* Smaller markets like Fukuoka benefit from push
* Publicly traded REITs have raised $4.9 billion this year
* Some worry real estate bubble forming with inflated values
* Too much money has poured into Japan now-Fukuoka property
By Junko Fujita
FUKUOKA, Japan, Sept 10A rebound in Japan's real
estate market over the past year is driving offshore investors
and investment trusts to take on more risk by buying older
office buildings built during the boom of the 1980s and
properties far from Tokyo's prime commercial districts.
The result has been a marked increase in deals in markets
like Fukuoka, Japan's seventh-largest city, where foreign
investors have bought four office buildings and retail
properties this year compared to only one deal in the previous
Japan's publicly traded real estate trusts have also raised
$4.9 billion by selling shares so far this year, almost three
times more than the same period last year, according to Thomson
"As the markets become active and investor expectations for
Japan's property market increase, investors are becoming more
willing to take risks," said Takashi Akagi, head of research at
property consultants Jones Lang LaSalle Tokyo. "We are in that
phase now. Their investment targets do not have to be prime
offices in Tokyo."
But the developing boom in corners of the market like
Fukuoka that had been previously neglected has some worrying
that cheap money and high expectations for Prime Minister Shinzo
Abe's economic policies may open the door to a speculative
Prices for Tokyo's prime office buildings have risen to
levels that some investors worry are not justified by
projections for future rental income. That has shifted interest
to properties elsewhere that promise higher returns now, but are
also widely considered to be at more risk in any downturn.
"Too much money has poured into Japan now," said Mitsunori
Shirasuna, president of Kyshu Rep, a real estate broker in
Fukuoka, who says he has been flooded with inquiries about
investment opportunities in the city.
Recent deals in Fukuoka include Morgan Stanley buying
a 12-story, 38-year-old building in July for the equivalent of
about $50 million. Goldman Sachs bought an office
building in Fukuoka through its private real estate trust for
about $35 million, while MetLife Alico Insurance, the Japanese
unit of MetLife Inc, bought a mall on Tenjin-nishi-dori
Avenue, Fukuoka's most fashionable street.
Metlife Alico is also negotiating to buy an office property
in the city, while New York-based investment firm Elliott
Management also bought an office building, sources with
knowledge of the transactions say.
Officials with Metlife Alico, Goldman Sachs and Morgan
Stanley declined to comment.
"COMPETITION HAS HEATED UP"
Fukuoka has attracted investors because, like Tokyo, it has
avoided the demographic crunch of Japan's declining population.
The city, which is the largest on the island of Kyushu, grew 9
percent to 1.46 million people over the decade to 2010. The
region has also promoted itself to investors like Nissan Motor
Co Ltd as Japan's gateway to Asia, closer to Seoul than
Fukuoka office properties provided investors a 5.6 percent
over the past year, according to Investment Property Databank, a
global real estate information services company. By comparison,
Tokyo commercial property generated a 4.4 percent return at the
start of this year, according to IPD.
But prices on Fukuoka buildings are rising and locals have
Mitsubishi Estate Co purchased a office building
called Hakata Gion Center Place through its private real estate
trust for about 10 billion yen ($101.09 million), sources said.
That price would give the developer a less than 5 percent
return, local real estate brokers estimate.
"That shows how competition has heated up here," said
Katsumi Tanimoto, general manager of the asset management
division at Genkai Capital Management, a Fukuoka-based real
estate investment firm.
Mitsubishi Estate declined to comment.
Core investors like Goldman Sachs's REIT and MetLife Alico
tend to seek stable returns over the long term from renting
newer properties. Tanimoto said his firm, which looks to book
quicker gains from flipping properties, has been squeezed out.
"We cannot beat prices offered by players like Goldman Sachs
and MetLife Alico. Even if we could outbid them, we would lose
money in the future," he said.
Fukuoka Reit Corp, the public real estate trust
based in Fukuoka, has not bought any properties since March even
though it has the ability to borrow 25 billion yen for property
acquisitions, said Hideya Kanno, head of the investment
department at Fukuoka Realty Co, which operates the Fukuoka
"If the market heats up further, there is the risk of
another bubble," said Takashi Ishizawa, chief real estate
analyst at Mizuho Securities Co.
Property owners tend to target a return of at least 3.5
percent from rental income, but during the property investment
surge that peaked in 2006, the rate fell to around 2 percent for
some deals, said Ishizawa.
"The potential risk is that investors end up buying
low-grade properties. Even if they could buy good quality
assets, they may pay too much money," Ishizawa said.