ASIA GUEST COMMENTARY: Stay close, stay consistent, do homework

It has been a little less than a year and half since I last spoke with PERE. Then, our conversation centered on our first acquisition in Asia Pacific, Pine Avenue Tower A in Seoul, which we purchased for $447 million.

I am delighted we have now completed our second trophy asset purchase in Asia, a retail property in Tokyo called Kirarito Ginza, which we purchased with partner Mitsubishi UFJ Trust and Banking Corporation, MUTB, for $435 million. The asset sits in one of Tokyo’s most sought-after areas, Ginza.

With these two acquisitions, we have paved our way into what some may describe as two of the toughest markets in Asia Pacific for foreign institutions. These markets, in particular Tokyo, are among the largest and most active real estate markets not only in the region but in the whole world.

What has been our approach you might ask? Well, I’d say it has been very simple. We follow three important rules: one, stay very close to the market; two, keep your strategy consistent and; three, develop deep understanding of the market.

In my opinion, it takes couple of years to get a good understanding of new markets, in particular in Asia. Conversely, and importantly for those prospective Asian partners that wish to work with sovereign wealth fund capital like ours, the markets and their players need to become accustomed to the fact that we need time to adapt to these markets.

We have been actively looking at opportunities in Tokyo for the past three years. In that time, we have managed to build a rapport with its biggest players, both local and multinational.

We have bid for assets too, both through structured sales and via off-market channels. Our bid for the iconic Tiffany building back in 2013 being sold by Asia Pacific Land was one such bid that was well publicized.

But to land a deal that fitted our criteria, we needed to keep our strategy consistent and clearly communicated to the market. We wanted to buy stabilized commercial properties in the heart of Tokyo, wards like Chuo. It was this combination that saw our name included in a very restricted list of the closed auction process run by one of the local asset managers.

Like many other jurisdictions, Japan has a choice of regulated real estate investment structures allowing to benefit from reduced taxation which are quite sophisticated and not easily understood by new comers. Given our presence in the market over the years and through the advice of experienced local players, not least MUTB, we had developed a good understanding of the merits of the various structures which gave us a firm grasp of the sale structure when it came to this transaction. This gave us a natural advantage over our competitors as well as a better insight into the sellers’ priorities and concerns.

Whilst our competitors focused their attention on underwriting the highest price, we worked on a package that addressed all of the sellers’ issues, price being one of them. Consequently, that also enabled us to move faster and with stronger conviction.

Actually, I think our deal in Seoul placed us firmly on the Asia Pacific real estate market map. Now, with the Tokyo deal completed, I am confident that our subsequent deals in the region will be even smoother.

Our ultimate goal is to build up a diversified real estate portfolio primarily made up of direct investments in prime assets in key gateway cities of Europe and Asia Pacific.

At the same time we are building up our third-party fund investment platform through which we seek to get exposure to other asset classes and investment strategies. It is within this framework that together with our partners we are now actively looking at Japan’s logistics sector. We are also evaluating commercial assets across the Asia Pacific region that offer value-add potential.

Rest assured, when we do execute on these strategies we will have followed our three important rules.