Friday, September 30, 2005

Time for a Market Correction?

A few market observers have warned that the Tokyo property market is overheating and may see price adjustments on property prices. The main causes are REITs and funds buying properties at unreasonably high prices, and a looming interest rate rise.

Investors surveyed by Waseda University (see previous post) said recently that while they expected to see less price increases in the coming months, they still saw further yield compression. Yesterday, Ryosuke Homma, the CEO of Kenedix, said that many investors have paid too high prices for properties that may not give sufficient return on investment (see this Bloomberg interview): “You will see price adjustment for properties, just like bonds or stocks, depending on economic environment. Competition leads to higher prices, and rapid changes in real estate prices may result in an adverse correction …when interest rates go up, cash flow may shrink tremendously.”

JREIT share prices may also fall further. In mid-July, the Tokyo Stock Exchange REIT Index reached a peak of 1,600, but since then it has fallen to1,500. Why? Interest rates. The dividend yield of real estate investment trusts listed on the Tokyo Stock Exchange used to be around 5%. Now it has declined to 3.36 percent, which gives a spread of 1.9 percent over the 10-year Japanese government bond yield of 1.46%. Now, Shinsei Bank’s Hitoshi Ito predicts that the JGB will rise to 1.6% towards the end of 2005. This will make REITs less attractive to insitutional investors like Japan’s regional banks, who have been large buyers hitherto. It may be the case that there will be winners and losers among the JREITs in the coming months.

On a contrary note, I should add that some other analysts such as Mizuho Securities' Takashi Ishizawa say that investors have already factored in a possible interest rate rise (until 2%) in the current JREIT prices, and the recent fall reflects an appopriate reaction. So a precipitous decline in the short term seems unlikely. However, previously I have mentioned that when compared to underlying asset value, Japanese REITs trade at a 30-40% premium, while globally it is –20% to 0% (Morgan Stanley). So even with the relatively larger spreads vis-à-vis bonds, current prices may be unsustainable in the long run.

Related: Nikkei Industrial Daily - JREIT Outlook: Yields Down, Price Adjustments Seen Likely

Japan Real Estate Blog
Tags : japan, real estate, property, investment, 不動産

Tokyo Office Listings on Google Maps

Came across an interesting new site which uses the Google Maps API to display office rental listings in central Tokyo. Their database covers 40,000 properties. The image below takes you to listings around Roppongi.

ED-Contrive Inc. press release

Japan Real Estate Blog
Tags : japan, real estate, property, investment, 不動産

Latest J-REIT Prices

I just dicovered that Reuters Japan has an excellent JREIT portal with the latest prices (site is in Japanese only). It also has a "Real Estate" section with residential condo listings.

Japan Real Estate Blog
Tags : japan, real estate, property, investment, 不動産

Thursday, September 29, 2005

The New Real Estate 'Tankan' Survey

Waseda University’s Institute of Finance recently announced the results of the first Real Estate Investment Tankan Survey. The survey, modelled after the Bank of Japan’s much-watched quarterly survey of business sentiment, asked 56 investors about present and future cap rates, risk premiums, IRRs and values of various asset classes in Japan, such as A-class buildings, prime retail, suburban shopping centers, and multifamily and studio rental housing.

A look at the results (see below) indicates that investors are expecting a slight cooling-down of the market, but also coupled with healthy growth in some regional markets, notably excepting Sapporo and Hiroshima. Even within Tokyo, investors still see room for growth for Class A office in Marunouchi/Otemachi and for residential in Meguro-ku and Setagaya-ku.

Investors were generally positive about business prospects in the six months ahead both for their own firms (84% of respondents) and for the real estate sector (87%), but less so compared to recently. They expected to see a further rise in market selling and buying prices (72% and 74% of respondents respectively), but the perception seems to be that most of the rises have already occurred. Investors feared a tightening of credit : 62% of them thought banks would be lenient with loans in the next half-year, down from 77% presently. However, most respondents (82%) expected interest rates to stay the same.

Cap rate expectations diverged widely according to the location and class of assets.

Cap Rate Expectations (next 6 months)
Class A Office
Strongest: 4% - Marunouchi, Otemachi, Weakest: 6.5% - Sapporo Ekimae
Prime Retail
Strongest: 4.3% - Ginza, Omotesando, Weakest: 6.4% - Hiroshima
Suburban Retail
Strongest: 5.8% - outside Tokyo, Weakest: 6.7% - outside Sapporo
Multifamily Rental Apts.
Strongest: 4.8% - Minato-ku (Tokyo), Weakest: 6.4% - Sendai
Studio Rental Apts.
Strongest: 4.8% - Minato-ku (Tokyo), Weakest: 6.3% - Hiroshima

The respondents thought that prices for A-Class office buildings would go up all over Japan, the most in Nihonbashi, Akasaka, and (surprisingly) Sapporo, by about 4%. They were also positive that prime retail properties would rise, especially in Chiba and Fukuoka (3%), and steep price rises were also predicted (6%) for suburban retail in these two areas. Notably, investors thought that Nagoya suburban retail would continue to drop in price. For residential properties, the highest increases were expected in Sendai for multifamily and in Minato-ku (Tokyo) for studios.

The researchers used the difference between unleveraged IRRs and current yields to arrive at the implied ‘growth premium’ for different markets, reflecting how much investors thought yields would improve in the near future. It was highest for Class A office in Fukuoka at 70 basis points, Marunouchi/Otemachi (50 bp), and Saitama (45 bp). For prime retail, they most expected the Chiba (60 bp), Nagoya, and Osaka markets to improve, and for suburban retail in Yokohama (50 bp), Osaka and Kobe, but not in Fukuoka. Markets in Meguro-ku/Setagaya-ku (45 bp) and in Sendai (50 bp) were most expected to improve for multifamily and studio apartments respectively.

Survey Full Report (Waseda Institute of Finance)
Full Story (Nikkei) – Real Estate ‘Tankan’ Survey

Japan Real Estate Blog
Tags : japan, real estate, property, investment, 不動産

Wednesday, September 28, 2005

Icing on the Cake

Four big players are preparing Tokyo IPOs in the near future: Mitsui Fudosan’s residential REIT (its second after Nippon Building Fund), Lone Star’s Pacific Golf Management, Goldman Sachs unit Accordia Golf Japan (see also this article), and Mori Building, Tokyo’s leading private developer, with its office and residential portfolio (see this article). The new Mori REIT will include the huge office tower within its high-profile Roppongi Hills complex.

Lone Star and Goldman Sachs Group have acquired a combined 180 golf courses in Japan in the past five years. They will probably be huge successes for the two funds, since they picked up the mostly underperforming assets for next to nothing. The economic recovery will also encourage investors to pick up the new issues.

Lone Star has certainly had a busy year both exiting the market and preparing for more offensives –next month divesting themselves of about 7 billion yen in shares of Tokyo Star Bank, while earlier this year raising about $5 billion for its latest fund.

Japan Real Estate Blog
Tags : japan, real estate, property, investment, 不動産

After the Flood

What is the effect of flooding on real estate prices? What would happen to property values if a natural disaster like Hurricane Katrina caused floods in a large Japanese city? Well, an interesting paper by Kyoto University’s Guofang Zhai in looks at the effect of the Tokai flood in Nagoya in 2000.

