NEWS RELEASE
Survey on Privately Placed Real Estate Funds in Japan
January 2011– Results
March 10th 2011
STB Research Institute Co., LtdStarting in 2003, STB Research Institute Co., Ltd. has conducted the “Survey on Privately Placed Real
Estate Funds” as part of its research activities concerning real estate investment markets. This is theeleventh survey based on responses to questionnaires received from 63 real estate investment managementcompanies.
 Survey subject: Real estate investment management companies that set up and manage privately
placed real estate funds which are focused on domestic real estateNumber of companies to which questionnaires were sent: 163



Number of companies responded: 63 (ratio of valid responses: 38.7%)

Time of survey: January 2011Survey method: Distribution and collection of questionnaires by post and e-mailBased on the results of the survey, hearings and published information, we estimated the market size ofprivately placed real estate funds (on an invested asset basis) as of the end of December 2010 to be 15.7
trillion yen, which declined by 466.1 billion yen (2.9%) over a six-month period from the 16.2 trillion yenof the previous July 2010 survey. In this survey, we revised the past figures back to December 2007 toreflect additional data obtained.

Market size of privately placed real estate funds is 15.7 trillion yen, or 17.5 trillion yen including assets ofglobal funds
The STB Research Institute has been conducting estimates of the market size of privately placed real estate
funds since 2003 based on surveys and hearings from investment management companies (hereafter called
the “managers”) as well as published information. As of the end of December 2010 the market size (on an
invested assets basis) is estimated 15.7 trillion yen, which declined by 466.1 billion yen (2.9%) over a
six-month period from the 16.2 trillion yen of the previous July 2010 survey. In this survey, we revised thepast figures back to December 2007 to reflect additional data obtained.
In the previous survey, the market size as of June 2010 increased significantly from the end of December
2009 partly due to (i) increases in assets under management (hereafter called the “AUM”) of some managers– mainly large ones – who raised new funds and acquired properties, and (ii) reschedules of redemption insome funds which underpinned the size of the market. In this survey, we found that many managers
decreased their AUM due to sales of properties on the back of the somewhat recovered market, as well as
devaluations of assets, leading to a decline of the total size of the market as of December 2010.

The market size of 15.7 trillion yen does not include assets in Japan managed by global funds. We identified
some of them in our survey, and combined with them,we estimate that the total market size is 17.5 trillionyen.

1NEWS RELEASE Ｍａｒｃｈ 10th 2011Market Size Changes in Privately Placed Funds and J-REITs（Trillion yen）

18.0

16.2

16.0

15.2

14.7

15.3

15.7

15.0

14.0
11.0

12.0
10.0
8.0
6.0
4.0

2.22.1

3.3
2.6

4.4
3.4

5.5
4.5

6.1
5.4

6.7
6.1

6.8

Jun-07

Dec-07

7.4

7.4

7.5

7.6

7.8

7.8

Jun-08Dec-08Jun-09Dec-09Jun-10Dec-102.0
0.0
Dec-04

Jun-05

Dec-05

Jun-06

Dec-06

Asset under management (Privately Placed Funds)

Asset under management (J-REITs)

source: STB Research Institute(Note 1) In this survey, we asked managers about their AUM in the past, and revised the figures of market size for theperiod from December 2007 to June 2010.
(Note 2) The figure also includes assets managed by companies that have been restructured with new sponsors or withsucceeding managers.
(Note 3) We define the “global fund” as a fund managed by foreign-based manager, which targets real estate investments
in various countries.

“Survey on Privately Placed Real Estate Funds” January 2011-Results(Note) [n= ] marked in the graphs means the number of effective responses

1. Status Quo of Real Estate Investment Management Business
1）Breakdown of Commingled Funds and Separate
Accounts
We asked managers about AUM of their Commingled Funds
managed for multiple investors, and Separate Accounts managed
for single investors. Commingled Funds managed by theFig. 1 Breakdown of Commingled Funds andSeparate Accounts
100%
13%

25%

13%

6%

26%

80%
29%

11%

19%

60%

34%
37%

16%
23%

respondents accounted for 62% of the total AUM of them, while
Separate Accounts made up 23%. The trend remained unchanged

40%
64%

as Comingled Funds accounted for around 60 percent in the July

20%

2010 survey.

