Boomtown

As interest in Japanese real estate continues to grow, incoming Prime Minister Shinzo Abe might put a number of assets up on the auction block. By Aaron Lovell.

Last week, Shinzo Abe was officially chosen by the Liberal Democratic Party to be the next Prime Minister of Japan.  

As this news was breaking, many commentators speculated that Abe sell a large chunk of the assets currently held by the Japanese government, including everything from the Tokyo Metro to a large portfolio of land and buildings.

The policy would be a continuation of Junichiro Koizumi’s economic reforms.

It could not have come at a better time, it seems, as Tokyo-office deals continue to grab headlines across the globe. It’s also a strategy that has made German real estate the talk of Europe in recent years. As municipalities like Dresden, as well as large state-owned companies, sell off their housing, private equity real estate funds like Guy Hands’ Terra Firma and New York distressed investors Fortress Capital Management have eagerly snatched them up for refurbishing and repositioning.

In Japan, some have speculated that, in addition to selling land and assets owned by the government, Abe might also open up parts of central Tokyo for development, all in the name of liberalising the markets.

The government must reportedly raised ¥16.5 trillion ($140 billion) to balance the budget by 2011. According to the International Herald Tribune, the Ministry of Finance has indicated ¥3.1 trillion of government real estate that could be sold over the next decade. One equity strategist has even suggested to the paper that the divestment could create a “mini-boom” in Tokyo development.

There has already been one high-profile example of the private sector taking advantage of government property divestment in Tokyo’s Roppongi neighborhood. The country’s largest property company, Mitsui Fudosan, acquired the former site of the Defence Ministry in 2001 in a ¥180-billion deal. It is being developed as “Midtown Tokyo” and will feature Tokyo’s tallest building.

Slated to be completed next year, the 54-story, mixed use development will sport shops, residential space and offices. The corporate headquarters for Fuji Photo Film, Fuji Xerox and Yahoo Japan will have space in the building. The complex will also be home to the Japanese arts- and crafts-focused Suntory Museum of Art, as well as a design centre, the first collaboration between architect Tadao Ando and fashion designer Issey Miyake.

Japan, which has suffered years of stagflation and recession, seems to be seeing growing interest in its property markets from local property companies, as well as international firms. In 2003, the glamorous Roppongi Hills opened near the Midtown site, while the Shiodome Towers, located on a former rail site, has garnered tenants like electronics giant Matsushita and advertising agency Dentsu.

The next wave may already be well under way. Abe became prime minister on the heels of what is considered by many to be the largest single-asset transaction in Asia, the sale of the office portion of the Pacific Century Place Marunouchi building in Tokyo for $1.7 billion (€1.3 billion) by Richard Li, a Hong Kong-based communications tycoon.

Japanese real estate firm K.K. DaVinci Advisors acquired the 39,102 square meters of office space in the centrally located, 39-story building. It marks a form, the booming industry would like to see continue.