Mitsui Fudosan May Make First Warehouse Investment Through Property Fund

Mitsui Fudosan Co., Japan’s biggest developer by sales, said it may start investing in storage and distribution centers in the country for the first time amid rising demand and stable returns for logistics facilities.

Mitsui Fudosan Investment Advisors Inc., an asset management unit of the property company, aims to invest in warehouses through a private real estate investment trust that may start as early as January, said Akira Ikeda, a managing director at the Tokyo-based company. The fund, which targets pension funds and other institutional investors, will also include assets such as office buildings, apartments and commercial real estate in Japan, he said.

The vacancy rate for warehouses in Tokyo fell by more than half to 7 percent in June from a peak of 20 percent in September 2009 due to a lack of new supply, according to CB Richard Ellis Group Inc. (CBG) A maganitude-9 earthquake on March 11 and tsunami that damaged and destroyed more than 46,000 commercial and other types of non-residential properties highlighted the need for newer facilities that are quake resistant, Ikeda said.

“The attraction of distribution facilities is that they tend to offer stable returns,” Ikeda said in an interview in Tokyo. “Rental movement is less volatile than other types of real estate. Such type of properties is one of our targets.”

Industrial spaces returned 10 percent on average for the year ended May 31, twice that for residential properties, while office buildings offered 0.2 percent of return, according to London-based Investment Property Databank Ltd.

Private REIT

The developer may invest in distribution centers as early as this current fiscal year ending March 2012, through a private REIT or private fund, Ikeda said on Sept. 8.

Mitsui Fudosan may set up the private REIT initially with as much as 100 billion yen ($1.3 billion) in assets and aims to expand the fund to about 600 billion yen over a 10-year period, Ikeda said. The open-ended fund targets a return of about 4 percent with a loan-to-value ratio of 40 percent, he said, adding that the details are still under discussion.

Mitsui Fudosan, which was established in 1914 as a real estate division of Mitsui Company, may become the third firm in Japan to set up a private REIT that targets investors including pension funds, he said.

Nomura Real Estate Holdings Inc. (3231) was the first to set up a private REIT with 20 billion yen in November and said it plans to double its assets to 40 billion yen with real estate including office buildings, rental apartments and a distribution center by the end of March 2012, according to the company.

Mitsubishi Estate

Mitsubishi Estate Co., Japan’s biggest developer by market value, established a fund that invests in office, apartments and commercial space in March with 30 billion yen and said it aims to increase the size to as much as 500 billion yen in the next 10 years.

Japanese developers are betting on the need for Japanese pensions to increase their property investments, which now make up only 1 percent of their $2.46 trillion assets. That compares with 12 percent in Australia and 6 percent in the U.S., according to a report by UBS Global Asset Management.

Shares of Mitsui Fudosan gained 2.3 percent to 1,229 yen at the close on the Tokyo Stock Exchange. They are down 24 percent this year.

To contact the reporters on this story: Kathleen Chu in Tokyo at Kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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