ASIA NEWS: Japanese house trap

Japan has a declining population crisis and the situation is getting worse. According to a committee sponsored by the Japanese government’s Council on Economic and Fiscal Policy in May, at the current birth rate, the country’s population will shrink by one-third during the next 50 years to 87 million people.

On the surface, it would seem counterintuitive then that the world’s largest private equity real estate firm, The Blackstone Group, would want to break recent Japanese private real estate investment records by buying a 10,000-unit residential portfolio in the country. Fewer people should mean reduced demands for accommodation, after all.

In a transaction scheduled for completion later this month, Blackstone is paying ¥190 billion (€1.29 billion;
$1.61 billion) to GE Capital Real Estate, the real estate unit of US conglomerate General Electric, for the homes. Neither Blackstone nor GE Capital Real Estate would comment.

That deal certainly would be the largest by value in the sector in 2014, more than the ¥170 billion paid by Singapore state fund GIC Private Limited to private equity real estate firm Secured Capital for the Meguro Gajoen complex or the ¥130 billion paid by Japanese real estate firm Mori Trust to Dallas-based Lone Star Funds for Marunouchi office tower Pacific Century Place.

PERE sources familiar with the deal, however, say that it was precisely Japan’s population demographic trend that attracted the New York firm. That is because while the country’s headcount is dwindling, it also is migrating to its biggest cities.

According to the World Bank, Japan’s urban centers have seen their populations grow from 83 percent of the total population in 2003 to 92.3 percent in 2013, and the trend persists. More than 80 percent of the portfolio acquired by Blackstone is located in four of Japan’s largest cities: Tokyo, Osaka, Nagoya and Fukuoka.

Demand for these homes should remain robust, at least in the medium term and certainly for the limited lifespan of Blackstone Real Estate Partners Asia, now the largest opportunity real estate fund ever seen in Asia. The vehicle is widely expected to officially close to investors at its hard cap of $5 billion at the turn of the year.

The fund is little more than one-third through its investment period, but there is still plenty of equity for Blackstone to deploy. PERE understands only about 20 percent of the purchase of the Japanese residential portfolio from GE Capital Real Estate was made with equity. The remaining 80 percent constituted financing arranged with Japanese lenders, an indication that Japan’s domestic banks – not known for their risk-taking – also currently see housing stock in its major cities as a safe bet worth taking.