Recovery hopes attract investors to Japanese property
05 Oct 2012
Japanese real estate investment trusts are buying property while domestic pension funds are hoping to increase their exposure in Japan on hopes that a recovery is around the corner.
Mitsubishi Estate, Japan's largest property developer, raised $143m from institutional investors in September in the fourth closing of its private real estate investment trust (REIT).
Falling vacancy rates and hopes that the rental market will bottom out in 2013 are tempting investors to deploy capital in the Japanese office sector, according to Tetsuji Arimori, president of Mitsubishi Jisho Investment Advisors, a subsidiary of Mitsubishi Estate.
"It is good time for our private REIT, Nippon Open-Ended Real Investment Corporation, to buy properties and grow its portfolio," Arimori told IP Real Estate. The market has become more liquid and the transaction volume has increased, he said.
Arimori said private REITs offered a good investment for Japanese pension funds, because they own direct properties and pay investors dividends from rental income.
Private REITs are not traded on a stock exchange and unlike their listed counterparts avoid daily price fluctuations, matching the requirements of pension funds looking for non-volatile investments with stable income streams.
Nearly 75% of the money raised for the Mitsubishi REIT came from pension funds, the rest from other institutions. After the fourth closing of the REIT, 48% of the units are held by pension funds, 47% by other institutional investors, and the remainder by corporations.
Japan has seen the formation of new REITs over the past two years, most recently from Sparx Group, an investment group. The company formed a $500m REIT in joint venture with AD Investment Trust, which specialises in real estate, to invest in areas such as residential, logistics and hotels in Japan.
A statement by the company said an unnamed sovereign wealth fund in the Middle East was the source of part of its capital raised for the five-year fund.
Japanese pension funds are also looking to real estate to provide relatively high returns. Japan Teacher's Mutual Aid Cooperative Society, which manages some $7.6bn in assets, recently said it would allocate nearly $1.3bn to various investments including hedge funds and REITs, citing a need to increase overall investment returns to nearly 3% from a current sub-1% base.
Author: Tsering Namgyal