Goldman to Expand Japan REIT to 60 Billion Yen as Demand Rises

Goldman Sachs Group Inc. (GS) plans to expand its private real estate investment trust in Japan to 60 billion yen ($583 million) by the end of March amid rising demand to invest in the nation’s real estate market.

The REIT will acquire two office buildings in Tokyo and Fukuoka, on the southern island of Kyushu, said Hiroyasu Kaizuka, head of the real estate investment department at Goldman Sachs Asset Management Co. in Tokyo. The REIT, which started in August 2012 with 30 billion yen, plans to add about 4 billion yen of properties by the end of June, he said.

Goldman Sachs, the first non-Japanese company to start a private REIT, is targeting 100 billion yen of properties in three years from inception. Property transactions in Japan may rise as much as 30 percent to about 5 trillion yen this year from 4 trillion yen in 2013, according to an estimate by brokerage Jones Lang LaSalle Inc. (JLL)

“The market condition has turned around so quickly that the yield has become tight,” said Kaizuka in an interview in Tokyo. “We won’t consider buying properties that will hurt the return.”

Office buildings represent more than 90 percent of total properties, Kaizuka said. Real estate in Tokyo accounts for 90 percent of the REIT, while the rest is in Fukuoka, he said.

The capitalization rate, a measure of investment yield, for office buildings in Tokyo fell to 4.91 percent in January from 5.12 percent a year earlier, according to New York-based 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.

The REIT will consider buying more residential and commercial properties in other metropolitan cities if the yield gets too low in Tokyo, Kaizuka said, without naming the cities.

To contact the reporters on this story: Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net; Kathleen Chu in Tokyo at kchu2@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net Tomoko Yamazaki, Iain McDonald

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