0%

07/12
（n=37)

55%

58%

09/01
(n=43)

09/07（n=57)

Commingled funds

50%

10/01
(n=51)

Separate accounts

61%

62%

10/07
(n=56)

11/01(n=54)

Others2）Breakdown of fund types and management styles
Fixed Property Type accounted for 82% of the total number of funds, while Additional Acquisition Typeaccounted for 6% and Discretionary Investment Type accounted for 12%. It is considered that investors’
concerns about the quality of assets leads to the strong preference for the Fixed Property Type, in which assets

2NEWS RELEASE Ｍａｒｃｈ 10th 2011

have been identified at the launch of fund. Meanwhile, the ratio of the Discretionary Investment Type has
increased compared to the January 2010 survey. The recovery of the appetite of equity investors may haveincreased the ratio of that type, in which selection of assets is at the discretion of the manager and investment iscomparatively high-risk. .
By management style, Core Style accounted for 58% of the total number of funds. Value-added, Opportunity,
and Development Styles accounted for 11%, 26%, and 5%, respectively. Compared to the January 2010 survey,
the Core Style fell by 5% and the Value-added Style fell by 12%, while the Opportunity Style rose by 15%. The
attention to the relatively high-risk Opportunity Style seems to be rising due to (i) gradual increase in investors’risk tolerance reflecting the economic recovery, and (ii) prospective increase (though still limited) in distressedsales of those properties that are facing refinance difficulties.
Fig. 2 Breakdown of Funds by Type
100%
80%

5%
8%

5%
13%

6%

Fig. 3 Breakdown of Funds by Management Style
100%

12%
6%

29%

80%

9%
12%

10%
12%

24%

24%

55%

54%

07/12
(n=106)

09/01(n=78)

13%

18%

13%

12%

11%
60%

60%
87%

82%

40%

82%

3%
11%

5%
26%

23%
11%

24%

40%

65%

62%
20%

20%

45%

63%

58%

10/01
(n=88)

11/01(n=65)

0%

0%
07/12
(n=181)
Fixed property type

09/01
(n=381)10/01（n=466）

Additional acquisition type

05/12
(n=49)

11/01(n=574)Discretionary investment type

06/12
(n=45)Core

Value-added

Opportunity

Development

3）LTV Ratio
The average LTV ratio of funds under management was 67.4%, down for two consecutive years since
December 2008. Meanwhile the projected average LTV ratio of funds to be launched within a year was 63.5%, up
for two consecutive years, and the LTV ratio presumably desired by equity investors also rose from the January2010 survey. We assume that such rises in ratios reflect the current market circumstances where both investors’risk tolerance and lenders’ credit stance, have been gradually thawing, although we expect that the LTV ratios,
which are at lower than the 70% recorded from 2005 to 2007, will unlikely rise significantly in the future.
Fig. 4 Average LTV Ratio of Existing Funds
75%

72.1%
70.7%

Fig.5 Average LTV Ratio Presumably Desired by Equity Investors
68%

72.3% 71.3%

70.9%

65.1%

70%
71.0%
65%

68.6%

64%

67.4%

70.2%

61.0%
60%

63.5%

60%

60.2%

61.0%

58.2%

57.8%
55.5% 56.1%

56%

57.6%

55%

61.0%

57.4%

56.1%
55.7%

56.7%

52%
50%

05/12
05/12

06/12

07/12

09/01

10/01

11/01

06/12

07/12

09/01

10/01

11/01

Against the total amount of investment

Funds currently under Management
Funds scheduled to be Launched within a year

Against the acquisition price3

NEWS RELEASE Ｍａｒｃｈ 10th 20114)Target Asset Size
The average target asset size of funds underFig. 6 Average Target Asset Sizemanagement decreased to 41.1 billion yen per fund(bil yen)from 59.5 billion yen of the January 2010 survey,

120

contracting for three consecutive years since the100

January 2009 survey, and it is smaller than the size of

80

110.3

72.9
66.0

61.4

60

the December 2006 survey. In spite of the gradual

32.4

40

improvement in financing, investments are still limited

59.5
41.1

33.3

20

to properties with stable income and relatively low risk.

