Japan’s largest developer by market value, Mitsubishi Estate Co., has raised 11.2 billion yen ($143 billion) to purchase four properties in Tokyo. The real estate will form part of its private real estate investment trust.
The properties were bought by its asset management arm, Mitsubishi Jisho Investment Advisors Inc., and the transaction included one office building and three apartments. Approximately three-quarters of the new money used to fund the sale came from pensions. The balance of the funds required to close came from institutional investors, according to President Tetsuji Arimori.
The company, along with Mitsui Fudosan Co. and Nomura Real Estate Holdings Inc., set up a private REIT to provide an alternative to more traditional investments (stocks and bonds) for pension pools. Established in March 2011, it is part of Mitsubishi Estate’s long-term goal to double its assets under management to 5 trillion yen by the year 2020.
Private REITs buy commercial buildings and pay investors dividends from the rental income generated by the properties. Since these investments are not traded on exchanges, they are not subject to regular price fluctuations. For this reason, pension funds seeking a stable income are attracted to this type of investment opportunity.
The fund is looking to buy retail properties in urban areas to add to its portfolio of holdings. Disappointing stock prices and low bond yields combined with an aging population looking to make the most of its investments are making the country’s pension funds consider other options. Investors will only realize a 0.8 percent yield on a 10-year Japanese government bond, and the Nikkei 225 Stock Average is trading at less than 25 percent of the peak levels it hit in 1989.
Japan’s pension pool has a potential $3.36 trillion in pension funds to invest, which represents the second-largest retirement pool in the world after the United States.
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