Mitsui Fudosan Plans to Increase Investment in Stanhope

Mitsui Fudosan Plans to Increase Investment in U.K.’s Stanhope
The Mitsui Fudosan Co. headquarters in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Mitsui Fudosan Co., Japan’s largest property developer by sales, plans to boost its investment in U.K. developer Stanhope Plc as part of its $6.4 billion global expansion plan.

Mitsui Fudosan, which owns 15 percent of the London-based developer, is also in talks with several companies as it seeks to increase its foothold in other countries such as Germany and France, said Hideto Yamada, managing director of Mitsui Fudosan (UK) Ltd. He declined to provide details because the deal hasn’t been made public yet.

“We are comfortable with this partnership and I believe it has been quite successful, so within the near future, we are increasing our commitment,” Yamada said in an interview in Tokyo. “Since we are extending our operation in continental Europe, we are keeping a dialog with potential partners there.”

Japanese developers including Mitsui Fudosan and Mitsubishi Estate Co. are expanding abroad to diversify their revenue sources after four years of falling land prices at home. Mitsui Fudosan plans to invest about 500 billion yen ($6.4 billion) in overseas markets by March 2018, while Mitsubishi Estate, the country’s No. 2 developer, wants to double its overseas profit in two years.

Tokyo-based Mitsui Fudosan’s investment plan for the U.S., the U.K. and Europe will account for 60 percent of total overseas commitments, according to the company’s mid-term plan announced on April 9.

Mitsui Fudosan’s shares fell 1.1 percent to 1,450 yen at the close of trading in Tokyo.

Global Expansion

Stanhope, which has completed more than 10 billion pounds ($16 billion) of projects including the Royal Opera House and HM Treasury building in the U.K., is currently working on 17 projects with partners including British Sky Broadcasting Group Plc and Schroders Plc, according to its website.

“Development is a very local business,” Yamada said. “We need to lay the platform first by participating in some certain meaningful interests with good partners there.”

Mitsui Fudosan, Stanhope and Alberta Investment Management Corp. paid 200 million pounds for the British Broadcasting Corp.’s television center in West London, the companies said on July 20 in a joint statement.

The Tokyo-based company currently has four projects in London with two under construction, according to its website. The developer’s total assets there will reach 65 billion yen by 2014, when both projects are completed, he said.

European Crisis

Total return for properties in the U.K. fell by half last year to 7.8 percent from 15 percent in 2010, based on data compiled by RREEF, a property investment arm of Deutsche Bank AG.

Mitsui Fudosan is pursuing opportunities in Europe as the region’s debt crisis and concern that the global economy is slipping into recession, creating less competition in the market, said Yamada.

“Because of this uncertainty across the world, particularly in continental Europe, everyone tends to hold up their decision-making,” he said. “That is actually good for us because we primarily look at long-term value creation and we don’t necessary need to compete with short-term players.”

Mitsui Fudosan is financing its projects by borrowing in local currency from Japan’s largest banks with operations in the U.K., Yamada said.

“The financing is very dearth, which is good for us to express our strengths,” said Yamada. “We don’t need to recycle our capital in any near future. We can afford to wait and hold properties till the time that makes sense for us to sell.”

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