Unsurprisingly, decreases in land prices correlate with the extent of flooding. The greater the inundation, the greater the fall. However, decreases also correlate with the land’s original price: the higher the price, the stronger the impact. Commercial land was demonstrated to be more prone to price decreases due to flooding than industrial or residential land. Interestingly, the statistics show that the decrease did not occur immediately, but amplified over a period of two years.

Further thoughts - three places in Nagoya recorded the highest increases nationwide this year, with one point recording more than a 30% spike. I wonder if they remember the Flood of 2000?

Japan Real Estate Blog

Tags : japan, real estate, property, investment, 不動産

Japan Land Prices : Navigating the Data Jungle

Some additional notes on the ‘official land price’ news recently in the headlines : there are actually four types of government land prices. The set of numbers just published last week, called kijun chika, are surveyed by each prefecture as of July 1 each year, and covers 26,521 sites across Japan. Along with the central government’s officially published land prices (kouji-chika, see below), they serve as a yardstick for property transactions in Japan. The surveys are based on assessments by real estate appraisers, who, taking into account profitability and transactions in neighboring areas, determine values for 1 sq. meter plots. The assessments assume that the land is utilized as efficiently as possible. There are also two other types of official land prices, used for tax and valuation purposes, as well as the actual transaction price. Here is a quick rundown:

  1. The kouji-chika (appraised land value) is published annually by the Ministry of Land, Infrastructure and Transportation on April 1, gives prices for around 30,000 points nationwide, focusing on urban areas.

  2. The kijun-chika (average residential and commercial land price) is published annually by each prefecture on July 1 for around 25,000 points nationwide, based on local land appraisers’ reports. This measure also covers non-urban areas such as forest and agriculural land.

  3. The rosenka (prices of land fronting major roads) is published by the National Tax Administration Agency and is comprised of two different measures: the koteishisanzei (fixed asset tax) rosenka and the souzokuzei (inheritance tax) rosenka. The souzokuzei rosenka is the most widely used value for roughly estimating land values in relative locations. The rosenka is published each October.

  4. The koteishisanzei-hyokagaku (assessed value of fixed assets) is computed by the Home Affairs Ministry every three years for all taxable properties, and forms the basis for property tax (Fixed Asset Tax and Urban Planning Tax) calculations. The value is not commonly disclosed except to the taxpayer in question.

  5. The actual transaction price of real estate, or jisei-kakaku. This is the market price, and can be vastly different from the official prices of land. Under the current climate, sellers are usually able to get their asking price for well-located properties. For developed commercial properties this is commonly a 4-6% cap rate on projected NOI. For empty commercial land, transaction values vary widely depending on the projected use – retailers may pay a very high premium for certain locations.
The first three official sets of numbers are readily available on the Internet from each government agency. They are also accessible free through the Japan Land Price Map.

In spite of the multiple measures above, these land pricing systems are roughly correlated. For example, kouji-chika is an average value of transaction prices in a block. The rosenka gives approximately 80% of the koteishisanzei-hyokagaku, which in turn is approximately 70% that of kouji-chika values. Of course, these percentages are not absolute, and will differ from location to location.

In my experience, kijun chika and kouji chika are commonly used by economists to determine trends in land values, while real estate practitioners use rosenka more often. Japanese appraisers use all the above indicators in their reports. Tas Japan offers a (paid) web-based automatic appraisal service, based on the official figures, recent transaction data, and user-inputed factors such as location, land size and situation, and building type and age. Finally, AdPark has extensive land listings for the Tokyo and Osaka metropolitan areas in English.

Japan Real Estate / Property Investment Blog

Land Prices in Tokyo Rise for First Time in 15 Years

New official data last week showed that land prices in Tokyo have picked up for the first time in 15 years, fueled by strong demand for office space and the flow of investment funds into the real estate market (readers subscribed to our mailing list will already be aware of this). Property prices in Tokyo's 23 wards as of July 1 were up 0.5% on average from 2004 in residential areas and 0.6% in commercial zones. The number of areas exhibiting higher prices also expanded in Osaka and Nagoya, providing evidence that property values have stemmed their decline in major urban areas and are starting to trend upward (Nikkei, Bloomberg).

The Nikkei further reports : “In Tokyo, Nagoya and Osaka, 520 areas saw price increases, up dramatically from 80 last year. Areas that halted their slides or remained flat accounted for 20% of the total, up from 4.4% last year. This bottoming out was particularly remarkable in the Tokyo metropolitan area, where prices rose not only in central wards such as Chiyoda, Minato and Shibuya but also in areas outside the main Yamanote train line …In two spots near JR Nagoya Station, prices jumped more than 30%, reflecting the surging demand associated with ongoing redevelopment projects there.”

Déjà vu? Well, there were similar announcements last year and in April this year, but the gist is that the positive data has expanded beyond a few prime areas, and now the average for all points surveyed in Tokyo shows an increase. Land prices in other parts of Japan, however, have little chance of following suit, due to shrinking regional populations and deindustrialization. Some economists argue that this is to be expected, and is actually better for the country.

I think the data is best viewed as a lagging indicator, because this years’ figures are based on transactions in the past year. One should note also that the recent land-price announcement refers to the simple average of all points in Tokyo. As Mr. Yoichi Takita of the Nikkei Shimbun points out, if one looks at the trend for the weighted average for the same Tokyo locations, the upturn appears two years ago, and growth has been increasing, by 0.6% in 2003, 0.9% in 2004 and 2.9% in 2005.

This means that the most expensive locations in Tokyo had in fact already bottomed around three years ago! This coincides with the first round of investment funds into Japan and the start of the J-REIT’s dominance in prime property purchases.

Now, real estate investors are struggling to locate good investments in Tokyo, as competition forces yields down; investors are forced to seek properties in regional towns. Savvy investors like Babcock and Brown have already locked in their gains by buying Tokyo properties two to three years ago. That doesn’t mean people coming in now have missed the boat, though – the market is deep, and there will be many more properties coming out of the woodwork now that the tide has turned (basically the government is saying, “time to sell, folks!”). Just don’t expect many bargains in central Tokyo.

/ Blog

Friday, September 16, 2005

Finding an apartment or house in Japan

The Blog From Another Dimension has an excellent post on how to find an apartment or house in Japan, in plain English. The advice is spot-on and even includes useful terminology and a great tip on finding a rental place without key money or agent's fee.

Where to start looking? Well, here is another useful link - AdPark provides listings for apartments and houses all across the country, both for sale and rent, in English. Their database is one of the largest in Japan, and I find it far exceeds comparable English websites in comprehensiveness. Although the English interface is a little clunky (it seems they outsourced the English website to a Chinese firm), you can't beat the selection here - more than a million properties on any given day. The site illustrates the volume, depth and breadth of real estate listings available in Japan.

