Supply of real assets tipped to swell in Japan
The supply of real assets in Japan will expand greatly as corporations and the government look to offload inventory, believes Takajiro Ishikawa, chief operating officer at MC Asset Management.
MC Asset Management is a division of Japan’s Mitsubishi Corporation, which runs a ¥2 trillion ($20 billion) private equity portfolio.
“Some asset owners want to pay back a significant amount of debt and repair their balance sheets, while others plan to free up capital to invest in their core business,” he said.
The major driver has been the positive outlook for the Japanese economy, particularly the real estate market, he argued.
For example, property transaction volumes in Japan picked up last year to $40 billion, more than double the figure in 2012.
As well as corporations looking to divest, “for the first time, there has been a real discussion about the government divesting public assets to make it operate more efficiently and to boost government coffers,” Ishikawa added.
The amount of property assets being divested by corporates is growing slowly, at about ¥1 trillion a year, he said. "You’re looking at publicly traded market growth of about 10% a year, but the whole pie is a lot bigger,” he added.
He noted that the value of Japan’s real estate market was around ¥2,500 trillion, but that the country’s publicly traded real estate investment trust market is only ¥11 trillion in size.
Including non-public and securitised debt, only about ¥30 trillion [1.2%] of the entire Japanese real estate market has been made available to institutional investors, he added. "It’s tiny because corporations cling on to property,” Ishikawa explained.
MC Asset Management aims to facilitate the divestment of properties. "We hope to free up the capital of corporations that cling on to their head offices, factories, warehouses or terminals, for them to deploy money to their core businesses and to create a medium for investors to invest in,” he said.
The MC Asset Management division was created separately two years ago, as the logical outcome of a decade-long shift from purely deploying its own balance sheet. The aim now is to turn MC AM into a global business and double its assets under management in the next five to six years.
Last year the firm set up a subsidiary in Hong Kong, MC Asset Management Asia, with a view to extending its client and investment base in the region.
Ishikawa said the firm had received enquiries about Japanese real estate from Chinese players, but that appetite for Chinese real estate and assets had not been that big.
The firm’s AUM total $20 billion, with around $14 billion in Japanese real estate via two structures – one a publicly traded real estate investment trust [Reit] – Mitsubishi Corp-UBS Realty, a 51-49% joint venture with UBS – and the other a private Reit structure.
There are two vehicles within the public Reit sector. One is $8.5 billion in size [the Japan Retail Fund Investment Corporation], the other is $1.8 billion [the Industrial & Infrastructure Fund Investment Corporation].
The latter Reit is invested in warehouses, airport hangers, data centres, logistics and commercial real estate, including retail.
“We’re probably the biggest retail shopping mall owner in Japan. We don’t do residential, and we hardly do office property,” Ishikawa said.
The $4 billion private equity real estate platform invests in retail, logistics, industrial, residential, office and mezzanine debt through closed-end funds and a $1.6 billion private Reit structure.
The other $6 billion is divided into private equity and shipping-related assets, and it has some assets that it manages through its funds of funds, which cover PE, energy and infrastructure. This is invested in global, mostly ex-Japan assets.