Abenomics Tourism Boom Targeted by Japan Fund Buying Hotel Debt

  • Diamond Realty gets hotel finance inquiries for Tokyo, Kansai
  • Existing fund focused on logistics facilities yields up to 6%

A unit of Japan’s biggest trading company is planning its first real estate fund that invests in domestic hotel debt as Prime Minister Shinzo Abe’s policies drive a tourism boom.

Mitsubishi Corp.’s Diamond Realty Management Inc. aims to start the fund of more than 20 billion ($185 million) this year, said Akira Nozu, the general manager of the structured finance department at the Tokyo-based company. A separate fund focused on logistics facilities started in March targets a yearly return of 5 to 6 percent.

QuickTake Abenomics

The Development Bank of Japan Inc., Star Asia Investment Corp. and LaSalle Logiport REIT are among companies tapping investor demand for higher returns in the property market at a time when unprecedented central bank easing has lowered sovereign bond yields to below zero. Abe’s stimulus policies have weakened the yen and helped attract record numbers of overseas visitors, with the nation’s hotel occupancy rates rising last year to the highest in Japan Tourism Agency data going back to 2010.

“As demand for hotel development and sales increases, there’s also more demand for finance,” Nozu said in an interview on April 5. “We’re getting more inquiries from investors on finance for hotels in the Tokyo and Kansai areas and big regional cities like Fukuoka.”

Occupancy rates for large-scale city hotels exceeded 80 percent not only in Tokyo, Kyoto and Osaka but also in Fukuoka and Okinawa in western Japan, according to the tourism agency. Sales of hotels rose 5.7 percent from a year earlier to a record 111 cases in 2015, according to Jones Lang LaSalle Inc. data. Tokyo will host the Summer Olympics in 2020.

Real estate investment could help bolster returns for Japanese investors who are struggling to make money as benchmark debt yields as long as 10 years fall below zero. Pension funds in the country lost about 1.2 percent last year, the first loss in seven years, according to Willis Towers Watson, a financial advisory company.

Diamond Realty, which oversees almost 400 billion yen in assets, isn’t alone in seeking funds from investors interested in Japanese real estate.

A unit of state-run Development Bank of Japan said in February it plans a fund of more than 100 billion yen to buy offices and other facilities. Star Asia, which invests money from U.S. foundations and universities, has put 267 billion yen into Japanese property assets. LaSalle Logiport REIT, an owner of logistics facilities, raised about 110 billion yen in February in an initial public offering.

While the yen has strengthened more than 11 percent this year, it’s still weakened about 21 percent since Abe took power at the end of 2012, making Japan more affordable for visitors from abroad.

“Investment demand for hotels is rising as visitors to Japan increase and negative interest rates push funds into the real estate market,” said Yasokazu Terada, an executive vice president in Tokyo at JLL, a property-services company. “The trend of investing in hotels will continue.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE