AXA, Sumitomo raise first equity for Tokyo office JV

The real estate investment management arm of French insurance giant AXA and a subsidiary of Japanese banking group Sumitomo Mitsui Trust Bank have raised ¥10bn for a Tokyo office investment fund with the intention of entering the market following a significant pricing correction.

AXA Real Estate Investment Managers (AXA RE) and Sumitomo Mitsui Real Estate Investment Management have raised the first equity for a joint venture aimed at investments in Tokyo offices, the partners announced today.

The two subsidiaries, which have been working on a JV investment vehicle since 2009, have raised ¥10 billion (€100 million; $126 million) of equity from Japanese domestic institutional investors for a pair of funds that are expected to invest together.

AXA RE is operating a fund called Tokyo Office Property Fund while Sumitomo is operating a fund called Tokyo Office Real Estate Investment Fund. The two funds are expected to invest together but are structured in a way that does not obligate Sumitomo’s fund to make investments. PERE understands they have been structured for tax purposes.

AXA RE serves as the fund manager of the Tokyo Office Property Fund and Sumitomo will provide the vehicle with asset management services.

Investments for the five-year, closed-ended venture are expected to generate a return of more than 10 percent IRR and a cash on cash yield of 5 percent at least after the capital is fully invested. The partners have set a leverage cap at 50 percent loan to value and expect to deploy the capital into individual transactions of between ¥3 billion and ¥10 billion – all within Tokyo’s five central wards of Chiyoda, Chuo, Minato, Shinjuku, and Shibuya. Investments in the adjacent wards of Shinagawa, Koto, Bunkyo and Toshima may figure also.

The JV is bent on investments in stable, mid-sized offices, the partners said, that offer diversification benefits, low volatility and a steady income stream although with the potential for capital appreciation. According to AXA RE, the Tokyo office market has undergone a pricing correction with rents dropping by as much as 40 percent since the start of the global financial crisis.

Frank Khoo, global head of Asia at AXA RE, said: “The first close of this new fund will allow us to invest in the Tokyo office market at what we believe is a very opportune time in the market cycle.  Values have been under pressure since the onset of the global economic crisis and currently offer stable income yields and the opportunity for capital appreciation.”

 “Together with our strong local partner, Sumitomo Mitsui Trust, we will now seek to invest into suitable assets in order to take advantage of this market timing and to create value for our clients through solid on-the-ground asset management capability.”

AXA RE hired ex-ING Real Estate Investment Management Japan head Hidetoshi Ono in October 2011 to lead the fund's efforts.