Japanese Real Estate Boom Belches Back Up

[Taro Toporific]

[Captain Japan]

[Mulboyne]

Well, the foreign press can't have it both ways. There have been numerous articles congratulating foreign investment funds for "astute" real estate investments in Japan and now we have one suggesting that Japanese companies doing the same thing are barking mad. The prices are the same in both cases so either both are right or both are wrong.

[Mulboyne]

FT: Chanel goes big in Japan
Chanel is set to unveil its largest store this weekend, when it opens its new 10-storey boutique in Tokyo's upmarket Ginza shopping district. Chanel acquired the land from Daiei, the heavily-indebted retailer, for Y6.37bn ($62m) in 2002, according to Yoji Otani, real estate analyst at CSFB. Observers calculate that including the assumption of debts and the cost of constructing the building from scratch, the total investment is about $250m.
...Though land prices in Japan are in their 13th consecutive year of decline, luxury brands such as Chanel, Hermès and Louis Vuitton have been steadily acquiring pockets of real estate in Ginza and the areas of Ometesando and Aoyama in recent years, helping drive up prices in those districts by as much as 8 per cent year-on-year. Last year, Tiffany, the US-based jeweller, bought a plot in Ginza for Y16.5bn, while Hermès paid Y9bn for a lot in the same area in 1997, according to CSFB.

FG Thread: New Opulent Chanel Store in Ginza

[Mulboyne]

Reuters: Japan's DaVinci launches $4 bln property fund
Aiming to tap into a reviving Japanese property market, Tokyo-based investment firm DaVinci Advisors KK (4314.OJ: Quote, Profile, Research) has launched a 400 billion yen ($3.9 billion) real estate fund, the biggest of its kind in Japan. Investment in Japanese real estate is growing on expectations that gradually improving economic conditions will translate into a rebound in property prices after a decade-long slump.
DaVinci said on Monday that the huge size of the fund -- 100 billion yen from foreign and domestic investors and 300 billion borrowed from banks -- would allow it to grab larger deals of more than 50 billion yen that most funds avoid. DaVinci's fund -- which allows a three-year time frame in which it can make acquisitions -- will cover all properties yielding rental revenue, ranging from office buildings to commercial properties. It aims to resell the buildings after making repairs.
DaVinci, which last week announced a 4 billion yen investment in the Hilton Guam hotel, hopes to see returns of 25 percent on its new fund. It has no plans to launch another fund in the next few years, a company official said. The company's shares have mirrored the improving outlook for Japanese real estate, rising 95 percent so far this year. The shares closed up 3.48 percent at 119,000 yen on Monday.

[Captain Japan]

Empty Tokyo office buildings prove lucrative for redevelopers
Archiveless Gomiuri Shimbun

Large-scale redevelopment projects in Tokyo have prompted many businesses to vacate their former residences for newer surroundings, leaving many office buildings empty.

But developers have found a use for the empty spaces through converting the buildings into hotels and condominiums, generating business for general contractors that were suffering from a shrinking construction market.

Many obstacles, such as restrictions under the Building Standard Law, however, mar renovation efforts to old office buildings.

The Mercure Hotel Ginza Tokyo in Chuo Ward that opened in October, used to be an office building.

Mitsui Fudosan Co., and its real estate investment fund acquired and renovated the building.

"The floors were not very large, so it's easier to use the building as a hotel than an office, and it's very profitable," company officials said. Many observers predict demand for hotels in Ginza will grow, following the rush in building luxury brand stores.

But the projects still face some challenges. The Building Standard Law specifies the size of windows in residential buildings, which should be larger than those in office blocks. Due to the proximity of buildings in one area, it is sometimes impossible to modify the windows.

Insulation between floors in office buildings is often thin, increasing reconstruction costs as developers must insulate buildings to an acceptable noise level.

"There's not much profit in renovating buildings in areas other than those in central Tokyo, where rent is high," a general contractor official said.

[Mulboyne]

Reuters: Richard Li sells Tokyo office space for $1.7 bln

K.K. daVinci Advisors [see post above], the operator of Japan's biggest real estate fund, said on Thursday it had bought the office portion of the Pacific Century Place Marunouchi building in central Tokyo from Hong Kong tycoon Richard Li's Pacific Century Group for $1.7 billion. This is the largest single-asset transaction in Asia, according to people familiar with the deal...Credit Suisse analyst Yoji Otani estimated the annual rental income for the building's office space at about 6 billion yen, valuing its cap rate at around 2 percent. "DaVinci must be confident that they can raise rents," he said...more...

Li bought the plot (an old JNR site) for 86.8 billion yen in 1997 and that's the valuation Forbes used when they calculated his wealth this year. You have to add construction and debt service costs to that as well as subtracting rental revenue but he should have come out ahead if the reported numbers are correct. His dad will have done better. Richard Li sold him 45% of the deal for 22 billion yen shortly after winning the bid

[Mulboyne]

AP: Japan Land Prices Rose in 2006

Land prices in Japan rose last year for the first time since 1990, government data showed Thursday, indicating that the long era of real estate deflation may be coming to an end. Residential land prices gained 0.1 percent on average in 2006, while commercial land prices rose an average of 2.3 percent, the Ministry of Land, Infrastructure and Transport said in its annual land price report. The annual land survey showed that the price upturn was particularly sharp in commercial areas, from an average fall of 2.7 percent in 2005 and of 5.6 percent in 2004. The average price of residential areas for the same period dropped 2.7 percent and 4.6 percent respectively. The gains were driven largely by a significant jump in the three major metropolitan areas of Tokyo, Nagoya and Osaka...more...

[Mulboyne]

IHT: Japanese real estate firms seek big rent increases in central Tokyo

The leading estate firms in Japan, including Mitsui Fudosan, have begun proposing big rent increases in central Tokyo, where office vacancy rates have been hovering near 20-year lows. These rock-bottom vacancy rates have helped Mitsui Fudosan and rival Mitsubishi Estate weather tougher times for much of Japan's property market, which has been hit by tighter credit and stricter apartment building codes. Mitsui Fudosan, the largest real estate developer in Japan, said Monday that it was in talks with tenants to raise office rents in central Tokyo by an average 10 to 15 percent. The second-largest developer, Mitsubishi Estate, also said it was in talks with tenants to raise office rents in the Marunouchi area of central Tokyo by 15 to 20 percent. Another major developer, unlisted Mori Trust, said it was preparing to raise office rents in the Minato district in central Tokyo by an average of 20 percent. The office vacancy rate in Tokyo's 23 wards stood at 2.1 percent in April, the lowest since the burst of the Japanese asset-inflated bubble economy in 1990, according to Ikoma Data Service System, a research firm specializing in the market for office buildings.

Average rent in Tokyo's five central wards in April was 15,120 yen, or $146, per approximately 3.3 square meters, or 35.5 square feet. That marks a 12 percent increase from 13,530 yen in June of last year, according to the most recently available data from Ikoma. "Tokyo's office market is extremely tight," said Mitsuhiro Asada, an Ikoma researcher. "With signs of an economic recovery, many companies started hiring more people, and that's making them want to move to bigger offices," said Asada. He added that such conditions would likely last for a while, helping real estate firms' businesses. Mitsubishi Estate said it was seeking the rent increase given the tight office market situation in the Marunouchi area. It said its vacancy rate in that district was just 0.19 percent as of the end of March, the lowest since it started disclosing the data in 2003. Shares of Mitsui Fudosan tumbled 3.8 percent and those of Mitsubishi Estate lost 2.2 percent as of the midday break. The benchmark Nikkei average was down 2.2 percent.