Monday, October 31, 2005

Yoyogi Park to be Razed for 2016 Olympics?

The Daily Yomiuri reports (archive here) that Yoyogi Park may be paved over to make way for a new stadium and other sports facilities. The development is part of Tokyo’s bid for the 2016 Olympics, which Gov. Ishihara announced last month - see this post.

On a personal level I am absolutely shocked and angered by this. Yoyogi is my favorite park in a city with too few. More objectively, Tokyo has enough sports venues already, the refurbishment of which should be more than enough for the games in 2016. Remember the World Cup stadiums? Reportedly, only two of the 10 new ones constructed for those games are now self-supporting, the others mostly standing empty. I don’t want to sound prejudiced, but it is becoming ominously clear that the Olympic bid is being turned into another wasteful pork-barrel project. I hope this time sanity will prevail.

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代々木公園 再開発 2016年 オリンピック 五輪

Friday, October 28, 2005

How Much Is My Blog Worth?

My blog is worth $3,387.24.
How much is your blog worth?

Not a bad figure considering the hours I've put into this thing. Click here to see the latest valuation (From Business Opportunities Blog, via The Big Picture)

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どうせ 現金化 なんか できない くせに

Tokyo's Property Firms See End of 15-Year Slump

The latest quarterly survey of SMEs in Tokyo found that business confidence for the real estate industry has actually turned positive for the first time since 1990. The diffusion index  went from –0.7% to +0.7% in the July to September quarter. The survey is published by the local Association of Shinkin Banks (see here for a definition).

Full Story (Nikkei)

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景気 景況調査 東京 不動産業界 信金

Thursday, October 27, 2005

The Fund Crowd Gets Some R&R

This from the Nikkei : Real estate funds are finding the competition too hot in Tokyo, and are shifting their focus to hotels, golf courses and other leisure facilities. These companies now estimate returns of at least 8% for some funds investing in leisure facilities, compared with 5-6% for funds targeting office buildings in central Tokyo. It helps that growth in the number of wealthy seniors is expected to boost demand. DaVinci Advisors’ Osamu Kaneko opines that "The impending large-scale retirements of baby boomers will boost the population of well-to-do seniors”. He says many facilities have closed in recent years, leading to a shortage. Some recent developments:

  • DaVinci Advisors : 20 billion yen budget for ski resorts and hotels. Intends to list a hotel REIT in 2007. Recent purchase: Madarao Heights Development Co., owner of the Madarao Kogen Hotel and ski resort in Nagano.

  • Reicof Co. : new fund of 10-15 billion yen for hotels and golf courses. Recent purchases: the Azveil, a slick repositioning of a hotel in Atami, Shizuoka, and the Rota Resort and Country Club on Rota Island in the Marianas.

  • Pacific Management Corp. plans to invest 30 billion yen to buy five to 10 golf courses.

  • Simplex Investment Advisors in September bought the beautiful La Vista Golf Resort (pictured) in Chiba, across the bay from Tokyo.

  • Meanwhile in Tokyo, the luxury New Otani, Okura, and Imperial hotels – called the 'Gosan-ke', or Three Houses - are frantically upgrading to face a host of newer foreign players. Individual investors are also putting their money into leisure real estate, as exemplified by the recent rush to buy second homes and holiday properties in the tony resort town of Karuizawa, Nagano. I’ll be writing more about these topics in a future posts.

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    ダヴィンチ レイコフ シンプレクス パシフィックマネジメント レジャー施設 投資

    Osaka's First REIT Gains Fans

    Osaka’s Hankyu REIT (8977) listed on the Tokyo Stock Exchange yesterday at 620,000 yen per share. It put in a respectable performance, compared to recent new issues (see this previous post), and ended at 630,000. At noon today it is at 643,000. Not bad (speculation: Osakans are glad to see a new REIT that focuses on their area).