And, FINALLY non-permanent-resident foreigners can obtain loans for their purchases. Terrie Lloyd writes in his newsletter, 'Terrie's Take', "the missing piece of the puzzle for many of us has been the availability of a mortgage. Usually, mortgagees need to be Japanese or at least permanent residents, and have asubstantial deposit. However, in the last 9 months, three organizations that we're aware of have started making unsecured, low-interest home loans to foreigners living here. These are Shinsei Bank, Suruga Bank, and BannerJapan. Right now, these 3 firms are the ones actively financing ... Of these, the most established is Shinsei Bank, which is offering loans of up to JPY100m at 1%interest and which will refinance existing mortgages." More information at Personal International Investor.

/ Blog

Land Ministry To Help Elderly, Foreigners Find Rental Housing

One of the most challenging things for a foreigner when coming to Japan, especially for those who do not receive support from their employer, is to find an apartment. Foreigners are perceived as high-risk, high-maintenance, and unruly tenants. The climate has vastly improved in the past 5 years, with increasing numbers of landlords accepting such 'non-standard' tenants such as foreigners or unmarried couples. There has also been a boom in 'monthly mansions', or short-term rentals without key money.

The Nikkei now reports that the government is to help seniors, disabled people and foreigners find rental housing, by creating a database on rental housing properties that do not discriminate against applicants, and disclosing the data via the Internet.
I think many larger firms will take advantage of this channel, but many individual landlords are probably going to stick with the 'no foreigner' policy.

Full Story - Nikkei: Land Ministry To Help Elderly, Foreigners Find Rental Housing

/ Blog

Thursday, September 15, 2005

Condo Oversupply Feared in Tokyo's Bay Area - Rents to Dip

The post-industrial landscape of Tokyo's inner-city waterfront (Minato-ku and Koto-ku) is being transformed by the construction of large condominium developments. Tokyo Kantei reports that the number of new condos in the Shinagawa area alone has exceeded 12,000 units in ten developments in the past two and a half years.
The largest buyers include REITs and private real estate funds, converting originally built-for-sale developments to rental condos. Many individual buyers are also expected to put their new purchases on the rental market. The rush of new supply is expected to put downward pressure on rents.

Recent large condo developments in the Tokyo Bay Area:
(These are the very slick and well-produced official websites for the projects, by the way)

Cosmopolis Shinagawa (Recruit Cosmos, 2004, 590 units)
World City Towers (Sumitomo RE, 2004, 2,000 units)
Capital Mark Tower (Tokyu RE, 2005, 880 units)
Bay Crest Tower (Gold Crest, 2005, 600 units)
Park Tower Shinagawa Bayward (Mitsui Fudosan, 2006, 300 units)
Shibaura Island (Mitsui Fudosan, 2007, 2,000 units)
The Tokyo Towers (Orix RE, 2008, 2,000 units)
and many more...

Full Story - Nikkan Kogyo Shimbun: Condo Oversupply Feared in Tokyo's Bay Area - Rents to Dip

/ Blog

Wednesday, September 14, 2005

Foreign investors buy Y4 tril worth of real estate in Japan (updated)

Kyodo reports that foreign investors' acquisitions of real estate in Japan over the past several years are estimated at between 3 trillion and 4 trillion yen.

More detail : 90% of the properties bought by foreign investors are in the Tokyo area, but recently they have started buying in other cities with recovering local economies such as Nagoya and Fukuoka.From 2001 to the end of 2004, foreign investors spent 300 billion yen on hotels, residential properties, and retail facilities.

Full Story - Japan Real Estate News: Foreign investors buy Y4 tril worth of real estate in Japan
Kyodo: Foreign investors buy Y4 tril worth of real estate in Japan (update)

/ Blog

Land Prices to See More Rises : Analyst

Masaichi Toyonaga of Mizuho Investors Securities predicts that when the Land Ministry announces land prices used to assess fixed-property taxes as of July 1, some regions will see rises, mainly in urban areas.

Full Story - Nikkei: Stock Earnings Solid, Foreigners To Keep Buying

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Nomura Announces Investment Trust in Yen-based ABS

Nomura Asset Management announced a new investment trust trading in yen-denominated ABS (asset-backed securities) based on a wide variety of assets, including mortgages, auto loans and lending with real estate collateral.

Compared with corporate and other bonds, ABS credit ratings have little volatility, and the returns are higher than those of bonds of equal grade.

Full Story - Nikkei: Nomura Asset Sets Up Investment Trust Specialized In ABS

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Space in Govt. Office Buildings to List on Rental Market

Legislation on government-owned assets will be revised to allow them to be leased starting FY 2006, according to the MOF. They will be listed on the Internet.
This will certainly put a large amount of property on the rental market across the nation - even though the government intends to list them at market prices (as is the norm in Japan), the volume will put some pressure on occupancies and rents. Many government office buildings are located in prime areas.

Full Story - Nikkei: MOF To Reveal Vacancies In Govt Buildings For Private Firms

/ Blog

Elections encourage investors in Japan

Asia Economy Watch has a piece on how Sunday's election outcome has positively affected the stock market. The Nikkei 225 is at a five-year high - can the rally continue?

/ Blog

Tuesday, September 13, 2005

Japanese Institutions to Increase Alternative Investments

As expected, Japanese institutional investors are again increasing their allocations for alternative investments. Real estate investments are expected to increase from 3.4% now to 6.1% in 2007. However, hedge funds seem to be the preferred vehicle, accounting for 83% of alternative investments, compared to a 10% average allocation by US and European investors.

Full Story - Nikkei: Japanese Institutional Investors Pouring Money Into Hedge Funds

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Japan Real Estate Index - 2004 Total Returns Increase, but NOI Falls

IPD Japan, a UK-affiliated research firm, announced the results of its survey of Japanese real estate investment returns for 2004. Total returns went up to 6.3%, up from 3.7% in 2003, with component return measures for capital return at 0.0% (2003: -2.4%) and income return at 6.3% (2003: 6.4%).

However, average NOI for all properties decreased by 4.1%. This may have been caused by a drop in rents, increased vacancy, and free rent periods.

By asset class, the returns averaged 6.9% for shopping centers, 6.7% for residential, and 6.2% for office buildings. Average cap rates (on NOI) were 6.2% for retail, 6.6% for office, and 5.9% for residential. Cap rates for offices in the central Tokyo 5-ward region were 5.7%, while those in Osaka averaged 7.9%.

The survey was based on data from 503 properties, including REIT-owned buildings, owned for the full year.

Full Story - IPD : 2004 Total Returns Increase, but NOI Falls / Reuters Story

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Latest J-REIT Data

Useful Link - The Association for Real Estate Securitization's website has the latest J-REIT prices and other information all in one place.

/ Blog

Monday, September 12, 2005

Total Assets of J-REITs Reach 3 Trillion Yen

The Nikkei reports that the combined assets of J-REITs* has reached 3.1819 trillion yen as of September 8, 2005. There are now 23 listed J-REITs. The newest one, eAsset REIT, financed by Asset Managers Co. and eBank Corp., listed on September 7. As I blogged previously, the newer listings like eAsset are having trouble attaining the high valuations which could be taken for granted for the earlier REITs.

