Mitsubishi Estate May Buy to Expand as Rents Ease
By Kathleen Chu and Kazue Somiya
March 14 (Bloomberg) — Mitsubishi Estate Co., Japans
largest developer by value, may buy property managers to more than
double assets under management to 4 trillion yen ($40 billion)
within six years as Tokyo commercial rents slow.
Mitsubishi Estate, the main landlord in Tokyos priciest
business district, is in talks to buy or form an alliance with a
number of fund management companies, Chief Executive Officer Keiji
Kimura said in an interview in Tokyo.
“We are looking into M%26amp;A opportunities in the U.S., Europe
and Asia including Japan, Kimura said March 12, without giving
details. “It would be great to create a global network by buying
property investment companies.
Mitsubishi Estate, whose leasing business generates 60
percent of its profit, is looking to diversify its revenue after
redeveloping six buildings in Marunouchi, an area one-third the
size of New Yorks Central Park that includes the headquarters of
Japans largest banks. Office rent growth is set to slow across
Japan this year as the economy falters and the U.S. subprime
collapse saps confidence, Kimura said a week ago.
The companys expansion plans come as property price growth
is set to stall in Japan and values in the U.S. and Europe are
declining. That may aid Mitsubishi Estate in making acquistions,
as well as increasing the risks, said Junko Miyakawa, a senior
analyst at Shinsei Securities Co. in Tokyo.
“The current business environment is very severe, Mikaya
said today in an interview. “The ability to increase earnings
from fund management depends on transaction volumes, and the
transaction volumes for real estate seem more likely to decline
than to increase in the next one to two years.
U.S., Europe
Mitsubishi Estate plans to expand its property portfolio in
Europe and the U.S. as owners including New York developer Harry
Macklowe sell buildings to repay debt after lenders limited the
availability of credit in the wake of rising delinquencies in the
subprime mortgage market.
“There are companies that may be forced to sell their
properties after the collapse of the subprime market, Kimura
said. “It is a buying opportunity.
Mitsubishi Estate shares fell 2.8 percent to 2,265 yen in
Tokyo as of 1:10 p.m. The shares have slumped 23 percent in the
past six months, less than the 36 percent drop for the Topix Real
Estate index of 55 stocks.
The company today completed its 13.7 billion yen acquisition
of 60 percent of Sunshine City, which operates a Tokyo skyscraper.
Office Market
Mitsubishi Estate plans to increase office rents on average
by 15 percent in the next three years, Kimura said. The highest
rents in Marunouchi, the most expensive business district in Tokyo,
have reached 70,000 yen per tsubo ($221 per square meter).
“Rents may not increase as radically as we have seen in the
past, said Kimura. “I see rents increasing gradually due to a
tight supply of office buildings.
Office rental growth in Tokyo may slip below 10 percent in
2008 for the first time in four years as Japans economy slows,
cutting corporate spending, real estate brokers including Jones
Lang LaSalle Inc. and CB Richard Ellis Group Inc. said last month.
Japanese developers also face declining growth in residential
property.
Mitsui Fudosan Co., Japans biggest property developer by
sales, said this month the housing market will remain “tough
because of the high cost of construction materials and stricter
building codes that have delayed projects.
Japanese condominium sales may fall for a third year in 2008
after new rules slowed approvals for projects at a time when the
cost of raw materials such as steel and oil is at a record high.
Sales of new condominiums may decline 8.4 percent to 123,000
units this year, after a 14 percent drop in 2007, the Real Estate
Economic Research Institute said Feb. 19.
Condo Cost Cutting
Mitsubishi Estate plans to cut costs at its condominium
business by pooling with subsidiary Towa Real Estate Development
Co. to buy materials and by focusing on developing residences
close to transport and shopping hubs, Kimura said.
Mitsubishi Estate last month forecast the profit margin for
its condo business will decline after land and construction costs
rose. The margin will drop to as little as 18 percent for the year
to March 2011, from 25 percent now, the company said last month.
“One of the benefits of merging our condo business with Towa
is we can reduce costs for materials used in kitchen and bathroom
significantly since we order together in volume, Kimura said.
“While cutting costs, we also need to provide value-added
properties such as condos that are close to stations or shopping
centers.
To contact the reporter on this story:
Kathleen Chu in Tokyo at
kchu2@bloomberg.net.