0

We think such circumstances made it difficult to

03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01(n=37) (n=29) (n=47) (n=41) (n=75) (n=56) (n=64) (n=44)

launch large funds and prompted some managers tolaunch single property funds, resulting in diminishing
the average asset size of funds.

5）Target IRR

Fig. 7 Average Target IRR％

The average target IRR of the total funds was 16.7%,

25.0

up from the January 2010 survey. By fund type, Fixed

20.0

Property Type remained unchanged at 15.4% from the

15.0

last survey while Additional Acquisition Type declined to

10.0

9.8%. Discretionary Investment Type was up to 20.9%. It

5.0should be noted that the number of responses to this

0.0

20.9
16.7
15.4
9.8

03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01(n=17) (n=35) (n=33) (n=32) (n=47) (n=61) (n=38) (n=26)

question was limited.

Total

Fixed property type

Additional aqcuisition type

Discretionary investment type6）Target Investment Period
The average target investment period has been gradually getting longer since the survey in December 2005,
when it was 3.8 years. It stood at 6.4 years in this survey, an extension by 1 year from the last survey in January
2010. By category, the investment period for More Than Six Years represented 57%, a significant increase fromthe last survey. The reschedules of redemption made by some funds will be one of the reasons for the increase.
Fig. 9 Breakdown of Average Target Investment Period

Fig. 8 Average Target Investment Period(average investment period)
7

100%

6

6.4

6
5

4.7

4.4

4.6

4.8

5.3

3.8
4

90%

9%

18%

19%

80%
60%

16%

41%

21%

40%

2

30%

1

20%
10%

0

0%

03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01(n=16) (n=34) (n=43) (n=39) (n=76) (n=63) (n=63) (n=53)

20%

24%

32%

25%

31%

57%

10%

16%

21%

42%

22%
35%

9%
12%
04/12
(n=34)

28%

31%

70%
50%

3

8%

05/12
(n=43)

11%

15%

18%

15%

14%

19%

06/12
(n=39)

07/12(n=76)

09/01(n=63)

13%

29%

6%

9%
2%
4%

10/01
(n=64)

11/01(n=56)

Less than three years

At least three years but less than four years

At least four years but less than five years

At least five years but less than six years

Six years or more

4NEWS RELEASE Ｍａｒｃｈ 10th 20117）Target Property Types and Areas
By property type, shares in Office and Retail types fell slightly, while Residential type remained unchanged.
Share of each type has not changed significantly since the December 2007 survey.
By investment area, 23 Wards of Tokyo accounted for the most, followed by Tokyo Metropolitan area. The
breakdown did not change significantly from the January 2010 survey, with a slight fall in Tokyo Metropolitan
area and Local area, and a slight rise in 23 Wards of Tokyo and Nagoya area
* Each fund gave multiple answers for their target types and areas. The numbers of answers are aggregates of them.
Fig. 10
100%
90%

1%
7%
9%

9%

70%

19%

17%

19%

80%

Fig. 11 Target Areas

Target Property Types

12%

20%

7%

9%
10%

12%

23%

22%

18%

1%
9%
13%

36%

43%

34%

36%

40%

25%

26%

10%

18%
26%

80%

18%

31%

60%

24%

25%

25%

33%

29%

29%

34%

30%

31%

16%

27%

22%

Office05/12(n=81)

Residential

Industrial

Hotel

4%
18%

12%

11%

14%

15%

16%

19%
24%

32%

49%

48%

20%

30%

10%

Other

04/12
(n=91)