    It currently has five assets, mostly retail or mixed-use buildings in the Osaka area. I visited some of these last year and was impressed. Their largest asset is the HEP Five shopping mall (1998, 52,755 sqm, see pic) in Osaka’s central Umeda area. The mall has a 75-meter ferris wheel on top! The REIT’s assets are solid and reportedly the proportion of sales-based percentage rent to their income is high (more than 50%). I guess investors are expecting the Kansai economy to make a comeback soon, pushing up rental income from the stores. I’m not so sure about the upside story, but I can understand people wanting to diversify into Kansai after many other REITs have concentrated on the saturated Tokyo office market.

    The REIT is sponsored by Hankyu Holdings, parent of Hankyu Railways. They recently raised 40 billion yen to redevelop their flagship Hankyu department store near Osaka Station, near Umeda. Other redevelopment projects in the works include a huge residential and commercial project, slated to finish in 2008, on the 140,000 sq.m. site of the former Takarazuka Family Land, which closed in 2003. Hankyu is also building residential and retail to open in 2007 in Nishinomiya, Hyogo, near the Nishinomiya-Kitaguchi station and on the site of the former Hankyu Nishinomiya Stadium. All three projects are on the company’s Hankyu Railway line.

    While things are going well for the Hankyu camp, elsewhere in Osaka, the Hanshin REIT idea that I speculated upon previously seems to be facing opposition from within the company. The chairman of Hanshin Department Stores, Teruyuki Saegusa, poured cold water on the proposal, saying that if the REIT were established, they would become mere tenants, and "we would have to consider whether our profit level can justify leasing from an outside party". So, Mr. Saegusa, are you implying that you wouldn't be able to afford the rent?

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    阪急リート REIT 上場 阪急電鉄 再開発

    Wednesday, October 26, 2005

    Japan's Towns Say No to Big Retail

    Japan’s small towns and regions are leading a backlash against suburban retail development. This month, Fukushima became the first prefecture to impose a permit system for new large stores - defined as over 6,000 sq.m. in store area - on top of the existing environmental and public-comment requirements (see this Asahi report). Other prefectures like Kumamoto, Iwate, Toyama, Shizuoka, and Okinawa are considering such measures. The moves follow a raft of similar legislation by individual municipalities across the country, pioneered by Aomori City in northern Japan.

    The moves, which retailers have criticized as ‘short-sighted’ and ‘unconstitutional’, come five years after deregulation prompted a rush of new large stores in suburban areas. Urban planners in Japan, however, seem set to swing the pendulum back towards more stringent laws, in the midst of a growing movement for the revitalization of town centers (see also this Yomiuri column and my previous post on this). New revisions to the law are to be submitted to the Diet next year.

    Japan’s rural communities are still mired in economic and demographic decline. Developments outside the towns have accelerated a hollowing-out of commercial activity from the traditional shopping districts in town centers, many of which are now pitiful zones of shuttered shops and deserted streets. In some places, even local governments have packed up and moved their offices to other areas, the result of either Bubble-era expansionary policies or a more recent wave of municipal mergers. Many large stores that were located in town centers quickly became unprofitable, and a large number have closed in recent years. Unable to attract new tenants, the shells of abandoned supermarkets, banks, and offices stand empty as if symbols of a bygone era.

    It wasn't always this way. Deregulation of Japan’s retail laws in 2000, due largely to US pressure, made it relatively easier to open large stores on the outskirts of towns. Previously, permission from local trade associations, which was invariably dominated of small shopkeepers in the older parts of towns, was required. New laws freed large retailers from these political chains, and set more objective environmental review and public comment requirements. The new setup proved to be a cakewalk for the big retail firms, and a large number of new malls, power centers, big-box stores, and other new developments began to mushroom in the Japanese countryside. The trend was also helped by the gradual erosion of the traditional rigid wholesale structure, the increase in available land (due, among other factors, to the shift of manufacturing to China), and the devolution of planning powers to local communities. Revenue-hungry towns gladly effected zoning changes to agricultural land, making it easier for retail to locate in greenfield sites. The number of large stores has gone up 30% nationwide since 1997, and they have taken up an ever-larger slice of Japan’s total retail sales. More than 70% of new stores are now opened in suburban areas.

