Ichigo Group Holdings Co., Japan’s third-biggest publicly traded property manager, aims to boost assets to at least 300 billion yen ($3.6 billion) by February for funds that will invest in Tokyo office buildings.
The increase in assets is the first in three years based on half-year figures from the company. The Tokyo-based firm, which had 266.6 billion yen under management as of August, plans to start “several” funds over the next few months, said Chairman Scott Callon, declining to elaborate because information is private.
Ichigo aims to start new funds after its assets halved from their peak in February 2007 and amid signs that Tokyo’s real estate market may have bottomed. Office building values in the capital declined 40 percent to 50 percent since their 2007 high, while the market for private real estate funds expanded 7.9 percent in the first half of the year, according to CB Richard Ellis Group Inc.’s Japan unit and STB Research Institute Co.
“Our clients’ assets under management declined from the start of the financial crisis, but we are confident that they will increase this year,” Callon said in an interview today. “Property values are arguably quite low right now and Japanese real estate returns are very attractive.”
Assets under management at Ichigo stood at 530.1 billion yen as of February 2007. Japan’s average land prices have fallen for 19 straight years. The average nationwide land value dropped 3.7 percent in the 12 months ended June, compared with a 4.4 percent decline a year earlier, the Ministry of Land, Infrastructure, Transport and Tourism said in a Sept. 21 report.
Ichigo plans to buy office buildings that range from 2 billion yen to 10 billion yen because there is less competition to purchase them and they offer higher returns, Callon said.
“We think we are better off in mid-size buildings,” said Callon. “A very big building tends to have highly professional management; there is less you can do to add value to it.”
As part of its effort to increase assets, Ichigo started a 7.3 billion yen fund in October, Callon said. The fund invests in land leases, office buildings, commercial properties and apartments, Ichigo announced on Oct. 15. Its target return is 20 percent, according to Callon.
Land leases, in which only the land is rented, offer yields of as much as 5 percent and make up half of the fund, he said. The return compares with a 1.05 percent yield on Japan’s 10-year government bonds and near zero percent interest rate for bank deposits.
Callon said he favors land-lease investments especially in Japan, which experiences about one-fifth of the world’s earthquakes annually, because they don’t include the rent on the buildings.
Land lease “is a very interesting product because it has nice superior returns and safety characteristics,” he said. “We expect to be active in this area.”
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