One could say it was a cruel twist of fate: MGPA decided at the end of last year that Japan – alongside its other country of focus, China – would be the destination for the remaining $500 million of its $3.9 billion MGPA Asia Fund III. Then, the ‘big one’ that Japan had feared for so many years finally arrived last month.
In the aftermath of the 9.0 magnitude earthquake, Tom Mills, MGPA’s chief executive officer for Japan, said the firm was reviewing the consequences of the disaster on the firm’s existing $1.8 billion portfolio of assets. Still, the decision to invest in Japan that was made last year is not about to be reversed.
Speaking a day after the shock, Mills, who only took up the role this year after joining from Sydney-based Lend Lease, said: “I suspect there [has been] an overreaction. A year from now, we could look back and see that not much has changed [in the market].”
A few months ago, MGPA was granted approval by the fund’s LPs to extend its investment period for Fund III by approximately 18 months. As a result, the decision to invest in Japan was made and MGPA’s Japanese unit was expected to invest in Tokyo’s secondary office stock, where attractive returns could be garnered via various capital expenditure and asset management exercises.
That said, the immediate task for Mills and his 50-strong Japan team is to review the impact of the earthquake. But with just one 70-unit residential asset in Sendai, the closest major city to the epicentre, Mills is confident the vast majority of its assets are unscathed. “The first step was to check the buildings we own,” he said. “In Tokyo [where roughly half our portfolio lies], we had some minor cracks and some ceiling panels fell down.”
Looking forward, Mills said MGPA’s strategy could well benefit from the earthquake through the undertaking of “seismic retrofits” among its capital expenditure programmes. This essentially entails taking buildings into compliance with Japan’s seismic building codes, a stringent set of construction rules designed to mitigate collapse.
MGPA’s current Japanese real estate holdings are managed in its $921 million MGPA Asia Fund II, which closed in 2005, and its MGPA Japan Core Plus Fund, which closed on $865 million in 2006. MGPA Asia Fund III currently has no investments in Japan, although should Mills remain resolute with the firm’s pre-earthquake strategy, that is expected to change.