ASIAVIEW: Touching the void


Tokyu Livable’s appointment of Charles Haase, an investment officer who last month left the California State Teachers’ Retirement System (CalSTRS), to build a real estate investment management business for foreign capital surprised certain individuals in Tokyo.

“I wouldn’t have pegged Tokyu Livable as Charlie’s choice,” admitted one investment manager to whom PERE spoke. “Tokyu Livable? Hang on, that’s a brokerage house,” added another.

Still, the idea of new entrants in Tokyo’s real estate investment management world should surprise few given the void left by some of the major players that deserted the market in the wake of the global financial crisis. The bank sponsored-platforms have largely gone, and there are some big-name private equity real estate groups that have yet to admit that, in Japan at least, they currently are operating as zombie businesses.

One swallow doesn’t make a summer, of course, and there are personal reasons for Haase’s move to Tokyu Livable, which is better known for leasing, buying and selling Japanese offices and condominiums than for raising hundreds of millions of dollars from US pension funds.

Nonetheless, Tokyu Livable, a grandchild of Japan’s enormous Tokyu Group conglomerate with a standalone market capitalisation of ¥39.12 billion (€357 million; $472 million), did not reached the heft it did without making certain correct choices. Established in 1972, the firm now has 2,275 employees across 130 offices in Japan, and it is widely respected in its field.

Haase, who joins Tokyu Livable on 16 April, has been mandated to raise capital, help to develop investment vehicles and perform an investor relations function. Whether or not he’s successful – he is restricted from raising capital from CalSTRS for one year and cannot respond to requests for proposals he helped to write while at the pension fund – the company’s attempt to establish an investment management business stands to reason.

The bank sponsored-platforms have largely gone, and there are some big-name private equity real estate groups that have yet to admit that, in Japan at least, they currently are operating as zombie businesses

John Pattar, managing director at CLSA, reticently made the point on stage at the PERE Summit: Asia in late February. Admitting he’d rather that there wasn’t more competition given his firm’s activities in the country, he nonetheless said firms currently have “one of the best opportunities to set up a team,” given “high-quality resources” available at “sensible prices.” Fellow panellists from Fortress Investment Group, CBRE Global Investors, AXA Real Estate and Secured Capital also agreed that favourable conditions have presented a window of opportunity for new investment managers, including a core market that is bottoming-out in terms of rents and capital values and cheaper borrowing costs available from an array of potential lenders.

Furthermore, Japan’s J-REITs, traditionally the country’s biggest buyers of property, have been quiet of late and even have contracted in number owing to various consolidations and privatisations. According to Japan’s Association for Real Estate Securitisation, there are now 34 J-REITs, which numbered closer to 40 just a couple of years back. Essentially, that means diminished competition.

However, windows have a habit of closing and, as Pattar said on stage, give it a year or so and Japan’s quoted property landscape could look markedly different given the introduction of new FSA measures, such as share buy-backs and rights issues, that have been slated. “These factors alone will revitalise the J-REIT market, and today’s core story will become very different next year,” he added.

Research published last month by Grosvenor, a real estate fund manager itself in Japan, added further weight to the thesis. In its Global Outlook, the firm’s head of research for Asia Harry Tan pointed to a “sustained and strong real estate recovery” on the back of a macro-cyclical upturn, the improving liquidity already touched upon and policy- and demographic-induced demand. “The time to enter the market is now,” he said in conclusion.

Judging by PERE’s conversations, Tokyu Livable’s ambition has its naysayers within the private equity real estate space, but these folk cannot deny that now is the time to fill the void left by others.

Tread carefully

Speaking of opportunity for private equity real estate firms in Japan, it appears various platforms have the assets of one of Japan’s most powerful and influential building tycoons in their sights.

After the passing of Minoru Mori on 8 March, murmurs surfaced of a revising of arrangements with some of the partners of Mori Building – the heavyweight property company behind grandiose developments like Roppongi Hills. “They’re not going to have the freedom they used to have with their banks when the old man was alive,” said one private equity real estate executive.

Still, while the company likely will rationalise its 13 million-square-foot portfolio, which generates annual sales of ¥209.1 billion (as of the fiscal year ended March 2011), the executive warned: “It’s not going to happen quickly.”

A word of advice to investment managers with an eye on Mori Building: yes, position yourselves appropriately with the right people, but remember this is Japan and sensitivities will be rife following the passing of a man so well-respected he was once appointed as an honorary Knight Commander by Queen Elizabeth II of England.