Deutsche and MTFG move into property (JP)

Deutsche Bank, of Germany, and MTFG, the Japanese lender, have established two separate Japanese real estate funds in a further sign that the country´s property market is recovering after more than a decade of decline.

Deutsche Securities in Tokyo, in alliance with Tokyu Land, a real estate developer, has established a Y29bn ($260m) five-year property fund, which has been privately placed with institutional investors. The fund is backed by 14 commercial properties in the Tokyo metropolitan area.

MTFG, the Japanese bank embroiled in a takeover battle for rival UFJ, has established a Y200bn real estate fund.

The Bank of Tokyo-Mitsubishi and Mitsubishi Securities, two subsidiaries of MTFG, will provide a total of Y30bn while another Y30bn will be raised from institutional investors. The remaining amount will be funded by loans provided by Tokyo-Mitsubishi and other banks.

Ken Nakajima, managing director of Deutsche Bank´s Asia real estate unit, said the fund aimed to achieve returns of about 10 per cent a year. That is more than twice the dividend yield offered by Japanese real estate investment trusts (J-Reits) investment vehicles that manage a series of properties.

“Japan is the world´s biggest emerging market for real estate fund management,” said Jon Tanaka, director of the same unit. “Pension funds currently [have] a very low allocation in real estate, so the capital is certainly there.”

Property prices in Tokyo have stabilised and in some cases are trending upward, ending a 13-year decline. Foreign property investment funds have recently stepped up the scale of their investments in Japan. The property market has also become more liquid, another factor driving foreign interest in Japanese property, following structural changes in recent years.

MTFG said its fund would invest primarily in commercial property in Tokyo. Its aim would be to improve on the operating revenue of the buildings and then offload them to Reits after a period of about three years.

MTFG said many Japanese companies had begun selling real estate assets ahead of next year´s implementation of asset impairment accounting standards, which would require companies to write down the value of their assets to the market value.

The market for privately offered real estate funds and securitised debt is growing steadily. The ministry of land estimates securitised real estate backing equity and debt is worth up to Y12,000bn. The J-Reit market is worth about Y1,300bn, up from Y260bn three years ago.

Mr Nakajima said: “Investors are increasingly looking for an alternative to J-Reits in diversifying their portfolio.” J-Reits are trading at about a 30 per cent premium to net asset value.

Source: Financial Times

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