16%

27%

22%

25%

26%

37%
24%

14%
03/12
(n=42)

06/12 07/12 09/01 10/01 11/01(n=77) (n=164) (n=111) (n=122) (n=151)
Retail

1%
20%

20%
31%

8%

0%
04/12
(n=69)

2%
17%

40%

0%
03/12
(n=44)

3%
17%
17%

50%
30%

30%

28%

16%

70%

20%

30%
20%

2%

90%

12%

60%
50%

100%

3%
12%

05/12
(n=99)

06/12 07/12 09/01 10/01 11/01(n=83) (n=231) (n=155) (n=189) (n=169)

23 wards of Tokyo

Tokyo Metropolitan area

Kinki area

Nagoya area

Local area

Other

* In 04/12 through 06/12, Industrial and Hotel types were
* In 03/12, Kinki and Nagoya areas were included in Local area, whereas inincluded in “Other types”
04/12 through 06/12, Nagoya area was included in Local area.
* Kinki area was called Osaka area up to the January 2009 survey, though
the constituent prefectures are the same.

8)Circumstances of Debt Financing
A majority of respondents, at 69%, answered that the circumstances have “Slightly improved”, while no one
chose “More severe”. Answers for “Improved” and “Slightly improved” accounted for approximately 90% in
total, clearly indicating an improvement in the debt financing circumstances.
With regard to the improved conditions, 34% of respondents pointed to “Increase of lenders considering new
lending”. Meanwhile, 23% pointed to “Contraction of interest spread,” and 17% to “Expansion of the underwriting
areas and types.”
Fig. 13

Fig. 12 Circumstances of Debt Financing
11%

Improved Debt Conditions
n=120（Respondents54）

2% 1%

12%

Increase of lenders considering new lending

Slightly
Improved
Improved

20%

34%
13%

Expansion of underwriting areas and types
Rise of LTV
Increase in number of loans

Unchanged
69%

Contraction of interest spread

Moderation of covenants on LTV, DSCR, etc.

17%

Others23%※ This question is only for those who answered that debt
financing conditions have Slightly improved or Improved.

5NEWS RELEASE Ｍａｒｃｈ 10th 20119) Circumstances of Equity Raising

Fig. 14 Appetite of Equity Investors(a)Appetite of Equity Investors

100%

In the last survey, a majority of managers

90%

answered that the equity investors’ appetite for70%

investment was increasing. In this survey, 54%

60%

18%

80%

50%

of respondents answered that such trend

40%

10%
0%

54%

62%

74%

45%
46%
54%

20%

the appetite was further increasing.

2%

45%
83%

59%

1%

34%

41%

30%

remained unchanged, while 44 % answered that

7%

16%

24%
9%

13%

20%

15%
2%

44%

31%

06/12 07/12 08/07 09/01 09/07 10/01 10/07 11/01(n=34) (n=37) (n=54) (n=48) (n=64) （n=55） （n=67） （n=61）
Rising(b)Expectation for Volume Change By Investor

Fig. 15

The largest 42 respondents answered that they
expected Foreign Institutional Investors
would increase their investment volume,

Unchanged

Declining

Expectation for Volume Change By Investor

Domestic pension funds
Domestic union financial
Domestic major banks
Domestic regional banks

followed by Domestic Pension Funds

Domestic other institutional bankswith 29 respondents, Foreign Pension

Domestic corporations
Domestic high net worth

Funds with 28, and Foreign High Net

Foreign pension funds

Worth with 24. There was an apperant

Foreign high net worth

Foreign institutional
Sovereign funds

anticipation for a volume increase by

Fund of funds
Otherforeign investors compared with domestic0

investors.

