'We still like to put on our dirty boots'
The boom of e-commerce has done no harm to logistics real estate developer MG Real Estate. Nevertheless, CEO Ignace Tytgat remains realistic. After all, the logistics sector has seen difficult times too.
With a one-year delay, MG Real Estate is celebrating its twentieth anniversary. The recent achievements of the family project developer, specialized in logistics real estate, certainly justify a party. In 2020, the group’s equity climbed from 98.3 million to 109.8 million euros. This year the equity increased by another 36 percent to about 150 million euros. Over the past five years, the workforce also doubled: from 30 to 60 people. At the top of the company founder and former CEO Ignace De Paepe has become chairman, while former sales director Ignace Tytgat has taken over as CEO.
'Don't call it a changing of the guard," emphasizes Tytgat. "We rather see it as strengthening the corporate structure. This way Ignace De Paepe can focus even more on the strategic part and major investments. Although he is still involved when important contracts need to be negotiated."
Judging by the results the impact of the covid crisis on your business seems quite limited.
We did experience that on an operational level it was a lot harder than before. Especially because we also have projects abroad. Despite the difficult situation, we continued building. But as a developer you also want to follow up closely by being physically present on the construction site. Building blindly is not really comfortable. For example, it was very difficult to get our people to our sites in Denmark. The fact that every European country had its own corona regulations and test procedures did not help either.
“But we also have to admit that the logistics sector performed really well during this crisis. Corona made e-commerce boom. And with the stalling of the container ship Ever Given in the Suez Canal companies realised even more that having sufficient stock is vital. As a consequence logistics real estate was suddenly in very high demand.”
How important is the logistics real estate segment in your overall portfolio?
TYTGAT. "Logistics accounts for about 75 percent of our portfolio. It is our core business. And that’s also what we focus on for our expansion abroad. But on our home markets - Belgium and Luxembourg - we are also present in other segments: residential real estate, offices, retail real estate and some mixed projects. For residential real estate you almost need microscopic market knowledge: what is the demand for apartments in Ghent or in Vilvoorde? For logistics you can have a macro-level view: what are the logistics hot spots in Europe? Where are the multimodal spots in a country? Where are the main container terminals?
We have a substantial portfolio of residential projects. For example, we will soon start with the development of Marcelis Garden in Mechelen, a project of 2,000 units. With the aim to further diversify, we want to continue having new residential projects in the pipeline. Because we are aware of the fact that the logistics real estate sector has been surfing a strong wave for several years now, but we know that the market has also seen difficult times. And we are also open to office projects. If an opportunity arises, we will definitely investigate it. This is also the reason why we are now working on a 7,000 square meters office building on the Kortrijksesteenweg in Ghent. We are currently not doing any proactive prospection into retail projects, but retail property is sometimes part of our mixed projects."
Once the boom in e-commerce has abated, the logistics real estate market might also slow down a bit.
TYTGAT. "E-commerce has grown exponentially, but for example in Belgium many of the important players in that sector have not yet reached their summit yet. PostNL has been active in our country for many years, but it was only this year that the very first Belgian distribution center of PostNL was built in Willebroek. In October this year and also in Willebroek, we completed a warehouse for Colis Privé. And DHL is currently building a network of city distribution centres in our country. Just to illustrate that the boom that took place in the Netherlands five years ago, is now hitting the Belgian market. The e-commerce sector has become more mature. Companies are increasingly investing in automation and optimization. I agree that this not always results in new buildings, but often that is the case.
There is the increasing criticism of e-commerce not being sustainable…
TYTGAT. "Some practices dating back to the early days of e-commerce, have survived, but have somewhat grown out of proportion. Personally, I believe that the idea of ‘ordered today, delivered tomorrow' is not always necessary or useful. At the same time, I experience that a lot of logistics and e-commerce players invest heavily in the sustainability of their logistics chain. For Eutraco e.g. we developed an energy and CO2- neutral building, with heat pumps ensuring heating and solar panels supplying electricity. I also would like to refer to the distribution centres on the outskirts of the city, where parcels are grouped and then delivered into the city by cargo bikes or electric vehicles. It's a fantastic model, but nevertheless in many cities you feel a certain reluctance to grant building permits to those centres. They fear that they will generate extra traffic. But that traffic needs to pass by anyway. So the best solution is organising it in the smartest and most sustainable way.”
