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(Bloomberg) — Japanese investors are spending the most in two decades to buy up properties overseas, undeterred by the global real estate slump and the yen’s decline to a 50-year low.
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A Manhattan skyscraper, knowledge centers in Toronto, and workplace buildings in London are among the assets that Japanese corporations and the pension budget have acquired this year. Dealing with liquidity and in the only evolved economy with ultra-low funding rates, their purchases bring some relief to the market, as job vacancies and emerging interest rates drive away other buyers.
“Right now they see a window of opportunity where they can be more competitive,” said Alex Foshay, head of the capital markets organization at real estate firm Newmark Group Inc.
Japanese-based capital accounted for $7. 4 billion in global real estate advertising transactions in 2023, more than three times the annual average over the past 15 years, according to MSCI Real Assets. Spending of this magnitude in Japan has rarely been noticed since the 1980s, when the country’s housing bubble prompted the purchase of landmarks such as Rockefeller Center and Pebble Beach Golf Links.
Brokers say their Japanese clients want to continue spending money overseas, particularly in the US, Australia and India. Most are taking a long-term view to diversify income given low returns in Japan. They see attractive prices stemming from the real estate downturn, even as the yen’s weakness reduces purchasing power.
The investment boom is being driven in part through corporations that allocated capital to real estate before the pandemic, said Hiroyuki Takayama, Cushman’s director of cross-border transactions.
In a deal that helped put Japanese buyers back on the map, Mori Trust Co. bought a 49.9% stake in 245 Park Avenue — a skyscraper behind Grand Central Station in Manhattan — from SL Green Realty Corp. for about ¥100 billion ($680 million) in June.
“Our strength lies in the fact that we have a smart monetary base,” said Miwako Date, CEO of the private developer. “Even for investments of a hundred billion yen, we can increase our own budget without gathering investors and execute it quickly. “
Mori Trust began expanding around the world in 2016 to diversify into strong markets with expansion potential. The Tokyo-based company has focused on the U. S. It has acquired a handful of office buildings in Boston and Washington.
It met its initial goal of investing two hundred billion yen in real estate in 2022, five years ahead of schedule. The company is now targeting 1. 2 trillion yen in business investments through 2030, about a quarter of which will go to Array Date.
Mori Trust had studied the New York domain and talked to SL Green about investment opportunities for years, but didn’t make a decision until the Park Avenue office tower was built, Date said. “If it’s a one-of-a-kind property, we do everything we can. “to earn it when the opportunity arises. “
These sales could simply help thaw a market that is largely frozen as U. S. employees avoid calls to return to the office. After the Park Avenue settlement, the Mori Trust was inundated with applications for real estate from around the world, but it did not continue. with any extra purchases.
“When Japanese teams buy outright, they tend to move into high-profile assets,” said Brandon McMenomy, executive director of U. S. capital markets at CBRE Group Inc. “This provides welcome liquidity to the U. S. advertising real estate market. “
Among the biggest deals through Japanese buyers this year was a C$1. 35 billion ($996 million) deal for a portfolio of knowledge centres in downtown Toronto, acquired through cellular operator KDDI Corp. A joint venture of Mitsui Fudosan Co. , Japan’s largest developer by market value, has spent £315 million ($398 million) on building a London workplace near St. Paul’s Cathedral. In Sydney, a fund led by Mitsubishi Estate Co. bought an advertising tower for A$779 million ($513 million).
Pension budgets, such as that of Japan’s GPIF, which only began investing in global real estate in 2018, also contributed to the overall figure.
Mitsui Fudosan invests overseas as part of its corporate strategy and takes into account economic and geopolitical risks, but is not affected by short-term currency trends, a spokeswoman said.
Entering the fragile global market is not without risk. South Korean institutional investors poured billions of dollars into the area before the pandemic, only to see valuations fall this year.
Back in the late 1980s and into the ’90s, Japanese companies struggled with real estate deals that went bad. Mitsubishi Estate gave up its ownership of the bankrupt Rockefeller Center in 1995 after acquiring the New York landmark at the market’s height. Pebble Beach Golf Links was reportedly sold by a Japanese businessman for about 40% less than what he paid for it two years earlier after he became saddled with debt.
Much of that experience is driving Japanese investors to be cautious, according to Benjamin Chow, head of Asia-Pacific research at MSCI. “This is the first time that they’ve gone against the grain in a long time,” he said.
There are differences from bubble-era spending, said Stephen Down, head of central London and investment at Savills Plc in London, who worked in Japan in the early 1990s.
“In fact, it’s not of this scale,” said Down, who advises Japanese clients on transactions in the U. K. and Europe. “This is a healthy diversification strategy to complement a strong business in Japan with more attractive returns. “
Globally, Japan is the fifth-largest source of outbound capital deployed in real estate this year, up from 16th place in 2022, according to MSCI. Of the five most active countries, Japan is the only one to register an increase. Others, such as the United States and Canada, which are home to investors looking to deploy gigantic amounts of capital, have particularly reduced their purchases.
This increase also reflects the cyclical nature of where simple cash comes from recessions. In the aftermath of the global currency crisis, Chinese investors subsidized U. S. assets, from luxury hotels to office towers. Japanese investors may be offering a potential lifeline right now, Cushman’s Takayama said.
“Many investors are having refinancing problems and are forced to sell,” he said. “Before, they’d probably go to Chinese investors, and I don’t think many Chinese investors are there anymore.”
–With those of Natalie Wong and Jack Sidders.
(Adds the main points of the Mori Trust consultations in paragraph 12. )
©2023 Bloomberg L.P.