10

20

Increase n=216(Respondents 58)

30

40

50

Decrease n=79(Respondents 39)

They expected Domestic Regional
Banks and Major Banks would decrease their investment volume with 20 and 18 respondents, respectively.
(c)Investment Attitude of Equity Investors
Many managers answered that Domestic and Foreign Pension Funds were pursuing long term core investment
strategies, while Foreign Institutional and High Net Worth investors were pursuing capital gain opportunities.
As to Domestic Major Banks and Regional Banks, an expectation for future investment constraint due to theBasel regulation came to the top on the managers’ answers.
Investment Attitude of Equity Investors

Fig. 16【Domestic Pension Funds】
n=69（Respondents 38）

4% 2% 1%
9%

23%

Began investing as the core long‐term investment
Considering investment as the core long‐term investment
Cannot embark on investment given uncertainty over the rental market
Will not invest in the immediate future, given bad performance in the past

19%

Will not invest in the future, given the high risk of real estate
Waiting for real estate prices to cease to fall, though willing to invest

23%
19%

Began investing as a good opportunity to earn capital gains
Cannot embark on investment given uncertainty over the unstable financial market

6NEWS RELEASE Ｍａｒｃｈ 10th 2011

【Foreign Pension Funds】
2%2% 2%5%n=58（Respondents 32）

Considering investment as the core long‐term investment

24%

9%

Began investing as the core long‐term investment
Considering investment as a good opportunity to earn capital gains
Waiting for real estate prices to cease to fall, though willing to invest

10%

Began investing as a good opportunity to earn capital gains
Unwilling to invest because of lack of growth potential in GDP, consumption, and population

17%

14%

Cannot embark on investment given uncertainty over the rental market
Cannot embark on investment given uncertainty over the unstable financial market
Will not invest in the immediate future, given bad performance in the past

15%

Others【Foreign Institutional】

5%5%3% 1% 1%n=83（Respondents 44）

24%

12%

13%

18%
18%

Considering investment as a good opportunity to earn capital gains
Began investing as a good opportunity to earn capital gains
Considering investment as the core long‐term investment
Waiting for real estate prices to cease to fall, though willing to invest
Began investing as the core long‐term investment
Cannot embark on investment given uncertainty over the rental market
Unwilling to invest because of lack of growth potential in GDP, consumption, and population
Cannot embark on investment given uncertainty over the unstable financial market
Will not invest in the immediate future, given bad performance in the past
Others【Foreign High Net Worth】
2% 2% 2%2%2%
7%n=44（Respondents 32）

32%

12%

16%

23%

Began investing as a good opportunity to earn capital gains
Considering investment as a good opportunity to earn capital gains
Began investing as the core long‐term investment
Considering investment as the core long‐term investment
Unwilling to invest because of lack of growth potential in GDP, consumption, and population
Waiting for real estate prices to cease to fall, though willing to invest
Cannot embark on investment given uncertainty over the rental market
Cannot embark on investment given uncertainty over the unstable financial market
Will not invest in the future, given the high risk of real estate
Others【Domestic Major Banks】
Will not invest in the future due to BIS regulations

4%

4%
25%

6%

n=49（Respondents 32）

Considering investment as the core long‐term investment
Waiting for real estate prices to cease to fall, though willing to invest
Considering investment as a good opportunity to earn capital gains

10%

Cannot embark on investment given uncertainty over the rental market

10%

19%

Will not invest in the immediate future, given bad performance in the past
Will not invest in the future, given the high risk of real estate

10%

12%

Began investing as the core long‐term investment
Cannot embark on investment given uncertainty over the unstable financial market

7NEWS RELEASE Ｍａｒｃｈ 10th 2011

【Domestic Regional Banks】
Will not invest in the immediate future, given bad performance in the past

4%

Will not invest in the future due to BIS regulations

2% 2%

Waiting for real estate prices to cease to fall, though willing to invest

28%

6%

Considering investment as the core long‐term investment

7%
Cannot embark on investment given uncertainty over the rental market

11%

Cannot embark on investment given uncertainty over the unstable financial market
Will not invest in the future, given the high risk of real estate

