Mitsubishi Estate Co. raised ¥11.2 billion to buy four properties in Tokyo for its private real estate investment trust.
Mitsubishi Jisho Investment Advisors Inc., an asset management arm of Mitsubishi Estate, bought one office building and three apartments in Tokyo for the open-ended fund, President Tetsuji Arimori said.
About 75 percent of the new money raised for the acquisitions was from pensions, while the rest came from institutional investors, Arimori said.
Mitsubishi, Mitsui Fudosan Co. and Nomura Real Estate Holdings Inc. have started private REITs in the last two years to meet increasing demand from the world’s second-largest pension pool for investments other than traditional assets such as stocks and bonds.
The fund was set up in March 2011 as part of Mitsubishi Estate’s long-term goal to more than double the total assets under management to ¥5 trillion by 2020. Mitsubishi Estate is Japan’s largest developer by market value.
“It has become easier to raise funds as more investors, compared with last fiscal year, recognize the characteristics and advantages of investing in private REITs,” Arimori said during an interview in Tokyo. “In the short term, there could be a certain degree of competition among asset managers, but that is positive for the market in the mid to long term as private REITs become more common.”
The purchases brought the total size of the fund to ¥62.2 billion from ¥51 billion, Arimori said.
Private REITs own buildings and pay investors dividends from rental income. They are not traded on exchanges so they do not have daily price fluctuations like listed REITs. That matches the need of pension funds seeking stable income.
The fund, which purchased a majority of the properties from parent Mitsubishi Estate, is looking to buy retail real estate in metropolitan areas to add to its portfolio, Arimori said.
Two decades of slumping stocks, one of the world’s lowest bond yields and an aging population are prompting Japan’s pensions to expand investments into alternative assets, such as real estate. The 10-year Japanese government bond yield is 0.8 percent, the third lowest after Switzerland and Hong Kong. The Nikkei 225 stock average is less than a quarter of its 1989 peak.
Property companies are targeting Japan’s $3.36 trillion in pension money, which is the world’s second-largest retirement pool, after the U.S., according to Towers Watson & Co. Japan was the only market among 12 that had a drop in pension assets because of the poor returns on local stocks and bonds, according to the report published in January.
Japanese retirement funds have 31 percent of investments in stocks, 59 percent in bonds, and only 6 percent in alternative assets, according to Towers Watson. That compares with 25 percent in such assets in the U.S. and 24 percent in Australia.
Goldman Sachs Group Inc. and Mitsubishi Corp. are also joining the competition amid signs of recovery in the nation’s property prices.
The capitalization rate, a measure of investment yield, for office buildings was 5.3 percent in July after declining from 5.4 percent in April, according to Real Capital Analytics Inc. A drop in the cap rate, which is a property’s net income divided by the purchase price, usually signals an increase in real estate prices.
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