Foreign buyers hungry for Japan real estate

Investors from the United States to tiny land-hungry Singapore are on the hunt for real estate in Japan, with over USD 2 billion in deals already cemented since late last year and more in the offing.

In the buyers' sights are a thick catalogue of properties, many of them in Tokyo, a city populated by thousands of office buildings and condominiums.

"Hotels, Tokyo offices, Tokyo residential, I would say, will be the three specific sectors and opportunities that are being most sought after by international investors," said Alistair Meadows, Asia Pacific director for International Capital Group at global property services firm Jones Lang LaSalle.

Buyers who have already declared their interest include Mapletree Investments, the real estate arm of Singapore's state investor Temasek Holdings, with close to USD 1 billion in new cash earmarked for office buildings, data centres and research and development facilities.

Joining Mapletree in the rush are American private equity firms Blackstone Group and Fortress, Germany's Deutsche Bank and US-based Jones Lang LaSalle's funds arm LaSalle Investment.

Franklin Templeton is looking to buy a portfolio of distressed loans at a discount, which would provide attractive returns and allow access to physical assets, while Blackstone plans to buy Morgan Stanley's loans, which are backed by commercial real estate such as office buildings.

Taiwanese real estate broker Sinyi Realty set up operations in Tokyo a few months ago. And for wealthy Chinese, travel agencies have even started offering "Buy Japanese Property" tours.

Realtors say major foreign private equity groups, real estate trusts and realtors have earmarked an estimated USD 6.6 billion for investments in Asia, showing interest in Japan's bricks and mortar assets and property debt.

"While we are cautious around the country's fundamentals, we do believe that the sheer size of the market allows for opportunities," said Peter Kim, Managing Director, ING Real Estate Investment Management, which has funds invested in Japan.

A bottoming out of real estate prices and a recovery in the debt market are some positives investors are buying into.

Marquee deals already done include a Hong Kong investor's buy of the Hyatt Regency hotel in Hakone from Morgan Stanley for an estimated $56 million.

Malaysian investor YTL Corporation also inked a deal in March to buy Hilton Niseko Village for about USD 48.3 million, marking a major investment in a Japan's well-known ski resort in Hokkaido.

In a clear indication that office buildings values are set to grow, cap rates -- the income that the property will generate divided by its value – have stopped rising.

"We reiterate our view that cap rates will decline in the second half of 2010 and that real estate prices are very likely to rebound," Barclays Capital said in late August.

Distressed or marked-down properties in Japan, such as debt backed by commercial real estate, are also emerging on the radars of foreign buyers.

"We are finding a degree of success in finding deals through trust banks or lenders who have taken control of over-leveraged assets," said Jacques Gordon, global investment strategist at LaSalle Investment Management.

As foreign money pours in, the real surge in buying may just be starting, predicts Mark Brown, a real estate analyst at researcher Japaninvest.

The gap between what distressed property owners are asking and the amount buyers are willing to pay is closing fast, he notes, adding that would lead to plenty of new deals.