    Related Links
    Flath, David : The Large Store Law and Retail Density, 2002
    Japan Retail Fund : Overview of the Retail Property Market in Japan, 2005
    Jones Lang LaSalle : Japan’s Changing Retail Scene, 2005

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    まちづくり3法 立地法 福島県 青森市 商業施設 大型店 規制

    Friday, October 21, 2005

    The End of Omotesando?

    This, just across from the Esquisse building I talked about in an earlier post:
    Mark Devlin has a scathing piece (archive) in today’s Metropolis attacking Mori Building and Tadao Ando for ruining his neighborhood. Omotesando Hills, built on the site of the tumbledown, rustic Dojunkai Apartments (1927), is finally taking shape.
    One would think that on a street that purports to be Tokyo’s Champs Elysees, the architect, Tadao Ando, could have created a green space that interacts with the neighborhood. Instead, he has built an unbroken opaque flat glass wall stretching down the entire road and up to the Zelkova treetops… Perversely, the natural light that has been lost will be replaced by garish illuminated panels, creating what in effect will be a 250m-long television screen. The only respite from the wall is an angular notch that will lead to an inner spiral courtyard surrounded by shops.
    I would agree that it is less ‘charming’ than the apartments, but hopefully Ando has created an interior space that can compensate for the disappointing exterior. I’ll reserve my judgement until the complex opens in January 2006.

    Related Link : List of Stores in Omotesando Hills

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    表参道ヒルズ 森ビル 安藤忠雄 店舗リスト

    Goldman's Hotel Binge

    Goldman Sachs is preparing to list Japan's first hotel REIT, through its subsidiary Japan Hotels and Resorts. The company obtained a REIT licence in July, and the Nikkei reports that the listing is due by the end of 2005. Their portfolio includes the Shin-Urayasu Oriental Hotel (near Tokyo Disneyland in Chiba), The Hotel Nikko Alivila (Okinawa), the Kobe Meriken Park Oriental Hotel, and the Namba Oriental Hotel in Osaka.

    The Nikko Alivila was purchased from Sato Kogyo in 2003 for an undisclosed sum. Goldman acquired the other properties in 2003 from ailing retailer Daiei for 45 billion yen, along with one other hotel in Fukuoka. The properties are performing well; for instance, the Kobe hotel has the most banquet functions (over 1,000 a year) among hotels in the region.

    Besides these large properties, Goldman has acquired an extensive portfolio of smaller hotels, such as the Kawasaki Nikko Hotel, and Japanese inns, including the respected Izumi-so on the Izu peninsula, and Komaki Onsen in Aomori. Together with the 100-year old Hoshino Resort company, it established a turnaround management company for regional Japanese inns in May (sideline: Hoshino recently opened the breathtaking Hoshinoya hotel in Karuizawa).

    Goldman Sachs is also slated to list its golf course unit, Accordia Golf Japan (see my previous post) which it also built by accumulating assets from failed Japanese owners.

    Related Story (Bloomberg) : Goldman Plunges Into Japan Spas, Aiming at Golf Redux

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    ジャパン・ホテル・アンド・リゾート 星野リゾート ゴールドマン・サックス オリエンタルホテル

    Next Up on Omotesando

    Japan Retail Fund (ticker: 8953) announced redevelopment plans for the Esquisse Omotesando building. The 1982 building is to be demolished to make way for a larger edifice with a cutting-edge design (see above), increasing the leaseable space from 3,780 to 5,000 square meters. This is a surprise - although redeveloping properties is fairly common practice for US REITs, this is the first time for a Japanese REIT, and may portend more such projects by other listed funds.

    The structure of the deal is also interesting. In May, JRF had bought an adjacent parking lot to add to the permitted floor area, allowing it to build larger. Next, JRF is actually selling the building (but not the land) to Takenaka Corporation, which will pay a ground lease to JRF during the construction period. In this way, the REIT’s earnings are not affected too much (JRF has cut its 2006 dividend projections by 2%, presumably to accommodate this loss in income). Finally, JRF has first right of purchase after the new building’s completion, slated for November 2007.

