Global funds bet at the bottom in Tokyo - Taro Tokunaga, editor-in-chief of the Nikkei real estate market report

The industry-focused newsletter of the Nikkei Group, which gathers transaction information from various industry sources, revealed in a recent a report on the 2010 market that the volume of investment sales in Japan increased by 26% on the preceding year, to $23bn, of which 88% related to the Tokyo metropolitan area.

Tokyo was ranked second in transaction volume, after London, and was followed by New York, Paris and Hong Kong, according to the newsletter’s partner firm, Real Capital Analytics. These figures include blockbuster deals, such as the Seibu Ikebukuro department store at some $1.4bn and the Tokyo Shiodome Building, a mixed-use structure with office and hotel floors that houses the Conrad Tokyo, at $1.1bn.

Jones Lang LaSalle recently positioned Tokyo at the very bottom of its Property Clock, which suggests the market is about to take off. Leaving aside gloomy headlines regarding the Japanese macro economy, the adjustment of rents in the past two years which led the Tokyo office market to freeze is now complete and the market has thawed. Property prices in almost all sectors, including office and residential, dropped by more than 30% during the financial crisis and many experts regard the current levels as the bottom of the market. Rented apartment buildings are proving highly attractive to investors. By the second quarter of 2010, the number of transactions in this sector recorded 293% growth year on year, with 114 deals.

Major US funds, including Angelo Gordon, Blackstone and Elliott Management, along with numerous Chinese individuals, have made their first investments in Tokyo properties in the last few months. One prominent example is the sale of a portfolio of 18 properties originally owned by REIT LaSalle Japan, in September 2010. Elliott Management won the bid at $370m, beating major domestic real estate firms. Coinciding with this transaction, Barclays Capital Japan issued by $93m of fresh CMBS-backed mezzanine loans. This issue was long awaited after Japan’s emergence from recession and was the company’s first such release. European institutional investors, which have long-term investment strategies, are also focusing on the mature Japanese real estate market as a target for diversified investment. CLSA Capital Partners — part of the Credit Agricole Group — acquired 11 rental apartment buildings from a financially troubled domestic developer for over $230m last October. In December, RREEF, the real estate management arm of the Deutsche Bank Group, obtained a retail and office building in Shibuya, Tokyo, from the Goldman Sachs Group for $87m, marking the third investment of the company in Japan in one year. The Tokyo metropolitan area is becoming a popular target for core investments, the attractions including a population that far exceeds those in other leading world cities, an influx of people from the countryside and a concentration of international corporate headquarters — 51 firms listed in the Fortune Global 500 list are present.

Moreover, the successful listing of Global Logistic Properties, which raised $2.8bn last October, has proved the popularity of a “barbell strategy” between Japan and China. The assets of the company, created from a spin-off of Singapore’s GIC and ProLogis, are a combination of stable Japanese logistics facilities and Chinese development projects. China, which is gaining the status of an economic giant, is a sexy investment target but is there is less stability. Japan, on the other hand is a dull market in terms of GDP growth rate, but its economy is stable regardless of who is prime minister, and it contains a far greater stock of investment-grade real estate than China.

This seems to be the perfect combination for today’s real estate investors seeking to allocate assets in the Asia-Pacific region.

This article was taken from MIPIM Daily News 1. Read more here.

Top image credit : Photobank gallery

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