Bizarrely for a Grade A commercial office building in Tokyo’s central business district, Pacific Century Place (CPC) has never been in institutional ownership.
That is expected to change later this month when it sells for the third time in just eight years to Singapore’s sovereign wealth fund, GIC Private.
GIC is understood to have prevailed from a bidding contest also including New York investment bank Goldman Sachs and Tokyo-based property company Mori Trust, to buy the 850,000 square foot monolith.
When the acquisition completes, GIC will become its first owner better known for holding properties on a long-term basis for income purposes, than for making sizeable capital gains through sales.
That cannot be said of its previous three owners: Hong Kong property-to-communications mogul Richard Li and the Tokyo-based private equity real estate firms KK daVinci and Secured Capital. Each invested in the 32-storey office with the purpose of making opportunistic returns from it.
PCP’s story began in 1997 when Pacific Century Group, the investment company of Li, acquired the site. Construction was completed in 2001 and the property remained on its books until September 2006 when it sold the asset to KK daVinci, then the biggest private equity real estate firm in Japan, for ¥200 billion, a country record for a single asset investment. Time has proved that period to be the highlight for Tokyo entrepreneur Osamu Kaneko’s daVinci – just two years before, it raised Mooncoin, Japan’s first ¥1 trillion property fund.
daVinci bought PCP at an already compressed yield just two years before the collapse of Lehman Brothers. And, having adopted aggressive negotiating tactics as it built up a large portfolio of assets containing PCP and other trophy offices too, the firm had few friends to call on when the global financial crisis hit, values plunged and it needed to refinance them. Shinsei Bank, the lead lender to daVinci, took back the keys to the property in 2009.
The bank ran an auction process later that same year, to find another buyer, attracting a reported 49 bids. Secured Capital, another Tokyo-based private equity real estate firm, ultimately prevailed, paying a fee understood to be in the region of ¥140 billion.
In keeping with the strategies of opportunity fund managers, Secured Capital has held the asset only for five years. But, with Abenomics fuelling already growing sentiment about property fundamentals in Tokyo’s central wards improving, the firm determined it was time to sell again and duly appointed property broker Jones Lang LaSalle to market the property, reportedly for up to ¥180 billion this time around.
Goldman Sachs, in partnership with a Japanese institutional investor, is thought to have come close, but PCP was eventually won by GIC Private. The state fund has been acquisitive in Japan of late and almost acquired Meguro Gajoen, an office and wedding venue complex in Meguro, from Lone Star for ¥130 billion just months before. It pulled out of that deal after being dissuaded by ongoing litigation from a local land owner.
According to one source familiar with the deal, PCP again is being sold for an extremely low yield, expected to be around 2.5 percent. But he said GIC will have bought into Tokyo’s rental growth story which should see the return improve markedly over coming years. “The rental growth in Japan is what people are betting on,” he said. “[GIC] is buying into a recovery market with macroeconomic improvement that is pushing rents up. “That chimed with predictions by JLL in its marketing particulars for the building, which were obtained by PERE, that rents should increase in Marunouchi at an average of 7.5 percent a year for the next three years.