    Takenaka buys the building for 1.2 billion, then they pay ground rent for two years, and in 2007, they sell it back to JRF for 6.0 billion yen, according to the Nikkan Kensetsu newspaper. That’s plenty of money for a fancy job.

    Esquisse may be anchored by Gucci, Chanel, and YSL, but the rest of the building is undertenanted. Whenever I go it always feels devoid of customers, and the other tenants are less impressive. I’m sure a lot of people agree that the building is performing poorly, in spite of the polished façade. Their current occupancy is 92%, but this hides the fact that the average rent is only 18,650 yen per tsubo per month. On Omotesando, where ground-floor outlets regularly go for well above 50,000 yen/ts, that means failure.

    To be fair, the current building is a lemon. Previously it was a youth-oriented department store called Vivre, but the owner, bankrupt retailer Mycal, closed it in 2000 due to falling sales. It was sold to Australian finance group Babcock & Brown and Mitsubishi Corp. for 11.4 billion the following year. The building was refurbished and retenanted - I was pretty impressed with the facelift. After a failed attempt to include it in their listing portfolio, JRF - which is also sponsored by Mitsubishi along with UBS - finally bought it for 14.5 billion in 2004, but tenants and customers apparently still think it's a dud. Well, let’s hope JRF gets it right this time.

    The new structure looks set to be yet another ‘signature’ building on a street which is already chock-a-block with creations by the world’s most fashionable architects. JRF’s press release shows a computer rendering of the design (above); the Nikkan Kensetsu says that a “Dutch architectural firm” was hired. Does anyone know who this might be? It looks like an MVRDV job to me.

    Update (10/23) - it is indeed MVRDV (thanks Jean Snow)

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    エスキス表参道 再開発 日本リテールファンド 竹中工務店 三菱商事 バブコック&ブラウン

    Thursday, October 20, 2005


    The US Embassy in Tokyo has been refusing to pay rent for its land for seven years, the Sankei Shinbun reports (full story here).

    The 18,000 sq.m. site is 72% owned by the Japanese government, and the ground lease is a paltry 2.5 million yen ($21,000) per year, an unbelievably low sum for the prime Akasaka location, near the Diet Building and Prime Minister’s residence. For comparison, the British Embassy pays 35 million yen ($294,000) per year for its location fronting the Imperial Palace.

    Japan gave the US a ‘lease in perpetuity’ in 1890 after buying the land from private owners, in response to the Americans’ request for an embassy location. However, the US has refused to pay since 1998, insisting that they actually 'own' the land. In the same year the Foreign Ministry had approached them about a rent hike - only the third time in around 30 years. On the two previous occasions, the Americans had also protested, only to relent after several years of non-payment.

    Sounds like high time for an eviction notice.

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    Sanyu System Research Institute, a major appraisal firm, has a contrarian opinion on the future of land prices in Japan. In an interview with the Nikkei, Akiyoshi Inoue said thathe expects land prices in Japan to fall by half in five years, citing the risk of oversupply lurking behind the current property bubble in central Tokyo. Excerpt:
    Q: Despite your prediction, land prices in Tokyo's 23 wards recently registered their first upturn in 15 years. What do you think about that?
    A: The recent upward trend in Tokyo has only been seen in places near new subway stations such as Roppongi and Shiodome, supported by the redevelopment projects there. But because I think the impact of those projects will not be sustainable, I have no reason to predict a further rise in land prices. Meanwhile, the supply of condominiums and office buildings will continue to rise rapidly… the impact of oversupply will begin to be felt more keenly in six months to one year.

    Full Story (Nikkei) : Land Prices To Drop 50% In 5 Yrs On Office Supply Glut

    I disagree with Mr. Inoue on the extent of the fall : land prices may fall by 40% in some places, namely towns and regions which are declining in economic activity and population, and those which have long depended on largesse from the central government for their economic growth. But in Tokyo, where a large proportion of economic activity is concentrated, the average land price is set to increase. Overall (and on a weighted-average basis) there could not be a 40-50% decrease as Mr. Inoue predicts.

    Let me pause for a moment and strike Sanyu off my list of preferred appraisal firms.