The top five*:
1. Nippon Building Fund, 52 properties, 492.7 bln JPY
2. Japan Real Estate Investment Corp., 51 properties, 408.2 bln JPY
3. Japan Retail Fund Investment Corp., 33 properties, 294.5 bln JPY
4. Japan Prime Realty Investment Corp., 44 properties, 200.6 bln JPY
5. Nomura Real Estate Office Fund, 21 properties, 199.1 bln JPY

(*by acquisition value)
Email me for the complete list of J-REITS and their sponsors.

Full Story - Nikkei Real Estate Market Information: Total Assets of J-REITs Reach 3 Trillion Yen

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G-gate To Launch Three Funds By FY06-End

G-Gate, a Tokyo developer, plans to set up three real estate investment funds totaling 50 billion yen. It will launch two funds, valued at 15-25 billion yen each, by the end of fiscal 2006. One will focus on properties corporate owners want to sell to meet asset impairment accounting rules that took effect in fiscal 2005. The other fund will allocate 10% of its assets to private nursing homes developed for sale to investors by the company, and use some of the remaining assets for property-related merger and acquisition deals.

Full Story - Nikkei: G-gate To Launch 3 Real Estate Investment Funds By FY06-End

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Govt. Considers Restrictions on Suburban Retail Development

The Ministry of Economy, Trade and Industry is considering further restrictions on the development of suburban retail centers, in order to revitalize small town centers, previously hubs of economic activity, but many of which now lie neglected. The measures could be put forward to the Diet next year.

The proposal increases the permit requirements to include an economic and social impact assessment, including the projected amount of public infrastructure needed to support each project. In addition, planning regulations for non-urban areas will be tightened.

Full Story (J) - Nikkei Marketing Journal

I think the proposed measures, if made into law, will only serve to cut off development in some areas altogether.

Town centers, which have multitudes of stakeholders, are very difficult to develop efficiently, and without a "Plan B" in which the government eases restrictions or assists retail developers to invest in town centers, the costs will simply be too high for them, thus contributing to the further deterioration of some town centers.

Revitalization of town centers is very important. But, without new investment and know-how, many of the traditional shopkeepers' associations would be hard put to keep up with the demands of the market. Japanese customers are very fickle, and will gladly drive for an hour to shop where they want to, instead of drive five minutes to shop at an unattractive and expensive local shotengai.

/ Blog

Friday, September 09, 2005

In Japan, real estate hangs on to gains

Investors are sitting up and taking notice of the nascent real estate recovery in Japan. The Big Three property stocks are being bought up.
Office vacancies in Tokyo fell to their lowest in three and a half years in August, said Miki Shoji, a privately held office brokerage company.
"We expect to see some acceleration in recovery in areas like downtown Tokyo," says Standard Life Investments in Edinburgh. which has a higher proportion of shares in real estate companies than the benchmark index. Mitsui Fudosan is the firm's top pick, and it also holds Daibiru, NTT Urban Development and Sankei Building.

Full Story -
IHT: In Japan, real estate hangs on to gains

/ Blog

Thursday, September 08, 2005

Japanese Real Estate from a Global Perspective

Owen D. Thomas of Morgan Stanley Real Estate gave a fascinating presentation during the ULI Japan Council Meeting in July. Thomas expects continued improvement in both the operating performance (income) and value appreciation of Japanese real estate, although he warns that compared to other countries, JREITS are trading at very high valuations. In view of the increasing convergence and globalization of real estate this could prove unsustainable.

Here are some of the points which he raised:

Less than 8% of all commercial real estate is held in securitized form. Economically developed Asian markets of Hong Kong, Australia, Japan and Singapore (ranked 2, 3, 4 and 9 respectively after the US) comprise $200 billion, or 33%, of global industry market cap, and enjoys the highest share of listed real estate to total equities

Real estate is globalizing. Major industry participants increasingly operate global business platforms. Global funds operators and expansion minded publicly listed property companies are driving cross-border capital flows. Spreads between yields and local borrowing costs for prime office assets in major gateway cities have significantly converged over the past decade.

ProLogis, a US-based REIT with property operations in North America, Europe and Asia exemplifies the new model of the modern
property company:
– Operates globally
– Accesses capital in both public and private debt and equity markets globally
– Owns properties directly, in asset specific joint ventures, in private investment funds and via interests in related public entities which it manages

Japan accounts for nearly $2 Trillion or 14% of the global commercial real estate universe and is the world’s second largest market, behind only the US. Tokyo is by far the world’s largest office market, the size of London and New York's combined. Although yields/cap rates for prime office assets in Tokyo are well below most other major global cities, on a spread basis vs. government bonds, Tokyo prime office yields look attractive compared to most other major world cities. Listed property company share premiums to underlying net asset value appear to be converging globally, except for J-REITs, which are trading at very high valuations.

His report, and many other reports from the meeting, is available at the ULI Japan website.

/ Blog

REIT Investors Growing Selective

Looks like it's crunch time for new J-REITs. No longer are we seeing the frenzied purchasing of the new issues. The Nikkei reports that "three REITs have seen their initial trades fall short of their offer prices so far this year, with the latest example being eAsset Investment Corp. (8974) whose 490,000 yen first trade Wednesday on the Tokyo Stock Exchange was lower than its 500,000 yen offer price. "

But with asset acquisition competition intensifying, the gap between high- and low-performing REITs is growing. Those that have been listed longer are commanding an edge in acquisition of large properties. The widening of the gap is being accelerated by the growing trend among investment trusts to employ active portfolio management instead of index tracking.

So what's in store? "REITs will be ranked by the quality of the properties they own, and will be priced appropriately". Well, that sounds reasonable enough!

Full Story - Nikkei: REIT Investors Growing Selective

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Nonrecourse Loans By Regional Banks Triple

More on the booming non-recourse loan business in Japan: the Nikkei reports that regional banks are increasingly putting out non-recourse loans, to the tune of 420 billion yen in April 2004 to March 2005. This represents three times the previous years' amount.

Full Story - Nikkei Financial Daily : Nonrecourse Loans By Regional Banks Reach Y420bn In FY04

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Wednesday, September 07, 2005

LaSalle, Tokyo Tatemono team up on roadside retail properties

Tokyo Tatemono has an article on their website detailing a deal composed of roadside retail properties formerly owned by cigarrettes-food-and-drinks conglomerate Japan Tobacco (JT), for which the main investor was LaSalle Investment Management.

The fact that gaishikei investors are now moving towards these types of small, regional, and hitherto ignored asset classes highlights the reality that while there is so much capital sloshing around looking for stuff to buy in Japan, "institutional quality" assets are now few and far between, prompting some to move beyond traditional Tokyo- and office- centered strategies.

Excerpt: "In March 2005, Tokyo Tatemono Real Estate Sales Co., Ltd. , and LaSalle Investment Management, Inc. acquired 19 income properties around Japan, valued at a total of several billion yen, from Japan Tobacco, Inc. through an SPC established jointly by TTRES and LaSalle.
This joint project is well suited to the aims of LaSalle, which seeks outstanding properties on the Japanese market... Tokyo Tatemono and LaSalle will jointly handle the asset management of the project, while TTRES will handle the property management..." Continue reading via Tokyo Tatemono Market Reports

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Price Trends Herald Recovery in Internal Demand

More evidence of a sustainable recovery - deflation is definitely easing, and it has actually reversed for consumer services. The Nikkei reports that price indexes for consumer services such as telecommunications and education have increased, and prices for B2B services such as transportation and software have hit bottom, with the lowest rate of decrease since 2001. Tokyo residential rents went up 0.24% since last month. This will probably be followed by upturns in rents at other regions with a demographic advantage.

