The Other Mori Brother Says Japanese Real Estate Market Weakening

[Mulboyne]

[floatr][/floatr]Bloomberg: Akira Mori's Real Estate Riches Retreat in Japan Credit Squeeze
Akira Mori...spent a record 231 billion yen buying Tokyo's Toranomon Pastoral Hotel last September. He now says it's worth closer to 200 billion yen. "The boom we've enjoyed for the past few years is over," said the 71-year-old chief executive officer of Mori Trust Co., who teamed with K.K. DaVinci Advisors, a 1.2 trillion yen Tokyo- based property fund, for the acquisition. "Investors were convinced that prices would keep rising, so in about six months, they'll probably rush to get out regardless of price"...The purchase price for the Pastoral in Tokyo's central Minato ward was the highest paid anywhere in the world for a hotel last year, according to New York-based research firm Real Capital Analytics...Lone Star Funds...scrapped plans last month to sell a group of Japan hotels after bidders reduced their offers by as much as 25 percent between December and March as financing conditions deteriorated, said two people with direct knowledge of the matter. "We should be prepared for another round of real estate deflation that may last for some time,'' said Akiyoshi Inoue, president of Tokyo-based Sanyu Appraisal Corp...more...

[Mulboyne]

Asahi: Growing concern over empty office space in central Tokyo, other urban centers

Demand for office space in central Tokyo and other urban centers has slowed so dramatically in recent months that industry officials fear that the long boom is now finally at an end. The percentage of unoccupied space in central Tokyo rose for six consecutive months through July, approaching the boom-or-bust line of 5 percent, industry figures show. In July, the average rent also fell from the previous month for the first time in three years. "Our industry has reached a turning point," said an industry official. In July, the ratio of empty space in office buildings in the five central Tokyo wards of Chiyoda, Chuo, Minato, Shinjuku and Shibuya rose above the 3.5-percent mark for the first time since February 2006, according to real estate broker Miki Shoji Co. The figure hit 3.75 percent, up 0.26 percentage point from the previous month. While the ratio fell below 3 percent in October 2006 and hit 2.49 percent in November 2007, the figure began to rise in February this year. In particular, demand for space in new buildings has been stagnant...more...

[nottu]

[Mulboyne]

Asahi: Land prices falling in prime locations

While Tokyo's Ginza district and other blue-ribbon addresses keep getting pricier, a survey released Wednesday has found land values for many of Japan's prime urban locations are falling. According to the Ministry of Land, Infrastructure, Transport and Tourism's quarterly Trend Report on the Prices of Intensively Used Land in Major Cities, land prices as of July 1 fell at 38 of 100 prime locations. A price drop was recorded for only nine locations in the previous survey, conducted in April. The land ministry said tumbling urban land values were part of a downward trend across the entire real estate market. The ministry started the quarterly survey this year to more accurately assess trends in land prices for major cities, where market rates had been surging. The 100 locations selected for the survey include prime residential and commercial districts in Tokyo, Osaka, Nagoya, Fukuoka and other urban centers.

In the July survey, land prices rose at only 13 locations, many of which are commercial districts such as Tokyo's Marunouchi, Ginza, Yaesu and Omotesando districts and Osaka's Umeda and Shinsaibashi districts. Prices at the 13 locations rose by 3 percent or less from April. Tokyo's Takanawa district was one of 10 locations where prices fell by 3 percent or more, up from two locations in the April survey. Land prices in the April survey increased at 41 of the 100 locations, including two of the 11 regions in Nagoya and one of the three locations in Fukuoka. In the latest survey, none of the selected locations in Nagoya and Fukuoka saw an increase. According to the survey, as of Jan. 1, land prices climbed at 87 of the 100 locations while prices fell at only two locations. The quarterly surveys have shown that land prices rapidly lost momentum during the six months since January.

A senior official of a major real estate company said a slump in condominium sales was a major reason for the overall downward trend. "During the last year, we were aggressively buying land plots but the market has become completely bearish," the official said. Condominium sales became sluggish after surging prices of land plots and construction materials pushed up sales prices for condominiums. According to Real Estate Economic Institute Co., a Tokyo-based market research firm, the ratio of actual sales against the total number of condominium units newly offered in a month in and around Tokyo was below the boom-or-bust threshold of 70 percent in each month between January and July, except May. The demand for office space, which had buoyed land prices in commercial districts, has slowed down due to the recent economic downturn, resulting in higher office vacancy rates.