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    Wednesday, October 19, 2005

    Honeymoon's Over for J-REITs

    I wrote last month that current J-REIT prices are unsustainable, mainly because of falling yields and rising interest rates. Compared to global REIT PERs, those of Japanese REITs’were certainly very high, too. Now, the fast money is beginning to move out.

    Investors gave two new J-REITs the cold shoulder in as many weeks, pushing their prices well below their IPO levels. First Credit’s FC Residential Investment Corp. (8975), which listed on Oct. 12, which listed at 475,000 yen per share, went down 15% on its first day of trading, and is now at 420,000. daVinci Advisors’ DA Office Investment Corp. (8976) – which I wrote about earlier - suffered a similar fate. It listed today at 515,000, only to be slashed to 458,000 by the end of trading (chronicled here; good commentary on the issue here). It is the fifth REIT since July which has seen its opening price fall below the IPO level.

    These two pieces by the Nikkei puts the issue in perspective:
    Until recently, many individual investors scrambled to obtain REIT's IPO shares, assuming that they would open at much higher levels than their IPO prices. But the approach lacks any proper rationale, since a REIT is a financial product which distributes rental income from properties in which it has invested, and therefore, unlike stocks, it is not suitable for pursuing capital … individual investors targeting short-term profits are now beginning to distance themselves from the market.
    So basically we’re seeing the speculators being driven out. Which is not necessarily a bad thing. The novelty of J-REITs has worn off; be braced for more adjustments as more investors take a long, hard look at their current holdings.

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    DAオフィス投資法人 FCレジデンシャル投資法人

    Cerberus buys Seibu

    In another coup for Cerberus, the U.S. hedge fund is set to become the biggest shareholder in Seibu Railway with up to a one-third stake (Reuters). Cerberus and a unit of Japanese securities broker Nikko Cordial Corp. will invest up to 160 billion yen ($1.4 billion). Media reports said that the two would inject 80 billion to 90 billion yen into the group's core firm, Kokudo Corp. It is unclear why Cerberus beat out Morgan Stanley and Goldman Sachs, who earlier this year reportedly prepared bids as high as $19 billion and $14 billion respectively - buying out a $13.3 billion debt load - but Seibu Railway apparently liked Cerberus’ “solid and detailed” proposal.

    Cerberus’ previous investments in Japan include a 65 percent stake in transport and hotel company Kokusai Kogyo, which it acquired in 2003. Cerberus also owns a majority stake in Japan's Aozora Bank, formerly the state-owned Nippon Credit Bank (assets: $43.5 billion). A recent BusinessWeek profile (archive) on the company and its secretive founder Steve Feinberg reported that the innovative acquisition strategies had helped the fund accumulate a ‘mind-boggling’ worldwide corporate empire. Its has more than $16 billion of investors' assets on its books -- almost double what it had in 2003 -- it has bought 28 companies and snapped up stakes of at least 15% in an additional 15 over the past decade.

    Seibu is the hub of a business empire built by Yoshiaki Tsutsumi, who in 1990 was dubbed the world's richest man by Forbes magazine. The company last year posted an $81 million loss, saw the ouster of Chairman Tsutsumi, 70, and was delisted from the Tokyo Stock Exchange for reporting violations. Tsutsumi was arrested on Mar. 3 following his indictment on charges of insider trading and falsifying financial statements. He is now out on bail (see this BusinessWeek article (archive) on the fall of Seibu and Tsutsumi).

    But the Seibu group still holds valuable assets: in addition to operating one of Tokyo's main commuter railroads and a rail-freight operation, the company runs dozens of hotels (the Prince Hotel Park Tower is one of its latest properties), golf courses and ski resorts, an amusement park in Tokyo, and the Seibu Lions, a Japanese pro baseball club. Its railway business alone is estimated to generate about 30% of sales and 50% of operating profits, while the group overall has positive cash flow of around $236 million. One of the groups' largest assets, the Kokudo HQ building, was sold in August (see my previous post). But with the extensive portfolio still in place, it looks like another REIT may be in the offing.