Full Story - Nikkei : Price Trends Herald Recovery in Internal Demand

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Non-Recourse Financing Expands to Individual Investors

The Nikkei reports that non-recourse loans are increasingly being sought by individuals for their real estate investments. Hitherto, trust banks have been the main lenders for this type of financing, and they have only lent to landowners, and specified certain construction and management companies which had to be used. However, SMBC introduced a new non-recourse product in August for small private investors seeking to develop rental residential properties, easing these rigid requirements and also offering it with a low 1.89% administration fee, equal to regular apaato loans.

Full Story - Nikkei Financial Daily: Non-Recourse Financing Expands to Individual Investors

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Monday, September 05, 2005

Bank of Japan deputy upbeat on end of deflation

Bank of Japan deputy upbeat on end of deflation
Bloomberg News

TOKYO: The Japanese deflation cycle that has lasted more than seven years may be close to an end, according to Toshiro Muto, the deputy governor of the Bank of Japan.

"The possibility is gradually increasing that we will see a stable increase in core consumer prices over the next fiscal year that starts April 1," Muto said in an interview on Thursday.

He did not rule out the possibility that sustained price gains may start as early as the end of this fiscal year.

The bank has pumped cash into the economy and held borrowing costs at almost zero in an effort to overcome deflation, which has eroded corporate profits, discouraged consumers from spending and limited economic growth to an average of 1.3 percent in the past five years.

Sustained gains in consumer prices and a lasting recovery would meet conditions needed for the bank to change its monetary policy.

Paresh Upadhyaya, a currency portfolio manager at Putnam Investments in Boston, said that "if deflation were to end, that would be a sign Japan's economy is gaining momentum, and it's becoming more of a player in the global economy as another source of growth for exports."

The Japanese economy expanded at an annual 1.1 percent pace in the second quarter, led by increases in consumer and capital spending. It was the third consecutive quarter of growth.

Singapore's CapitaLand set to expand Japanese portfolio

CapitaLand set to expand Japanese portfolio
02 September 2005 2134 hrs (SST) ChannelNewsAsia

TOKYO : Singapore's property giant CapitaLand is all poised to expand its portfolio in Japan with a kitty of more than US$1 billion.

The property market in Japan is seeing an upturn after being in the doldrums for more than a decade, and CapitaLand is eyeing for a bigger bite into the world's second largest economy.

CapitaLand's first hotel in Japan is the 548-room Swissotel Nankai Osaka.

However, this property will be sold with 40 other hotels to a US real estate investment firm Colony Capital as part of a divestment plan by CapitaLand's hotel arm, Raffles Holdings.

But this does not mean the end of CapitaLand's presence in Japan.

The Ascott Group, a subsidiary of CapitaLand, has managed to secure a strategic alliance with a Japanese real estate firm.

This will allow Ascott to penetrate the serviced-residences and corporate leasing market in the country.

The Ascott now manages 336 serviced-apartments housed in two Tokyo properties, Somerset Azabu East and Somerset Roppongi.

Said Cameron Ong, CEO of The Ascott Group, "Primarily we have the technical know-how, and they have the know-how of the local environment, the culture, and that would actually speed up the momentum and help us understand the local environment far better. We want to establish our growth plan in Japan and both parties are prepared to invest money into it and grow to 1,500 units by 2010."

Meantime, backed by strong investor demand, CapitaLand saw a four-fold increase in the CapitaRetail Japan Fund, reaching almost US$400 million.

The group is now out to buy retail malls like the Izumiya Hirakata, a lucrative suburban mall in Osaka.

Said Jason Chew, country manager of CapitaLand Japan, "Every country is different, especially for retail, because retail is a very local market. But when we try to implement, for example traffic counters -- do you want to bring in traffic counters so that we know exactly how many people come in at what time? How many cars are coming in? Are carparks fully utilised? And if they're not, can we better make use of it to say convert it to retail space?"

CapitaLand has also acquired three rental apartment properties following a property joint venture with Arcapita Bank, a Bahrain investment bank in May.

These include The Grand View, a 57-unit apartment block in Osaka.

It hopes to capitalise on the strong demand for mid-market rental apartments in key Japanese cities.

Unlike most of the other foreign real estate investors, CapitaLand is setting its sights beyond just simply Tokyo.

It believes this will help bring greater returns on its investment in the rather mature, yet still highly lucrative Japanese market. - CNA /ct

Australian investors buy up love hotels, ski resorts

Your time starts now
September 3, 2005 Sydney Morning Herald

Love hotels - check in, strip off, clock out - are hot property in a market that has Australian investors snapping up Japan's bargains, writes Deborah Cameron.

THE things to look for in a love hotel are the bed, the bath and the fantasy. Typically, there are mirrors on the ceiling, a deep tub with seething spa jets, a rotating bed and enough jungle pattern wallpaper to drive Tarzan into a frenzy.

Not a permanent frenzy, mind you, but one that lasts two or three hours. Time enough to park the car, check into a themed room, undress, take a bath and leap into bed. There might be time left over for a movie or some karaoke and another bath. No need to pack your bag; no one brings them. Because it's Japan, the exact moment you leave the room is clocked by an electronic sensor in the door frame, instantly creating a bill at the front desk. Pay in cash, no questions asked and straight back to the office.

As more foreign investors plunge into Japanese real estate, love hotels are more than an exotic flirtation. They are a way to make money, according to a group of buyers that includes an Australian.

About "half of all the sex in Japan occurs in love hotels", calculates Professor Mark West, an American lawyer, in research that gave a rare and detailed account of the economics of the industry. Small homes, a lack of privacy, serial love affairs and prostitution have helped create the niche.

While they giggle and blush about them, Japanese also see love hotels as a necessity, West says.

Miro Mijatovic, a Sydney lawyer and Tokyo sports agent and events promoter, is part of a consortium that has invested $4 million in a new love hotel less than an hour from Tokyo Station.

Mijatovic and his partners, Hamish Ross, a New Zealand-born former stockbroker, and Scott Delany, an American banker, say that their venture is aimed at a new and growing market. "It's more five-star," they say.

For the uninitiated this means fewer mirrors and less plastic, better food, fine wine, thicker towels, wireless internet and a widescreen TV. They have even talked to Austrade, the Federal Government's trade arm, about getting Australian shampoo and dainty soaps in the bathrooms.

"We're now out-Japanesing the Japanese," says Mijatovic. "We've taken a unique hotel concept and turned it into something much more respectable and much better."

They are part of a trend. Other Australians are also having an effect in Japan with investments in ski fields, office buildings, real estate and golf courses. But there are questions about the risks and, on the political front, a main candidate in the September 11 election says he is opposed to the stampede of foreign investors.

