Europe is more urban and connected today than ever before.
Not only has e-commerce adoption taken off across the continent, but more Europeans are moving to major cities, creating denser populations that increasingly expect next-day delivery. This migration has put pressure on industrial infrastructure, as warehouses and factories get pushed further from urban centers. Crossbay, the leading investor in last-mile logistics assets in Europe, has launched a pair of massively successful funds by cornering the market on this complex, and lucrative, asset class. We sat down with the Crossbay team to get a look at the strategy behind their billion-Euro funds.
Increasing demand + shrinking supply = opportunity
Crossbay founders Marco Riva and Marcus Meijer zeroed in on last-mile logistics assets after observing a pair of complimentary demographic and behavioral changes making their way across Western Europe.
Riva, a Goldman Sachs and Blackstone alumnus with experience investing in logistics assets at scale, saw a gap developing between the largest investors’ portfolios and the individual, fragmented last-mile assets located within 30 minutes of the hearts of Europe’s cities.
“The main gateway cities in Europe are growing at a very fast pace,” explains Riva. As these cities expand, areas marked for industrial use are converted to “higher-end uses like retail, office and residential,” pushing crucial logistics assets into the outskirts.
This development pattern makes the last-mile logistics assets that do remain near city centers incredibly valuable because they are part of limited existing stock. Combine this low supply with the increased pressure put on these assets by the growing populations’ thirst for next-day delivery, and you have an asset class that is experiencing major demand.
“This asset class was already fairly under-supplied before e-commerce penetration,” says Riva. “That is just exacerbating the necessity for these assets.”
While European e-commerce activity has lagged behind its American and Asian counterparts, with companies only offering one-day delivery in a few European cities, the demand is there, and these last mile facilities are crucial for providing this service to more people.
“The competitive advantage of having that location to serve the final customer will be a key factor,” says Riva.
The “boots-on-the-ground” difference
It’s not like major players are ignorant to the value of these assets; rather, the diffuse nature of these facilities is a major barrier to investing in them. Crossbay’s highly-specialized team was designed to give investors a method of investing in a product that the megafunds have difficulty accessing.
“The idea was to build a pan-European team with boots-on-the-ground in every country,” says Meijer. “We were really comfortable bringing together all the different cultures that Europe offers.”
Because of the individualized nature of these assets, having managers on the ground to handle the specifics of each facility is crucial to Crossbay’s success. The result is a distributed team that identifies, acquires, upgrades and manages last-mile logistics assets across Europe’s major cities.
“This in-country capability is crucial to aggregating what are fundamentally granular, hard-to-access assets,” says Michelle Doran, Crossbay’s Head of Client Solutions. “Boots-on-the-grounds presence is a genuine point of differentiation and helps drive cycle-agnostic returns.”
Having a highly-distributed team of experts on the ground in each market means that each asset is carefully reviewed before acquisition, and then managed properly afterwards. The goal is for each asset’s value to be tied in with its location instead of being dependent on a single tenant. Meijer describes how, even though a large segment of Crossbay’s business is predicated on e-commerce, their assets are also utilized for other types of distribution as well as light manufacturing.
“Our tenant depth is massive,” he says. “It goes far beyond e-commerce because of the types of facilities we buy.”
Crossbay I and II
Crossbay’s first fund, Crossbay I, contained 137 assets and was sold in a single transaction to Prologis for €1.6 billion, which was the largest such transaction in the second half of 2022.
“Returns were, I can say, excellent,” recalls Riva. “Our investors were very happy.”
Crossbay II has secured €660 million in total commitments, marking a 20% increase over the first fund, and has a total investment capacity of over €1.5 billion.
“Crossbay II represented the opportunity to work with a market-leading team and so made sense to partner with them for our maiden commitment to a European logistics real estate fund,” says Dan Chung, whose family office invested in the fund. “The performance we have seen so far has been strong, which gives us continued confidence in the strategy.”
As Crossbay’s team continues to acquire new last-mile assets across Europe, the prospects for future growth in this niche asset class remain strong.
“We feel like we have been acquiring at the bottom of the market,” says Riva. “Because we are focused on the last segment of the supply chain, we’re very much correlated to consumer spending. We’re not necessarily that affected by production itself.”
Beyond e-commerce, the Crossbay team identifies a few other tailwinds that are helping their investments.
“From a capital markets perspective, we feel quite positive about Europe,” says Meijer. “We see more capital coming into the continent. Financing costs are coming down, margins are coming down, and leverage is going up.”
To learn more about Crossbay, visit their website.