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    サーベラス 西武 コクド 国際興業 あおぞら銀行 

    Tuesday, October 18, 2005

    Boom, not Bubble

    The current economic recovery has close parallels to Japan's situation in 1986 (excellently covered by the Nikkei Shimbun's Takumi Anzai in this piece) such as an election landslide by the LDP in a snap election, the Nikkei reaching record levels, and an influx of foreign investment in Japanese equities. 1986 marked the beginning of the infamous Japanese real estate Bubble. Are we seeing another one in the making?

    No, says Morgan Stanley’s Robert Feldman. In his article in the the Oct.17 Global Economic Forum, he offers an opinion on the current boom in Japanese real estate:
    More investors are seeing real estate as a respectable asset class…While real estate is now back in vogue, there is no bubble. The rise of real estate prices remains concentrated in the centers of major cities, while prices in suburban and ex-urban areas are still falling. These trends are likely to continue, in my view. They suggest that investors have learned the lessons of the bubble, and are valuing property on a discounted cash flow basis.
    Feldman also predicts that JGB interest rates will top out at 2.0% in early 2006, but that more than 2.5% is 'highly unlikely'.

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    Tokyo's Olympic Bid

    On Sept. 20, Tokyo’s governor Shintaro Ishihara announced plans for Tokyo to bid for the 2016 Olympic Games. Other contenders include Fukuoka, Sapporo, New Delhi and Bangkok, but Tokyo's excellent infrastructure and international standing makes it the leading candidate from Asia.

    The 1964 Olympics in Tokyo were a symbolic turning point for Japan. The games transformed a large part of central Tokyo (for better and worse) and provided the impetus to build the “bullet” train, showing the world that Japan had emerged from its painful post-war reconstruction. Ishihara hopes that a 2016 bid could become a spur for redevelopment of the city, particularly the National Stadium, now 50 years old, and the much-beloved Jingu Gaien. Ishihara has hinted that Kenzo Tange's masterpiece Yoyogi Gymnasium will also be subject to renewal. However, Tokyo plans to stage some of the events in neighboring prefectures, thus lessening the need to build new facilities.

    Ishihara appointed Rakuten CEO Hiroshi Mikitani, young Internet millionaire and baseball team owner, as an advisor for Tokyo's bid. Two former gold medalists were also appointed. This is good, but why did he also select media 'personalities' Elizabeth Kiritani and Terry Ito, and reject the Keidanren as 'old fogies'?

    Residents are not too impressed with the announcement. Cynicism runs high that the whole thing will turn into another pork-barrel project for the big companies, with little benefit to the average Tokyoite. Many people think improving the city's environment and enchancing security are more important. As New York's failed 2008 bid showed, factionalism and lack of enthusiasm may prove to be a fatal drag. In any case, because the 2008 Olympics is in Asia (Beijing), followed by Europe (London 2012), Tokyo's turn will probably come in 2020.

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    東京 五輪 オリンピック 2016年 

    Tuesday, October 11, 2005

    daVinci to List J-REIT

    It’s been a while since an all-office J-REIT appeared, but Tokyo investors daVinci Advisors plan to list a new J-REIT, the “DA Office REIT (ticker: 8976)”, on October 19. The portfolio will consist of mainly medium-size office buildings, mainly in central Tokyo (42%).

    One of the properties in the portfolio, the daVinci Ginza Building, was owned by bankrupt retailer Daiei and called the OMC Ginza Building when they bought it in 2001 for 9.6 billion yen. Everyone thought they were mad to buy this low-ceilinged, decrepit office building when huge quantities of prime office were online for supply in 2003. They did an excellent job refurbishing the place inside and out (some photos here), bringing the specs to state-of-the-art standards, and reduced the operating expenses. Now it is worth 14 billion yen, the largest property in the portfolio. That’s almost a 47% increase in asset value!

    My personal impressions of CEO Mr. Kaneko and his team are first-rate. They are one of the shrewdest and most innovative teams in Tokyo, and the company has been an almost-unrivalled success story, starting with nothing just a few years ago. They remain ahead of the curve.

    Update: The J-REIT Blog isn't too impressed with this offering, saying the prospectus' projections are too rosy.