The nosedive in the real estate market is partly the result of the subprime mortgage loan crisis which squeezed the flow of funds into the real estate market. A real estate appraiser for Nippon Tochi-Tatemono Co., a major real estate developer, said many properties were offered for sale, but a shortage of available funds had restricted buyer numbers. "Some market players with plentiful funds are waiting to see how far the prices go down," the appraiser said. The weak demand for property is beginning to affect the market for construction materials, which had seen surging prices. Tokyo Steel Co., which recycles iron scrap into steel, plans to lower prices for its entire product range by 5-11 percent, beginning with its September shipment. It will be the first price cut across its range in three years and two months.

[Mulboyne]

[Catoneinutica]

[Mulboyne]

Developer Sun City has put up a new section in English on its website called "Fire Sale by Sun City" which has the wonderful lines:

We are forced by our lenders to sell them as soon as possible. We will consider ANY and ALL offers...We are puking our inventories! Call Now!

Among the bargains on offer is the Tohoku Electrical Power Office & Deep Underground Power Station:

A very large one-piece plot like this one won't come out for the next 10 years in the top 10 major cities in Japan. We wanted to keep this one most but have to let it go. With good design and architecture, it has the potential to become the landmark of the Eastern Japan.

[GuyJean]

[Catoneinutica]

Ain't Gonna Play Sun City:

http://jp.youtube.com/watch?v=OjWENNe29qc

[Mulboyne]

GJ

The stock price has of Sun City has risen 46.4% over the last four sessions. SMBC has agreed to extend a line of credit to them. On top of that, condo developer Joint has been recapitalized by Orix so nobody wants to bet on these companies going belly up in case there are more white knights around. Joint is up 136% since that announcement.

[pheyton]

If those properties are pulling a 5-7% annual return why the hell are they trying to unload them? Are those not good returns considering it's Japan?

I am dumbfounded at some of the properties I have been seeing all over Japan. Essentially rental properties that would pay themselves off in 3-5 years. These aren't homes in BFE either. What gives?

[Mulboyne]

What gives?

The banks wanted their money back.

[Mulboyne]

Reuters: Japanese real estate firm Human 21 folds

Japanese real estate firm Human21 Corp said it would file for protection from creditors with 46.4 billion yen ($434.6 million) in debts, the latest in a string of property firms to fold amid tough market conditions. Human21 specialises in the sale of studio apartments located close to train stations.

[Mulboyne]

Yomiuri: Land price mini bubble beginning to burst

A mini bubble in land prices that has formed in the past few years in the country's larger cities appears set to burst at last. A major culprit behind the land price decline is the U.S. subprime mortgage crisis, which has been pummeling the global economy. Once land prices in Tokyo and other major cities--which are leading indicators for land prices in other parts of the country--begin to fall, it is bound to significantly affect land prices nationwide. Therefore, fluctuations in land prices in major cities need to be closely watched. According to a survey released by the Construction and Transport Ministry on Thursday, the nationwide average price for residential land declined 1.2 percent in the year to July from the previous year, while commercial land prices fell 0.8 percent.

Last year marked a decline in the range at a residential land price drop for a fourth consecutive year, but this year the range of decline picked up again. In 2007, the price of commercial land increased for the first time in 16 years, but this year prices again fell. A direct cause of the land price decline is a halt to the recovery of land prices in three metropolitan regions. Average residential land prices in the three metropolitan regions of Tokyo, Osaka and Nagoya saw a 1.4 percent increase. Last year the increase was 4 percent. The commercial land price average in the areas marked a 3.3 percent rise against a 10.4 percent gain a year earlier. The most conspicuous of all changes was in the land prices in Tokyo's 23 wards. The residential land price average in Minato Ward dropped 2.3 percent this year compared with a 24.1 percent rise the previous year. In Shibuya Ward, it declined 3.7 percent against a 23.3 percent increase the previous year. Commercial areas in these wards saw similar changes.

Further detailed analyses throw into sharp relief the significant fall in land prices. Land prices in a residential area in Tokyo's Roppongi district rose 7.3 percent in the latter half of 2007 from the previous six months, but dropped 6.8 percent in the first half of this year. The land price fall was seen in 12 of 15 locations covered by the ministry survey in Tokyo's residential areas during the first half of the year. Among commercial areas, land prices in one location in Ebisu, Shibuya Ward, increased 10 percent in the latter half of 2007, but declined 6.7 percent in the first half of this year. Among the 29 locations surveyed in Tokyo, land prices for 13 of them fell in the first half of this year while nine were virtually unchanged.

