the opportunity set that this is our first one rather than any other reason.”
McNamara expects more platform acquisitions in the future and sees such opportunities as “the route to positive returns, especially with operational and granular assets. If I were to guess, I would say more and more of our capital deployment will be through platforms”. Platform investments currently account for approximately 20 percent of its overall invested capital, and 35 percent outside of Canada, where they have no platform investments.
Established in 1960, Oxford manages approximately C$60 billion (€38.86 billion) of assets globally. Its portfolio encompasses more than 100 million square feet of office, retail, industrial, life sciences, hotels and multifamily assets in global gateway cities across four continents.
M7 was originally founded in 2009 as a light industrial and urban logistics specialist. Although the firm has since expanded into other property types, its original strategy remains its largest sector, and together with retail warehouses, comprises half of its AUM, which span 620 assets totalling 45.2 million square feet. M7 has a team of approximately 225 employees in 14 countries across Europe.