    Read more on the IPO here.

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    Asia-Pacific to Lead World Property Demand : Analyst

    DTZ International says demand for Asia-Pacific commercial real estate was expected to remain strong in 2005.

    "Results from our first survey reveal about 40 per cent of respondents are seeking to increase purchases of cross-border real estate in 2006 and 2007. China, Australia, Japan, South Korea and Hong Kong are the top five most desired investment locations. Although China has introduced the hard-landing policy, the demand for private debt finance is expected to remain strong," the company said.

    Full Story - Sydney Morning Herald

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    Thursday, October 06, 2005


    The Nikkei took a beating today (analysts like Seiki Orimi of UFJ saw it coming), but I am still confident that the Japan economy is on a path of long-term growth. In fact, with this correction stocks are valued better now. Don’t buy those J-REITs until after the coming rate rise though.
    Japan Real Estate Blog
    Tags : japan, real estate, property, investment, 不動産


    The Japanese popular media is working itself into a frenzy involving investor Yoshiaki Murakami’s takeover bid for Hanshin Railways, the parent of this year’s baseball pennant-winners the Hanshin Tigers. Tigers fans have been heard on TV all night being childish and emotional about it, complaining that it would somehow “take away” the team from them. Amusingly, the Osakans’ comments took a U-turn once Murakami suggested that the team list on the stock exchange. Wonder if that’s been done elsewhere in the world?

    Anyway, Hanshin Railways was one of the few large real-estate holders which did not succumb to speculative mania during the bubble years; as a result, it still holds many assets at their original book prices of 30 years ago. The company thus stands to make huge capital gains on their properties. For example, the land under Hanshin Osaka Building just outside Osaka Station is on Hanshin’s books for a mere 9 million yen, or 1,285 yen per square meter! Compare this to the 5.33 million yen per square meter (2005) official land price nearby.

    Hanshin also owns the revered 1924 Koshien baseball stadium (land book price: 8 million yen), the Rokkosan amusement park (1933, 756 million), the Sannomiya Hanshin Building (1933, rebuilt 1996, 231 million), and the more recent Herbis Osaka (7.46 billion), and the Herbis Ent (6.8 billion) mixed-use complexes.

    Consider a ‘Hanshin REIT’ a done deal once Murakami gets in.

    PS: The post title means “how are you?” in the Kansai dialect. Literally, “making money today?” More on Kansai-ben here.
    Full Story: Osaka Yomiuri

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

    Wednesday, October 05, 2005

    Rolling It In

    Pacific Management Corp. announced a 100-billion-yen private-pool discretionary fund, to close in early 2006. The fund collected 9.4 billion in equity by the end of August for a seed portfolio of 20 billion yen, investing in small value-add assets and also bulk properties from the public sector. PMC is the sponsor of the Japan Residential REIT and also has three other funds investing in prime office, city retail, and small residential properties. Separately, PMC also announced a golf course fund which will invest 30 billion yen in five to ten properties by November 2006. Already, on October 1 it acquired the recently-bankrupt Higashi Karuizawa golf club company for 1 billion yen.

    Heavyweight Tokyo Tatemono is offering smaller investors (from 5 million yen) a chance to buy preferred equity in the 10-billion yen Apartments Shinonome rental condos in Tokyo (2005). The scheme, which gives a dividend yield of 2.6% plus 2% of post-AM fee cashflow for five years, is the fifth such securitization by the company, who will also guarantee the investors’ investment - unlike REIT shares. This time, however, the preferred portion is only 70%; the firm will keep a subordinate interest of 30% and a 98% claim on cashflow after asset management fees. While To-Tate admits that the investors’ money is, in effect, a ‘loan’ with unattractive rates, the long-term aim is to develop the small-investor market, which may pay off in the long run for them.

    Meanwhile, Macquarie Global Property Advisors, raised $1.3 billion of equity for the MGP Fund II, which plans to invest as much as $5 billion. They bought a 32-story residential tower in Nishi-Ikebukuro - currently under development - and a 10-story office block in Kameido, east Tokyo (a ‘buy, fix and sell’ play, says Simon Treacy) for a total of 24.7 billion yen.

