Mitsubishi Estate to Rebuild Apartments After Defects Found

Mitsubishi Estate Co., Japan’s biggest developer by market value, will rebuild a Tokyo residential complex where it stopped selling apartments that went for as much as 350 million yen ($3.4 million) after finding defects.

The reconstruction will take about three to four years to complete, and builder Kajima Corp. will be in charge of the project and cover the cost, said Masayuki Watanabe, a spokesman at Tokyo-based Mitsubishi Estate. The building was constructed by Kajima along with Kandenko Co., according to the developer.

Mitsubishi Estate stopped selling apartments in the building in central Tokyo’s upscale Aoyama neighborhood after finding it needed repairs, including to some of the pipes, the developer said in an e-mail on Feb. 3. Eighty-three out of 86 units were under contract and were expected to be handed over to the owners on March 20, the company said last month.

“Reconstruction is what our customers want,” said Watanabe in a telephone interview today. “We don’t know how much it will cost yet at this stage.”

The decision to rebuild was made last week and Mitsubishi Estate held information sessions for its customers over the weekend, Watanabe said.

‘Caused Trouble’

Mitsubishi Estate shares fell to the lowest in two weeks, dropping 1.9 percent to 2,376 yen at the close of trading in Tokyo. Kajima lost 1.7 percent to 353 yen, paring an earlier gain of as much as 3.3 percent, while Kandenko declined 2.3 percent to 507 yen.

“Because of flaws in construction, we have caused trouble for our business partner and the homebuyers,” Tokyo-based Kajima said in an e-mailed statement. “We see it as our responsibility to complete the reconstruction that will satisfy the customers and we will strive for perfection to regain the trust.”

Takashi Nomoto, a spokesman at Kandenko, said they will talk with Kajima about compensation and additional costs.

The reconstruction will cost from about 6 billion yen to 10 billion yen, according to two analysts’ estimates. Scrapping the complex and rebuilding it may amount to as much as 10 billion yen, according to an estimate by Masahiro Mochizuki, an analyst at Credit Suisse Group AG, who spoke via telephone. Reconstruction of the building could total about 5 billion yen with another 1 billion yen for tearing it down, said Yoji Otani, an analyst at Deutsche Bank AG in Tokyo.

Wrong Places

Some holes for pipes were made in places where they were not supposed to be, while places that required them didn’t have any, said Watanabe. While it was possible to repair the building, customers preferred for the complex to be demolished and rebuilt even if they have to wait longer, he added.

Mitsubishi Estate began investigating the construction after one of the buyers told the developer that there were some postings on the Internet about the defects on Dec. 9, it said in an e-mail last month.

The apartments cost as much as 350 million yen, with the majority of them around 140 million yen, the company said then.