Over the past few years land prices have jumped as much as 30 percent to 40 percent each year in many locations in central Tokyo. But the latest survey found that these areas in particular had the greatest slide. It easy to see that the downward trend is accelerating this year. One of the causes for the decline is that an excessive rise in land prices in prime locations has made it difficult for real estate investment there to be profitable, which has in turn held back such investment. Another factor is that many foreign investment funds are withdrawing their money from Japan in the aftermath of the U.S. subprime loan fiasco. Land prices are tending to decline worldwide. And we must be prepared to see land prices turning downward in Japan, too.

[Mulboyne]

Mothers-listed real-estate company Re-Plus has gone into administration with liabilities of 32.6 billion yen. It is the first recorded bankruptcy of a REIT in Japan.

[Mulboyne]

Reuters: Japanese real estate firm Landcom fails

Real estate developer Landcom has become the latest Japanese property firm to fail, with 31 billion yen ($291 million) in debt, bankruptcy research firm Teikoku Data Bank said on Monday. The company filed for protection from creditors at a local court, Teikoku Bank said. Landcom, a developer of apartment buildings and housing, had difficulty raising funds as sales of condominiums declined, Taikoku said.

[pheyton]

I have been watching a property website for the past 6 months and the prices for homes have jumped about 25% for the cheapest houses. I'm wondering if that has to do with rising costs of the listing companies? Does anyone have any idea of why this could be happening? Just a fluke?

[Mulboyne]

I have been watching a property website for the past 6 months and the prices for homes have jumped about 25% for the cheapest houses...

Asking prices might go up but it doesn't mean buyers with half a brain will pay them.

[Mulboyne]

Reuters: Japan's Araigumi fails with 45 billion yen debt

Japanese construction company Araigumi Co said on Wednesday it had filed for court protection with 45 billion yen in debts, joining a slew of property-related firms in Japan to fail this year. A slowdown in the world's second-largest economy has forced many listed Japanese firms to go bust this year, but real estate and construction firms have suffered most as banks rein in lending. Shares in Araigumi tumbled by a third to 15 yen ahead of the announcement.

[Mulboyne]

Gendai reports (Japanese) how the parlous state of developer's finances is leading to sharp price cuts in the new condo market. The paper says there are 300 "outlet mansions" on the market and mentions a half price offer for resort condos in Karuizawa. With no end to the the world's credit problems in sight, the article predicts more half price offers will be on the market.

[gkanai]

Japan's New City Residence fails with $1.1 bln debt

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUST9806120081009

TOKYO, Oct 9 (Reuters) - Japanese real estate investment trust New City Residence Investment Corp 8965.T said on Thursday it has filed for court protection with 112 billion yen ($1.12 billion) in debt.

The trust, which started trading on the Tokyo Stock Exchange in 2004, said it had difficulty raising money to repay its debt.

Japanese construction company Araigumi Co (1854.T: Quote, Profile, Research, Stock Buzz) on Wednesday filed for court protection with 45 billion yen in debt.

The global financial crisis has left real estate-related companies struggling to raise funds and pushing some into bankruptcy.

[Mulboyne]

Here's their portfolio. It tripled in size over four years. They mostly have central Tokyo properties.

[Catoneinutica]

From the Reuters story to which gkanai linked:

"Japanese construction company Araigumi Co (1854.T: Quote, Profile, Research, Stock Buzz) on Wednesday filed for court protection with 45 billion yen in debt."

Araigumi. Just as an aside, it's always a bit jarring to see an entity other than an organized-crime syndicate named nantoka-gumi.

A conspiracy-minded FG might surmise that the resemblance between J-construction-company names and J-gangster-association names is not completely coincidental...

[omae mona]

Araigumi. Just as an aside, it's always a bit jarring to see an entity other than an organized-crime syndicate named nantoka-gumi.

A conspiracy-minded FG might surmise that the resemblance between J-construction-company names and J-gangster-association names is not completely coincidental...

And especially in this case, since "arai" can basically mean rough or violent (ok, it's a stretch because they use diferent kanji in this company name, but I was amused).

[Mulboyne]

This thread started with comments by the lesser-known Mori, now his better-known brother has joined in. He is still trying to remain optimistic about his own commercial real estate business, however, and instead sees problems mainly for the residential market.

Bloomberg: Tokyo Housing Is Set for `Full-Blown' Drop, Mori Says

Tokyo residential-property prices are set for a "full-blown" drop after the number of unsold homes increased this year, said Minoru Mori, chairman of Japan's biggest privately held developer. "Supply in the residential market has been excessive," Mori, who heads Mori Building Co., said in an interview in Shanghai on Oct. 25. "Unlike commercial properties, residential real estate will face a full-blown decline." Japan's slowing economy and the credit crisis that tightened lending have damped demand for commercial and residential real estate in Japan. The slump in Tokyo's condominium market may last longer than the drop after Japan's asset-price bubble burst in 1990, according to an estimate by the Tokyo-based Real Estate Economic Research Institute. The average price of an apartment in the Tokyo region, which includes the prefectures of Saitama, Chiba and Kanagawa, fell 6.9 percent to 44.7 million yen ($482,000) in September from the previous month, Real Estate Economic Research Institute Co. said in a report Oct. 15. The price per square meter fell 8.6 percent to 618,000 yen.