    Secured Capital Japan plans to set up its first corporate buyout fund, targeting real-estate-rich distressed companies, by the end of next January. The fund will acquire about 30-40 billion yen, of which the equity investment wil be about 15 billion yen (40% from the firm and the remainder to come from domestic institutional investors). Separately, Secured also announced it would establish a 10 billion yen fund investing in low-rated CMBSs and mid-risk mezzanine loans.

    Lastly, in a recent interview with the Nikkei, Risa Partners CEO Atsushi Imuta says that business is fine, partly because demand is high for stabilized office buildings in Tokyo. Their office fund is selling a few of them right now, and Risa also securitized a retail development in Fukuoka (Jasmac Shuko Koji), netting about 1.8 billion yen – the first in a series of retail properties in cooperation with Jasmac. The company also saw a fivefold (!) increase in assets which they manage for George Soros’s Soros Real Estate Investors (more info here), from 20 billion yen in December 2004 to 100 billion this year. Soros has 80%, Risa 16%, and Mr. Imuta 4% of the fund (Risa is also partly owned by Soros). The joint fund has so far bought, among other assets, four large retail buildings in Shinjuku. Risa also has a collaboration with leading Tokyo interiors company Idee called R-Project, which personally I find most interesting: renovating old buildings and converting them to designer apartments.

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    Resorting to the Axe

    Koizumi’s reforms have prompted widespread asset sales by Japan’s government agencies, especially in the bloated and inefficient public leisure and hotel sector. In many cases, retired bureaucrats were given very cushy positions in the ‘semi-public’ bodies set up to run the resorts (amakudari), while the properties were grossly mismanaged and unprofitable. The public pension fund, which managed the whole show, has racked up enormous losses in the process. Read on…

    Japan Post is selling 202 unused properties such as former employee housing and post offices this year, and is also going to sell off hotels, resorts, and welfare facilities owned and operated by its insurance division (the largest in the country). About half of these are loss-making. However, its choicest asset, the Tokyo Central Post Office in front of Tokyo Station, and therefore smack bang in the middle of the most expensive area in Japan, is probably going to be securitized and redeveloped as an office building (although some groups have protested the demise of the 1931 building).

    Japan Highway Corporation, which was privatized on October 1 (see this story), has sold off 45 billion yen (in book value) of unused real estate. The properties include left-over land from highway projects, luxury condominiums, and leisure facilities. Glad to see the old corrupt monster being given the hatchet job, but given their habit of overpaying for land and construction, don’t count on them getting anywhere near the 45 billion back from the private companies they sold to. (Update: the Nikkei takes a dim view of the privatizations, saying that the new firms 'lack logic' and are 'ill prepared for privatization' ).

    Citizens are relieved that the massive portfolio of resorts, hotels, and welfare facilities owned and funded by the Social Insurance Agency (over 2,400 nationwide) will be sold off through a new body formed this month called the Pension and Welfare Facility Resolution Corporation. The Agency had come under intense criticism for the gross waste of public funds and mismanagement of the resorts, including many cases of amakudari, letting them bleed money on a huge scale from the pension coffers. The Yomiuri wrote, “funds were withdrawn from the special account for the public pension funds to construct and maintain the facilities. Such expenditures exceeded 20 billion yen for the first time in fiscal 1977, more than doubling to reach 47.1 billion yen in fiscal 1982 before peaking at 79.1 billion yen in fiscal 1995”. Some of the largest have already been divested: the 13 mammoth Greenpia resorts, which took 350 billion yen to build in the 1980’s and 1990’s, have been sold at around 4% of their book value, mostly to local governments. It remains to be seen whether local governments can manage the facilities better.

    There are still many other resorts operated by government agencies, including Kokumin Shukusha (People’s Lodges), Kyuka-mura (Holiday Villages), and Ryoko-mura (Travel Villages). This site offers a comprehensive list of these and other hotels and resorts mentioned in this post. Oh, and I haven’t even mentioned the amakudari-basket hotels and resorts operated by local governments and their respective semi-public organizations…

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