Aviva Investors and Secured Capital have announced a first closing of $122 million for their jointly managed Tokyo office blind-pool club.
The Tokyo Recovery Fund, which was revealed by PERE last week, has received equity commitments from Aviva Investors’ parent, the London-based Insurer Aviva, and Dutch pension fund manager, PGGM Investments.
According to the announcement, Aviva Investors and Secured Capital plan to raise further equity from institutional investors ahead of a final closing in the first quarter of next year. The partners are targeting $250 million for the joint venture which is to be used for core-plus office investments in Tokyo. Assuming leverage of 50 percent loan to value, the vehicle could have firepower of $500 million.
“The fund’s core-plus investment strategy aims to take advantage of the constrained capital markets by acquiring a portfolio of good quality office real estate in prime locations in central Tokyo,” the two firms said in the announcement.
PERE understands that the vehicle is expected to run for up to 18 months and generate returns of between 10 percent and 12 percent from its investments.
Aviva Investors and Secured Capital add their names to a growing list of investment firms plotting an investment strategy for central Tokyo offices. Other firms hoping to raise capital for this market segment include AXA Real Estate Investment Managers and MGPA.
The catalyst behind the influx of core-plus investment vehicles is a widening belief that Japanese rents, and subsequently capital values, are bottoming out and that the Tokyo market in particular is poised to bounce back with support from a relatively cheap lending market.
In the announcement, Ian Hally, chief executive officer of Asia Pacific real estate at Aviva Investors, said: “Tokyo was an obvious choice due to the on-going recovery of its commercial real estate sector and economy. In addition, pricing is currently very attractive compared to historic levels. As such, we are confident of achieving our aim of delivering a stabilised distribution yield with upside in capital value.”
Naoya Nakata, managing director at Secured Capital, said: “We believe that current economic and real estate market conditions mean there are significant gains to be made from investments in quality office buildings in Tokyo’s central wards. This is a unique opportunity for global investors to benefit from on-the-ground expertise in Japan’s under-valued commercial property sector.”
A blind-pool club launch by Aviva Investors and Secured Capital marks something of a first for the Japanese market and there are few similar vehicles like it in Asia either. Since the start of the global financial crisis there has been something of a widespread reluctance by institutional investors to back traditional blind-pool funds where limited controls are offered and that has led to certain fund managers creating hybrid investment products with varying degrees of manager discretion.
The joint venture by Aviva Investors and Secured Capital is not expected to have pre-specified investments as is custom in most club transactions. Instead, the managers would operate within a prescriptive and tight set of investment parameters as they source deals. A further incentive for investors backing this vehicle come in the form of approval rights over acquisitions, exits and other major decisions made by the joint managers.
PGGM currently commits the capital of five pension funds in the Netherlands which have a combined €109 billion of assets under management.