21%

Considering investment as a good opportunity to earn capital gains

19%

Began investing as the core long‐term investment

n=47（Respondents29）(d)Sources of Foreign Funds Under Management
The highest response rate was for investors from Asia (excluding China and Middle East) at 27%, followed by
Europe at 24%, while Asian investors excluding Chinese and Middle Eastern consist of a half of total individual
investors, supposedly raising their rate.
The rate for investors from North America was 23%, on the decrease from 35% of the July 2008 survey, while
those from China, at 9% increased for two consecutive surveys from 6% of the January 2010 survey.
As to the institutional investors, the highest responses were for North America and Europe at 26% each,followed by Asia (excluding China and Middle East) at 22%.
Fig. 17

Sources of Foreign Funds Under Management

100%
90%
80%

35%

30%

33%

27%

31%

24%

60%

40%

25%

25%

8%

10%

27%

Asia (excl. China / M.East)

31%

24%

11%

24%

25%

6%
6%
8%

7%
7%
6%

9%
7%

Others10%

Asia-Pacific

10/01（n=49）

10/07（n=67）

11/01（n=70）

China
27%

30%
20%

North America
Europe

70%

50%

23%

Australia
Middle East

33%

10%

30%

28%

0%
08/07
(n=52)

09/01(n=40)

09/07(n=61)【Institutional Investors】【Individual Investors】
n=58（Respondents 28）

Australia
9%
Asia (excl.
China /
M.East)22%* Since the January 2010 survey,
Asia-Pacific has been broken down
into China, Middle East, Asia
(excluding China and Middle East),
and Australia.
* In this survey, questions were asked
separately for institutional investors
and individual investors. Fig.17 shows
the total of institutional and individual
investors for the respective region.

n=12（Respondents 9）

North
America
8%

North
America
26%

Asia (excl.
China /
M.East)50%Europe17%

Middle East
8%

China
7%
Middle East
10%

Europe
26%

China
17%

8

NEWS RELEASE Ｍａｒｃｈ 10th 2011(e)Expectation for Foreign Investors By

Fig. 18 Expectation for Foreign Investors By Region

Region

27%

68%

5%

Asia excl. China(n=25)

21%

75%

4%

Managers’ anticipation for increase in theinvestment volume is especially high for Chinese

n=136

Australia(n=23)and Other Asian investors, with answer to“Increase” and “Slightly increase” accounted for
84% for Chinese investors, and 96% for Other

China(n=25)

42%

Middle East5%
(n=21)

35%

Europe(n=24) 4%

Asian investors. There was no response to“Decrease” for any of the regions, indicating

26%

investors.

0%

20%

Increase

Slightly increase

17%

55%
61%

North America
4%(n=24)

managers’ high expectations for foreign

42%

5%
26%

57%
40%
Unchanged

9%
13%

60%

80%

100%

Slightly decrease

Decrease10）Circumstances for Acquisition and Sale of Properties
With respect to the acquisition of properties, 46% of respondents, the largest share, answered that they sought
acquisition opportunities but “Did not agree on prices”. The next largest share, 25%, responded they have
“Acquired”. Although circumstances for acquisition still remained difficult, it can be seen that the acquisition ofproperties is gradually progressing.
With respect to the sale of properties, 65% of respondents answered “Slightly Improved”, while no one
answered “More severe”, suggesting that they see a signs of improvement.
Fig. 20 Circumstances for Sale

Fig. 19 Circumstances for Acquisition（n=60）（n=55）

5% 2%

0% 2%

Did not agree on
pricesAcquired

22%
46%

33%

Unchanged
More severe

No opportunity wasavailable

25%

Slightly Improved

Had no plan toacquire65%

Others9

Other

NEWS RELEASE Ｍａｒｃｈ 10th 201111）Change in Exit Strategies
Fifty five percent of respondents answered that they have changed some exit strategies. Such changes include“Suspension of sales with refinance” (accounted for 40% of total responses) and “Review of exit sale prices”(accounted for 24%).
With respect to the options available over the next one year, the largest share of 30% chose “Extension of
investment period with refinance”, followed by 28% for “Sale to the third party other than REITs or private
funds”. The fairly high share for the latter option suggests that properties that do not meet the current rigid
investment qualification such as those located in local cities are often sold to local owner-users.