What should Belgium do to maintain its position as a logistics hotspot?
TYTGAT: "The scarcity of building plots is the biggest challenge. Soil remediation and building reconversion are part of the solution, but we will still have to take in open space. From an urban planning point of view, this is far from easy, especially in Flanders, where we need to take into account so many parameters.
Another point of attention is the night work, which is still under debate. For the transport sector there’s a legal framework now, but for the retail sector and e-commerce, the federal government still hasn’t taken any decision. Today this might seem less relevant, as many requests for large logistics centres were entered in previous years.
Those centres are mainly located in neighbouring countries, and especially in the Netherlands. Did we miss the opportunity?
TYTGAT. "For me that's a question that remains unanswered. There is no such thing as a late decision. Did we miss the opportunity? May be, but I’m sure there will be other opportunities passing by later on.
Compared with your Belgian competitors Montea and WDP, MG Real Estate is not prominently present in the Netherlands.
TYTGAT. "We have completed two projects in the Netherlands: a warehouse of 11,000 square meters in Roosendaal for Yusen Logistics, in a joint venture with the Dutch SDK Real Estate; and a logistics complex of 80,000 square meters in Eindhoven. And we just signed another contract for the development of 60,000 square meters in Flevokust for Jisk. So we do have a presence in the Netherlands, but we prefer growing together with our customers. And up till now, this organic growth has been quite moderate in the Netherlands. Meanwhile we do have created a solid activity base in Scandinavia. For FedEx we developed a building at Copenhagen Airport. Shortly after completion, we were approached by baggage handler TCR, who asked us to develop a maintenance building. We already had a local team in place and we had acquired quite some local knowledge. It would have been a shame if all that knowledge got lost. Hence the decision to continue investing in the region. At approximately a 20-minute drive from Copenhagen, we bought a plot for which we just received a building permit for a logistics 100,000 square meters project. A little bit further to the west, in Fredericia, we acquired a terrain with a permit for 80,000 square meters. And in the meantime, we have also become active in Sweden. The Copenhagen Airport works closely with the port of Malmö and that has resulted in new opportunities for us. We have already completed a building there for kitchen manufacturer Smeg and we're now building 18,000 square meters for Westerman Logistics."
Is it your goal to be more geographically diversified?
TYTGAT. "If you look at our land positions for logistics projects, Belgium - with a share of over 40 percent - remains our main market. But the northern countries follow at very short distance. The rest of our land portfolio is spread over several European countries. With a limited reinforcement of our current team, we could easily service one or two additional markets. And Italy and France are currently at the centre of our attention for further expansion. Some of our customers have already explicitly asked us to take them along on our journey abroad. It’s an organic way of growing which allows us to maintain the family character of this company. If we were to decide to start in five new markets, this inevitably would lead to a heavier management structure and longer decision processes. Which is something we want to avoid at all means. We would like to grow, but it’s not a must. And we mainly want to grow in the countries where we are already active."
To finance your growth plans you issued bonds this year. Have you ever considered an IPO?
“We were very pleased with the results of issuing bonds. It increases our decision power, without losing our independence. We call ourselves a high-speed developer. We can kick off projects very quickly because we can rely on trustworthy suppliers, but also because we have a very short internal decision process. As I said before: MG Real Estate is a family business with a limited hierarchy and with only one shareholder. We have been courted several times by external parties who wanted to participate in MG Real Estate. We have also examined an IPO or a transformation into a regulated real estate company. We concluded that such a financial approach did not fit our DNA. We have always been and still are - to a great extent - builders. We still like to put on our dirty boots to visit a construction site."
The full article was published in Trends, 15/12/21.