Japan’s Sapporo teams with Morgan Stanley on real estate

Yebisu Garden Place

Morgan Stanley has formed a real estate partnership with Japanese beer maker Sapporo, launching the effort with the investment bank’s purchase of a 15 percent stake in the crown jewel in Sapporo’s property holdings, commercial facility Yebisu Garden Place, for $437 million (€302 million). The two companies will begin jointly operating the facility by next June.

Sapporo has continued to expand it’s non-beer operations as a declining Japanese population and stiff competition in the beverage market drives its profits in that area down. The company’s strong property business has helped it in the mean time as its beer and drink operations struggle. According to Reuters, Sapporo’s real estate business, which operates under the banner Yebisu Garden Place Co, earned more than 70 percent of its operating profit in 2006 and despite its beverage problems, the company posted a 60 percent jump in group operating profit for the nine months prior to September.

As part of the deal, Morgan Stanley will purchase a five percent of Sapporo’s shares from the market from its real state fund by next June. Morgan Stanley closed its latest global property vehicle, Morgan Stanley Real Estate Fund VI, at $8 Billion in June. Sapporo says it plans to use some of the proceeds from the Yebisu Garden Place stake sale as well as the Sapporo stake sale to buy more real estate and bolster its overseas operations. Some of the funds will also be used to reduce debt. Sapporo Holdings president Takao Murakami told a press conference that the two will consider buying new properties in Japan as well as increasing the value of existing properties, targeting the Tokyo metropolitan area as well as the company’s hometown, Sapporo on the island of Hokkaido.

The tie-up will also give Sapporo a stable shareholder which may stave off the efforts of US investment fund Steel Partners, which owns 18 percent of the company and has been eyeing Sapporo for a buyout.

The move is just the latest foray into the Japanese property market by Morgan Stanley. In April Morgan Stanley made a deal to acquire 13 hotels and two property-management units from Japanese airline All Nippon Airways for $2.4 billion. In 2004 Morgan Stanley bought the Westin Hotel Tokyo from Sapporo for about $435 million.

Japanese real estate has been attracting domestic and foreign investors as the country's economy recovers from the lows experienced for the last decade. Office vacancy rates have been falling and commercial land prices have been recovering in the Tokyo metropolitan area.