Investment-Fund-Owned Real Estate To Reach Y10tln In FY05

August 16, 2005
Investment-Fund-Owned Real Estate To Reach Y10tln In FY05

TOKYO (Nikkei)--The value of properties owned by investment funds specializing in real estate is expected to triple from three years ago to about 10 trillion yen this fiscal year.

While financial institutions and nonfinancial firms are selling off properties, real estate funds have been picking up office and apartment buildings, with some funds taking on large-scale redevelopment projects in urban areas.

The value of properties for lease, including commercial and distribution facilities, totals about 70 trillion yen, according to an industry estimate. Exchange-traded real estate investment trusts, privately held real estate funds established by Japanese firms, and privately held funds set up mainly by foreign firms account for 15% of this.

In comparison, Japan's six major life insurers, including Nippon Life Insurance Co., hold about 4.2 trillion yen in real estate for lease.

The value of REIT-owned real estate came to slightly less than 3 trillion yen as of July 31. Because REITs continue to acquire properties after becoming listed, Takashi Ishizawa, chief real estate analyst at Mizuho Securities Co., says their assets will likely grow to 3.3 trillion yen to 3.5 trillion yen by fiscal year-end.

Total assets held by 15 major foreign real estate funds are estimated at just over 3 trillion yen. Morgan Stanley Real Estate Funds, believed to be the biggest fund that invests in Japanese real estate, has about 1 trillion yen in assets.

Total assets of Japanese funds are estimated at 3.3 trillion yen, according to STB Research Institute. Based on these figures, the combined assets of REITs and domestic and foreign funds would be just shy of 10 trillion yen. Because "domestic funds are increasing their assets by over 100 billion yen each month," according a senior analyst at the institute, the total will likely exceed 10 trillion yen by the end of the current fiscal year.

Major real estate companies are accelerating efforts to develop properties by tapping real estate funds, which enable these firms to raise money from many investors and reduce risks.

Investment funds calculate the value of real estate based on projected rent revenue, and there are more and more cases in which they acquire properties that have not been completed yet. One example is DaVinci Advisors KK's (4314) <http://www.nni.nikkei.co.jp/servlet/Stock?CODE=4314> acquisition of a building being redeveloped in Tokyo's Shibuya district.

Investors can usually expect yields of 3-4% from REITs and about 5-10% from other real estate funds. On the other hand, there have been many cases recently in which real estate funds have been compelled to purchase properties at unreasonably high prices. REIT prices have been unstable since July, leading some market participants to point out that investors are exposed to greater investment risks.

(The Nihon Keizai Shimbun Tuesday morning edition)