"Thirty per cent of our golf courses are in the hands of foreign-based companies," said an alarmed leader of the People's New Party, Shizuka Kamei, on Wednesday.

Kamei said it was a sign that foreigners, particularly from the United States, would soon "completely attain control of our life and our economy".

Foreign direct investment in Japan soared 90 per cent last year, according to the Japan Economic Foundation, making it the first year that investment by foreign interests in Japan had eclipsed Japanese direct investment abroad.

The scale of foreign investment in real estate here is the reverse of the 1990s when it was Japan that was buying up tracts of the Gold Coast and tilting at the Empire State Building in New York. Such was the mood back then that in Brisbane The Courier Mail consistently called it a Japanese invasion. In New York, magazines ran cover stories with the rising sun flag pegged to what seemed like every second skyscraper in Manhattan.

That history, which ended in disaster for the Japanese investors, should be a cautionary tale, according to Dr Christopher Pokarier, an associate professor of international business at Tokyo's Waseda University.

"There is a great danger of repeating the mistakes that the Japanese made," says Pokarier, an Australian, and an expert on Japan's plunge into the Australian real estate market.

Though the lion's share of foreign money being spent in Japan is from the US, Australia was the source of about $828 million of direct investment between 2002 and last year, according to Japan's Ministry of Finance.

The Babcock & Brown Japan Property Trust last week announced a $4 million profit from an investment in 12 office and retail properties valued at 47.3 billion yen ($56.5 million). In February, Babcock & Brown announced that it had raised $300 million from investors and since March has been listed on the Australian Stock Exchange.

The trust's managing director, Eric Lucas, an Australian who has spent 15 of the past 20 years in Tokyo, says Japan's "dire" economic run appears to be ending. He said that signs of recovery in the Tokyo property market were due to the presence of so many foreign investors and, more recently, the interest of domestic investment funds.

But Pokarier thinks that so much foreign money might be creating a mini real estate bubble.

"The risk is that investors get taken to the cleaners by savvy locals, and the problem with listed property trusts in particular is that they raise the money up front and then they have to spend it. They buy at the wrong time or don't do deals the way that they should."

In Hokkaido, described by a major Australian investor as "the Tasmania or New Zealand of Japan", the provincial Government has set up a special team to deal with foreign investors.

With its volcanic soil and springs, Hokkaido is an alpine wilderness and, on its lower slopes, a rural idyll. Sparse population, abundant space and harsh winters combine to make its real estate the cheapest in Japan. But its Government has bigger ideas and investors get red carpet treatment, especially when they've got a vision to create an international destination.

"They've effectively set aside a group of people to deal with us and to get it done," says the Melbourne-based chairman of Harmony Resorts Niseko, Roger Donazzan. "It's fantastic."

Last year Donazzan's company bought a ski field in Hokkaido that has quickly become a destination for Australian skiers. He says the company is planning the first $70 million phase of a seven-stage redevelopment. Building will start by 2007.

"The sentiment is there, the Government is supporting foreign investment, the assets are cheap and the economy is picking up, which is great for local demand," he says.

According to the Japan External Trade Organisation, other Australian ventures are also targeting Hokkaido, among them travel agents and condominium developers.

Roger Griffin, the Tokyo vice-president of real estate investment banking firm, Sonnenblick-Goldman Company advised on Donazzon's ski resort purchase and says it is part of a wider picture. "There is a dramatic transfer of investment from the corporate sector to the financial and savings sector," he says.

Put simply, Japan's biggest companies have changed. They are over the real estate kleptomania that gripped them during the years of the bubble economy and, under pressure from banks to straighten out their finances, are selling the irrelevant and non-performing parts of their empires.

Many of the golf courses, hotels and spa resorts sold in the past seven years have come from companies that, in the good old days, maintained them as decorative baubles or for company use. Such was the extent of this indulgence that much remains to be sold.

Another attraction for foreign investors has been a halving of real estate prices in Tokyo since 1995. Low interest rates have further sweetened the pudding. Investors are in the almost unique position of having an immediate positive gap between the return on their properties and the cost of interest, Griffin says.

Lucas, of Babcock & Brown, also pointed to the healthy returns during the midweek release of results for the Japan Fund. The fund was paying an interest rate of 1.23 per cent or less on its borrowings but making yields of 5.6 per cent.

"The name of the game is to make sure that we can maintain and grow the top line very slightly to enjoy that really fantastic spread between the cost of debt funding and the income of the properties," he says.

Investment banks and asset managers including the global giants Morgan Stanley and Goldman Sachs predict a healthy future for Japanese real estate investment. Goldman Sachs has recently launched a fund to buy dog-eared hot spring resorts and redevelop them, and it has bought 80 golf courses. Morgan Stanley, which has acquired $US15 billion ($20billion) worth of real estate in Japan since 1998, dramatically underlined the new order when earlier this year it bought the Tokyo headquarters of Mitsubishi. Another industry tyro, Hudson Lone Star, though a Texas-based fund, also has major holdings in Japan.

Mijatovic and Ross, with their love hotel, are small by comparison. And yet they can't stop talking about the potential. Ross describes a recent visit to the love hotel of his dreams. It was not the decor that got him excited but the amount of time he had to wait in a linen cupboard, discreetly out of sight, while dozens of paying guests queued through the lobby.

"And this was at 2.30 in the afternoon," he says, still amazed. "The hotel had 700 per cent occupancy."

Imagine it: every day, around the clock, couples paying 5000 yen ($60) to use a room for two or three hours. Cleaning staff, in teams of six, did their job with such speed and precision they had it down to five minutes.

"It's just like the formula one pit-stop crews," he says, dreaming of the day when his company has a chain of 50 or more love hotels.

Friday, September 02, 2005

Japan Real Estate Investment To Buy Building For Record Y81.5bn

This purchase of a half-completed building will instantly account for 20% of JRE's total assets. While construction risk is probably minimal, I wonder if this makes sense from a seismic risk diversification point of view?

Japan Real Estate Investment To Buy Building For Record Y81.5bn
2005/08/30, The Nihon Keizai Shimbun, page 0, 228 words

TOKYO (Nikkei)--Japan Real Estate Investment Corp. (8952) will acquire the redevelopment building under construction on the lot formerly occupied by Nippon Credit Bank's headquarters for 81.5 billion yen, marking the most expensive individual purchase by a real estate investment trust.
With real estate holdings exceeding 3 trillion yen, REITs are increasingly seen as mainstream property holders on a par with financial institutions and business enterprises. But amid declining returns, some say the market is overheating.
The purchased building will have 26 floors and two basement levels, with a total floor space of nearly 59,000 sq. meters. It is slated for completion in January. In addition to office space, it will feature stores and 120 residential rental units. Fast Retailing Co. (9983), the operator of Uniqlo casual wear stores, is expected to be a tenant, and Banyu Pharmaceutical Co. plans to move its headquarters there.
Several real estate developers have taken part in developing the lot after purchasing it from the Resolution and Collection Corp. Japan Real Estate Investment, a Mitsubishi Estate Co. (8802) affiliate, bid for and gained preferential negotiating rights to the property. The parties are expected to sign a purchase agreement Wednesday.
To raise the necessary funds for the acquisition, Japan Real Estate Investment plans to issue publicly placed 20-year corporate bonds -- reportedly the first by a REIT.
(The Nihon Keizai Shimbun Tuesday morning edition)

Lawson To Launch Investment Fund For Buying Store Real Estate

Coming up next: a convenience store REIT? With 8,100 properties, I wonder how thick the prospectus will be.

