IGIS, Shinhan post 70% return a year from Amazon warehouse sale

A Korean consortium led by IGIS Asset Management Co. and Shinhan Global Investment Banking (GIB) has signed a contract with a US asset manager to sell an Amazon logistics center, according to Korean investment banking sources said on Jan. 24. The $352 million transaction, selling 100% of a US real estate investment trust (REIT) that owns the warehouse, was completed on Jan. 20.

IGIS and Shinhan formed the consortium to acquire the west Albuquerque, New Mexico-based logistics center for $281 million at the end-2020. IGIS and Shinhan GIB injected $93 million to acquire the equity tranche, and Shinhan’s parent group Shinhan Financial Group provided $188 million in a senior loan to finance the transaction at the time.

The total fundraising for the acquisition took place in South Korea, and the transaction was done in US dollars without foreign exchange hedging. Through the deal, IGIS became the first Korean real estate investment firm to directly make a logistics center development deal with Amazon.

The consortium has earned $72 million from the sale a year after acquiring the warehouse, gaining more than a 70% internal rate of return based on Korean won. IGIS and Shinhan saved profit and transaction costs by directly completing the development and lease deal with Amazon and sale to the US asset manager. Also, the consortium gained an additional 12% profit as the won was stronger at 1,070 per dollar at the time of investment than the current levels of around 1,200.

The logistics center was completed last September, embedded with the state-of-the-art robotics system. Amazon will rent the facility for at least 20 years and up to 45 years and will be responsible for all the costs related to the warehouse operation.

The sale is the first merger and acquisition case that a Korean consortium has established as a US REIT and sold the REIT’s equities to a US asset manager. Like the Amazon warehouse project, IGIS plans to directly lead developments and sales of US-based properties. Korea's leading real estate investment firm is considering investing in logistics centers and multifamily assets in the US and Canada.

“Securing blue-chip tenants like Amazon revs up overseas development project investment with fewer risks,” said an IGIS official. “This brings us more profits than other conventional ways of investments – such as participating in funds as a limited partner or providing loans. It also enables us to quickly spot properties with high value,” the source added.