The number of apartments for sale in the Tokyo region amounted to 10,411 in September. That was down from 10,504 in August, the highest level since December 2002. Commercial real estate is holding up better than residential property, said Mori. "Tokyo's commercial property market remains relatively healthy," Mori said. "The current price decline probably won't be more than 10 percent." The Topix Real Estate Index fell to a two-week low today, declining 4.7 percent to 832.75 in Tokyo, and the Tokyo Stock Exchange REIT Index also dropped to the lowest level in two weeks, falling 7.7 percent to 740.30. Tokyo-based Mori is seeking to manage the impact of the global financial market turmoil. Lehman Brothers Holdings Inc., which last month filed for the largest bankruptcy in history, was a tenant of the developer's Roppongi Hills complex, occupying 275,000 square feet (26,000 square meters) of office space.

Nomura Holdings Inc., the Japanese brokerage that agreed to buy Lehman's European and Asian assets, has expressed an interest in taking over Lehman's lease at Roppongi Hills, Mori said in the interview. Other tenants such as Goldman Sachs Group Inc. are under long-term agreements that incorporate increases in the rents they pay, Mori said. "On a contractual basis, we don't foresee any problems," he said. The capital value of grade A office buildings in Tokyo's business districts fell 2 percent on average as of March from three months earlier, according to an estimate by Jones Lang LaSalle. As commercial prices decline, Mori said now is the time to prepare for land acquisition for large-sized projects similar to Roppongi Hills. "We have plans to introduce second, third, fourth and fifth Roppongi Hills," said Mori. "This is a good time to plan for large-size projects."

Mori is in talks with local residents to redevelop Toranomon-Roppongi. The developer plans to build a 46-story commercial tower and a six-floor residential building on a 165,000 square-foot site in 2009. Other projects under planning include Loop Road No. 2 from Toranomon to Shimbashi in central Tokyo and a waterfront development project in Yokohama, according to the company's Web site. These projects will require infrastructure such as roads and large blocks of available land, both of which may take some time, he said.

Mori Building's Shanghai World Financial Center, China's tallest building, opened to the public on Aug. 30. Space in the building was leased "faster than expected" to almost 50 percent of capacity currently from 40 percent in August, Mori said. Japanese financial institutions such as Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. have taken space, he said. Demand for space may slow with the opening of new office developments in Shanghai, such as Sun Hung Kai Properties Ltd.'s Shanghai IFC complex, located next to Mori's building. "As new developments come on line, it might be difficult to enjoy the same occupancy rates as before, and net demand might decline somewhat," Mori said.

[Samurai_Jerk]

This thread started with comments by the lesser-known Mori, now his better-known brother has joined in. He is still trying to remain optimistic about his own commercial real estate business, however, and instead sees problems mainly for the residential market.

Bloomberg: Tokyo Housing Is Set for `Full-Blown' Drop, Mori Says

Residential has been shitty for awhile. It's a good time to buy (if you believe in buying in Japan, which I don't) or even rent because some of these new high-rise mansions are offering good specials to get their rooms filled (no key money, first month's rent free, etc.).

[Mulboyne]

There's a lengthy article in Finance Asia which makes a couple of interesting points, in particular about the problems faced by REITs. The title is a little misleading: the "gold rush" is only for those who hope to find opportunities as more real estate companies become distressed.

Is Japan real estate poised for a gold rush?

[Mulboyne]

[pheyton]

Mul, or anyone else, what happens when a company in Japan files for bankruptcy? Do they go into something similar to a ch. 7 or ch. 11?

[GuyJean]

Mul, or anyone else, what happens when a company in Japan files for bankruptcy? Do they go into something similar to a ch. 7 or ch. 11?

I'm not really sure, but I've heard it's similar:

Chapter 7 is when the government takes over the company; shuts the doors, seizes assets, etc..

Chapter 11 is 'rehabilitation', which could take years, or until the company is purchased..

I have friends that worked for a Ch. 11 'bankrupt' company for multiple years until it was bought by another..

Now Chapter am/pm is the kicker; company is forced to sell nikuman to drunken teenagers 24/7..

GJ