Former Lehman execs close first-time Japan fund

The opportunistic vehicle from Seven Seas Advisors is understood to have gathered capital from nine overseas investors, including Partners Group.

Tokyo-headquartered private equity real estate firm Seven Seas Advisors has closed its debut real estate fund with backing from nine global investors.

With a focus on opportunistic real estate investments in Japan, Seven Seas Japan Opportunity Fund I closed on ¥17 billion ($124 million; €124 million). The fund aims to generate a 15 percent to 17 percent net IRR with a multiple of approximately 1.6x. It has a loan-to-value ratio of up to 60 percent and the fund has been 50 percent committed to two deals to date.

Seven Seas launched the fund in 2020 and held a first close in February 2021 with a $50 million commitment from Partners Group, PERE has learned. Apart from Partners Group, the fund is understood to have gathered capital from eight other overseas investors, including BGO Strategic Capital Partners, Church Pension Fund, Pictet and Sacramento Country Employees’ Retirement System. PJT Park Hill was the capital adviser for the fund.

Seven Seas and Partners Group declined to comment on the latter’s commitment in the fund.

Soichiro Ishikawa, managing director and head of investor relations at Seven Seas, told PERE that the firm lowered the target of the fund due to the fundraising challenges posed by the pandemic. It also extended its fundraising period in order to gather additional capital.

Although the covid-related travel restrictions made fundraising more challenging for the first-time Japanese manager, Ishikawa thought the pandemic also created new investment opportunities. “The pandemic has accelerated many changes in Japan, like the less frequent use of office. It has also created hardships for corporates, which have put on a lot of leverage on their balance sheets. Many of these have become problematic now, which will probably provide us with interesting opportunities,” he explained.

To date, Seven Seas has invested the fund’s capital in one retail asset and three office properties. One of the office properties was sold to a global investor three months after the acquisition. The retail property, which has an occupancy rate of less than 20 percent, is being repositioned as a mixed-use asset with the vacant space being converted to office space.

Having deployed half of the fund’s capital, the firm plans to go back to the market with a second fund as early as the end of next year.

Founded by former Lehman Brothers executives Minoru Yonekura and Kenya Shimono in 2009, the firm had provided third-party asset management services for global real estate investors before expanding into fund management. The firm sources real estate deals and executes business plans on those investments for its clients. Prior to establishing Seven Seas, Yonekura was managing director of the Lehman Brothers Global Real Estate Group, where he worked on sourcing equity asset transactions, while Shimono was a senior vice-president at the investment banking group.

The idea of Seven Seas launching its own real estate fund was initiated by one of its existing investors, according to Ishikawa. “We have been waiting for the right timing because the vintage year of a fund is very important. We felt that 2020 was a great opportunity for us because the market in Japan was very crowded for larger funds. Those big managers were chasing deals over $100 million but no one was really looking at smaller deals with ¥3 billion equity tickets. There are plenty of opportunities in that space,” he explained.

With the current interest rate hikes and inflation, Ishikawa expects more institutional capital to come into Japan as the country is seen as a safe haven for many foreign investors.

“Interestingly, Japan is really welcoming this inflationary pressure,” he said. “The government has always been trying to achieve 2 percent inflationary growth, GDP growth for Japan, but they haven’t been able to do so. And this is the moment that they are achieving the target. So, the government is taking it very positively. And Bank of Japan is not in a big hurry to raise any interest rates. They’re more interested in maintaining this inflationary pressure and keeping their rates low for now,” he added.