Lawson To Launch Investment Fund For Buying Store Real Estate
2005/08/30, The Nihon Keizai Shimbun, page 0, 403 words

TOKYO (Nikkei)--Lawson Inc. (2651) on Tuesday will establish a real estate investment fund for acquiring and leasing properties for its convenience stores.
By eliminating the cost of purchasing land, the convenience store operator will reduce the financial burdens associated with opening new outlets. And the arrangement will also shield the company from impairment losses that would be incurred if property values were to fall.
The fund will invest in land and buildings that could be used for Lawson outlets. The rental income paid by Lawson -- tied to the store's sales -- would be used to pay returns to investors. The privately placed fund will have a maturity of 10 years. It is forecasting returns above the 3-4% usually generated by publicly traded real estate investment trusts (REITs). With an asset balance of about 5 billion yen, it will be marketed to institutional investors and others by Mitsubishi Securities Co. (8615).
After acquiring several of Lawson's existing outlets, the fund will eventually invest in 20-40 newly opening stores across the nation. With an eye toward listing a REIT, Lawson plans each year to launch similar funds managing 5-10 billion yen in assets.
Of the 8,100 Lawson outlets, more than 70% are stores on property supplied by the company and operated by franchise owners. Such arrangements are expected to increase among the 700 new stores slated to open in the year ending Feb. 28, 2006. In order to recruit franchise owners and open new stores, the company must be able to acquire promising properties.
In the past, Lawson has fielded about 10,000 potential sites for new stores each year. But with more landowners seeking to sell properties rather than lease them, the firm gave up on many of the inquiries. The fund gives Lawson the option of purchasing such land, enabling the company to take advantage of good deals.
The rental payments made by Lawson will be pegged to the store's sales. As a result, the fund's returns will improve in tandem with stores' performance.
Lawson has sought to avoid acquiring properties for its stores, preferring to enter rental contracts. Its land holdings are about 5.7 billion yen, the lowest among the major convenience store operators. Using a similar management strategy, FamilyMart Co. (8028) seeks to hold down store-related operating costs. And if Lawson's investment fund succeeds in acquiring properties, industry rivals are likely to follow suit.
(The Nihon Keizai Shimbun Tuesday morning edition)

Nikkei to climb to 14,000 as deflation ends

STOCK MARKET OUTLOOK: To Climb To 14,000 As Deflation Ends
2005/08/23, The Nikkei Financial Daily, page 0, 277 words

TOKYO (Nikkei)--As the market reacts positively to signs of an end to deflation, the Nikkei Stock Average is likely to test the 14,000 level by the end of the year, says Toshio Shingin of Daiwa Securities SMBC Co.The government and the Bank of Japan have effectively declared that the economy has pulled out of its soft patch, while retail sales and other indicators show signs of strength, Shingin notes. The unwinding of cross-shareholdings by companies and stock sales as part of efforts to return a portion of their pension assets to the government have finally been completed, he maintains. As a result, he sees foreign and individual investors gradually adopting a buying stance. The stock prices of so-called "bubble industries," such as banks and construction companies, are rebounding as they benefit from a recovery in real estate prices, he says. As they monitor these developments, foreign hedge funds are expected to start increasing their flows of funds into Japanese markets, he adds.In Shingin's view, the start in October of over-the-counter sales of investment trusts at post offices is another important factor swaying the market. Sales of public investment trusts at banks have already reached 16 trillion yen, he argues. Because a portion of postal savings funds is expected to shift to mutual funds, the investment trust balance may balloon, significantly affecting future supply-demand conditions.While Shingin believes that the spiraling crude oil prices cannot be ignored, some analysts speculate that gross domestic product growth can be maintained even if crude oil prices double. The impact of high crude oil prices on stocks is likely to be limited, he predicts.(The Nikkei Financial Daily Tuesday edition)

ANALYST OUTLOOK: Ending deflation supports
2005/08/29, THE NIKKEI WEEKLY, page 7, 167 words

Toshio Shingin Sub councilor of equity planning and administration department a
As the market reacts positively to signs of an ending deflation, the Nikkei average is likely to test 14,000 by the end of the year.
The government and the BOJ have declared that the economy has pulled out of its soft patch, while retail sales and other indicators show signs of strength. The unwinding of cross-shareholdings and stock sales related to returned pension management to the government by funds have been completed. As a result, foreign and individual investors are gradually adopting a buying stance.
The stock prices of banks and construction companies are rebounding as they benefit from a recovery in real estate prices. In reaction, foreign hedge funds are expected to start increasing their flows of funds into Japanese markets.
The start in October of over-the-counter sales of investment trusts at post offices is another positive factor for shares, because a part of postal savings funds is expected to shift to the stock market.

Simplex Investment Advisors Sets Up Residential Fund

Simplex Investment Advisors is seeking investors to a 20 bln. yen fund to invest in residential properties. The fund will consist of 8.1 bln. from institutional investors and the rest from non-recourse financing. The fund will close at the end of September, and have a five-year term.
The portfolio will consist of around 20 buildings, mostly five to seven years old, ranging from 500 mln. to 2 bln. yen in purchase price. The average occupancy is 93%.
Simplex's next plan is to establish another residential fund to the tune of 200 bln. yen.

