Mitsui Fudosan Aims to Triple Private REIT Assets from Pension Fund Demand

Mitsui Fudosan Co. (8801), Japan’s biggest developer by sales, said it plans to triple the size of its private real estate investment trust in three years as the company seeks to tap Japanese pension funds.

Mitsui Fudosan Investment Advisors Inc., an asset management unit of the developer, plans to increase the private REIT to 200 billion yen ($2.4 billion) in three years from 76 billion yen, said Akira Ikeda, a managing director at the Tokyo- based company. The private REIT drew about 40 institutional investors including banks, insurers and pension funds, he said.

Mitsui Fudosan joins Mitsubishi Estate Co. (8802), Japan’s second- biggest developer, and Nomura Real Estate Holdings Inc. (3231) in building up their private REITs to attract Japanese pensions seeking to diversify their assets. A total of 91.8 billion yen of share sales by Japanese REITs have already been announced this year, according to Deutsche Securities Inc.

“We aim to tap into investors who haven’t invested in real estate due to a lack of suitable investment products,” Ikeda said in an interview in Tokyo. “The competition will certainly get tough, but what is more important is that we will be able to build a private REIT market as an investment category through competition.”

Mitsui’s smaller rival Nomura Real Estate, which set up Japan’s first private REIT, plans to add eight buildings to its fund to double its size of the trust to 40 billion yen, the company said last week.

More Fundraising

The companies are seeking to expand their asset size as publicly-traded REITs are also boosting investments by selling shares or planning initial stock offerings.

Japanese REITs may double the amount of capital they raise through share sales this year, selling as much as 500 billion yen worth of stock in 2012, compared with the 223.8 billion yen they sold last year, said Yoji Otani, an analyst at Deutsche Securities in Tokyo.

Global Logistic Properties Ltd. (GLP), a unit of the Government of Singapore Investment Corp., is preparing an initial public offering of its Japanese warehouse assets that may raise about $1 billion, said three people with knowledge of the matter.

Japan’s property trust market, which includes both private funds and REITs, reached 17.8 trillion yen as of December, according STB Research Institute Co. The REIT market amounted to 8.3 trillion yen, while private funds manage about 14.9 trillion yen of properties, it said.

Given the size of real estate investment market, Japan’s private REIT market has the potential to grow to about 2 trillion yen to 3 trillion yen, Ikeda said.

“Investor base is likely to increase, so we can still manage to expand even as some fundraising from REITs are expected,” Ikeda said.

Mitsui Fudosan’s open-ended fund targets a return of about 4 percent with a loan-to-value ratio of 40 percent, according to the company. Rental apartments account for 35 percent of the private REIT, while commercial properties make up 30 percent and office buildings add about 27 percent, the company said.

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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