2005/09/02, , 日本経済新聞 朝刊, 16ページ,  , 460文字


Thursday, September 01, 2005

ProLogis Raises Second Japan Fund, Providing $3 Billion of Additional Capacity

ProLogis Japan Properties Fund II Adds $600 Million of Private Equity Capital, Bringing Total Investment Potential in Japan to Over $4.3 Billion (473 Billion Yen)
DENVER, Aug. 31 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), a leading global provider of distribution facilities and services, today announced the closing of ProLogis Japan Properties Fund II (the Fund). GIC Real Estate Pte Ltd (GIC RE), the real estate investment company of the Government of Singapore Investment Corporation, has committed a total of $600 million (66 billion yen) of equity and will have an 80% stake in the Fund. GIC RE also was ProLogis’ partner in its initial ProLogis Japan Properties Fund, formed in June 2002. This exclusive joint venture will own newly developed and acquired properties in the company’s targeted distribution markets across Japan with a primary focus on Tokyo, Osaka/Kobe and Nagoya.
The Fund’s capacity upon full investment of the committed capital, including GIC RE’s equity, ProLogis’ equity contributions and secured debt that the Fund intends to put in place, will be approximately $3 billion (330 billion yen). Combining the capacity from this new Fund with more than $1.3 billion from the initial ProLogis Japan Properties Fund, which is expected to be fully invested by the end of 2005, will permit ProLogis to expand its joint venture platform in Japan to approximately $4.3 billion (473 billion yen). ProLogis will hold a 20% equity ownership and continue to manage the Fund under essentially the same terms as the initial fund, providing services such as property and asset management, property acquisitions and dispositions.
Jeffrey H. Schwartz, Chief Executive Officer of ProLogis, said, “We are very excited to further strengthen our alliance with GIC RE, a leading global real estate investor. This is clearly a reflection of our success with the initial fund, which we formed just three years ago. Through innovative development and strategic property acquisitions, our talented team of over 57 local nationals has built ProLogis into the leading provider of distribution space in Japan, with a platform of distribution facilities totaling approximately 7.8 million square feet of space and another 5.7 million square feet planned and under development. We look forward to building upon this success with GIC RE.
“As demand for new, modern distribution space in Japan continues to grow, this second fund ensures we will have funding in place to capture the significant opportunities that exist to serve major customers such as Nippon Express, Yamato Logistics, Senko and Hitachi Transport-four of the top logistics operators in Japan-in addition to major multinational firms such as DHL, UPS, SONY and Bridgestone.”
Dr. Seek Ngee Huat, President of GIC RE, said, “We are very satisfied with the performance of the first joint venture and look forward to expanding our relationship. GIC RE invests globally in diverse sectors and places great importance on establishing strategic alliances and long-term relationships with strong local partners, operators, fund managers and service providers. Our investment in this second joint venture fulfils our desire to invest in high-quality facilities through an alliance with the premier provider of distribution facilities globally and is a good fit with our investment and return objectives in Asia.”
The strategic alliance between ProLogis and GIC RE has enabled both companies to benefit from the growing demand for new, modern distribution warehousing facilities as manufacturers seek to improve the efficiency of their distribution by revamping supply chain networks and relying more heavily on third-party logistics providers. In Japan, much of the previously existing stock of distribution facilities did not meet these modern specification needs, such as large floor plates, high ceilings and floor loading capacity. In addition, more Japanese corporations are shedding their real estate assets in order to concentrate on their core businesses and free up working capital, with an increasing number preferring to lease rather than own their properties.
ProLogis is a leading provider of distribution facilities and services with 321.3 million square feet (29.9 million square meters) in 2,079 distribution facilities owned, managed and under development in 76 markets in North America, Europe and Asia. ProLogis continues to expand the industry’s first and largest global network of distribution facilities with the objective of building shareholder value. The company expects to achieve this through the ProLogis Operating System(r) and its commitment to be ‘The Global Distribution Solution’ for its customers, providing exceptional facilities and services to meet their expansion and reconfiguration needs.
GIC RE is the real estate investment arm of the Government of Singapore Investment Corporation, which manages the foreign reserves of Singapore. GIC RE’s mandate is to invest in real estate-related assets outside of Singapore.
Its investments cover all property sectors (including office, retail, industrial, hotel or residential assets) and product types, ranging from direct building acquisitions, property investment funds to strategic stakes in publicly-listed property companies, joint ventures and real estate debt. GIC RE’s large and diversified portfolio comprises about 140 assets in over 30 countries. It is one of the largest institutional investors in Asia and currently ranks amongst the world’s top 20 global real estate investment firms. GIC RE’s assets in Japan currently include Shiodome City Center, Shinagawa Seaside Towers, Kawasaki Tech Centre, three Oakwood serviced apartment complexes and the AEON Sendai Tomiyacho Mall.


Taking a new look at Japan

Taking a new look at Japan
By Judith Rehak International Herald Tribune

It has been difficult for investors to ignore Japan in the past few weeks. But instead of the usual bad news about its flagging economy, depressed real estate and struggling banks, the headlines have featured improving economic data and growing confidence among global investors. Those have propelled the Nikkei 225-stock index to a four-year high.

For international investors, Japan's prolonged economic downturn has made it a country to avoid. But veteran Japan investors say that after many false starts, the deflation that has held back recovery is easing. Corporate restructuring is finally paying off, and with unemployment down to 4.2 percent, more Japanese people are working and spending.

"And what is different this time is that we have a banking system back to health," said David Warren, president of T. Rowe Price International and a Japan specialist.

Even the sudden scheduling of a general election on Sept. 11 - in which the prime minister, Junichiro Koizumi, is challenging the old guard that voted down his plan to privatize Japan's postal savings system - has not scared off global investors. They are betting Koizumi will win, gaining a mandate for more changes in the economy.

One of the sectors that looks most attractive to Warren is banking, which has led the sharp rally in the Nikkei. "If we're escaping from deflation, domestic demand will pick up, so we're big on banks," he said.

Among the holdings in the U.S.-listed T. Rowe Price Japan Fund, he singled out Sumitomo Mitsui Financial Group, one of the biggest banking groups in Japan. Warren described it as more entrepreneurial than its peers and as taking steps to increase fee income. Resona, a smaller regional bank that is focused on activities in the suburbs of Osaka and Tokyo, like mortgage lending, is another pick.

The portfolio includes familiar large-cap names, like Toyota and Canon. But Warren is enthusiastic about small to medium-size domestic companies, especially retailers. "One thing happening in Japan is that there are a lot of new companies that are really challenging old-line retailers and growing rapidly," he said.

An example, and one of the fund's largest positions, is Culture Convenience Club, a DVD rental specialist that recently bought the Japanese operation of Virgin Megastore. Warren also favors Livedoor and Rakuten, which offer online services including shopping as well as brokerage accounts.

Not everyone is ready for a pure play on Japan, though, and another approach is an Asia regional fund with a large stake there. David Linehan, the manager of the Excelsior Asia Pacific Fund, recently had a hefty 56 percent of his portfolio in Japan. "That's more than in a long time," he said. His low, in 2002, was 16 percent.

Linehan looks for companies with a catalyst that will strengthen profit and improve cash flow. He, too, likes retailers, although he emphasizes those that offer value. "There were periods in the past when Japanese consumers were spendthrifts, but that is long gone," he said. "They really want value for money." Among his picks are Don Quijote, a discount chain, and Ninety-nine Plus, which sells low-cost produce and household goods.

He does not share Warren's enthusiasm for banks, however. "I believe Japanese banks have gotten ahead of themselves," he said. His reason is that he sees little loan growth ahead, as companies have strong balance sheets and do not need much new borrowing, even at low rates.

Linehan has not abandoned Japan's global companies. His largest holding is Chiyoda, a construction company that is benefiting from increased spending on liquefied natural gas facilities as demand and prices for liquid natural gas have soared.

The portfolio also includes what he calls some "closeted" plays on technology, like Nidec, which makes motors for hard disk drives for Apple Computer's iPod, instead of going "whole hog into riskier sectors like semiconductors."

But what if the wave of upbeat economic news turns sour and Japan disappoints again? Warren said he would lean more toward global names like Toyota and Canon, which are less expensive and have more downside protection, or less vulnerable domestic sectors like pharmaceuticals and food stocks.

Linehan could go elsewhere in Asia, although he appears to be in no hurry. He said he would lighten his Japan holdings if the Nikkei index rose to around 15,000, or an additional 25 percent. "But as long as the economy reflects further strengthening, there might not be a need to lighten up," he said.