Fig. 21 Did you Change some Exit Strategies?

Fig. 22 Details of Changes
n=50（Respondents 31）

100%
80%
60%

48%

43%

45%

56%

67%

2%

45%

40%

Suspension of sales with refinance
Suspension of sales by extending loan maturity
Suspension of sales within loan period

40%
20%

6%

6%

52%

57%

55%

44%

33%

Reset of exit sale prices

24%

55%

Reset of prospective buyers
Default in maturity of loan

0%
08/07 09/01 09/07 10/01 10/07 11/01（n=55) （n=44) （n=63) （n=55） （n=61） （n=56）

Yes

10%

Others12%No

Fig. 23

Options Available Over the Next One Year

100%
12%
22%

80%

15%

60%

30%

33%

27%
40%

36%

30%

Extension of investment period withrefinance
Sale to the third party other than REITs
or private funds

20%
27%
26%

17%

20%

12%

10%
8%

4%

4%

07/12
08/07
（ｎ=108） （n=122)

17%

14%

Sale to affiliate REITs

11%

14%

11%

Sale to the third party REITs
21%

16%

5%

0%

27%
30%

26%

40%

Sale to the third party private funds
28%

4%
7%
4%

09/01
（n=114)

6%
4%
5%
4%

11%

13%

15%

5%
2%
4%

5%
3%
3%

6%
4%
1%

09/07
10/01
10/07
11/01
（n=113) （n=113） （n=150） （n=127）

10

Sale to the affiliate private funds
OthersNEWS RELEASE Ｍａｒｃｈ 10th 2011

2. Outlook for Real Estate Investment and Management
1）Peak-out Timing of Cap Rates / Bottom-out Timing of Rents
With regard to the peak-out timing of cap rates, the largest number of respondents answered that the peak had
been “already hit” in or before 2010 for both offices and residential sectors. In particular, nearly a half ofmanagers answered so for residential properties. With regard to the bottom-out timing of rents, the largest numberof managers answered it would be hit “From July to December 2011” for the office sector, and it had been“already hit” in or before 2010 for the residential sector. Managers’ responses rather diverged on the bottom-out
timing of office rents, showing their different views on the market.
Fig. 24 Peak-out Timing of Cap Rates

Fig. 25 Bottom-out Timing of Rents
43
47

Already hit the peak
3

January to June 2011
July to December 201110

July to December 2011

2

January to June 2012

July to December 2012

1

July to December 2012

Since 2013
0

10

20

30

40

50

26

7
3

Since 2013

Office17

11

January to June 2012

3
3

27
11

January to June 2011

5

4

8

Already hit the peak

4

5

0

10

Residential

Office20

30

Residential

2）Cap Rate Forecast by Area
The majority of respondents expected that the cap rate over the next one year for the office sector would“Decline” in Central 5 Wards of Tokyo, while “Remain unchanged” in the other areas. 27% of respondents
expected it would “Decline” in 23 Wards of Tokyo, and only 9% expected declines in Tokyo Metropolitan, Kinki,
and Nagoya areas. This indicates that many managers thought that the improvement of the office cap rate in thecentral Tokyo had not diffused to other areas yet.
As to the cap rate over the next year for the residential sector, the majority of respondents expected “Decline” inCentral 5 Wards of Tokyo, while “Remain unchanged” in the other areas. Expectation for the decline of cap ratein Tokyo Metropolitan, Kinki, and Nagoya areas were all 23%, rising from the 13% (Tokyo Metro) and 15%(Kinki and Nagoya) of the last July 2010 survey. The ratio of managers who expected contraction of cap rates inlocal cities was on the rise.
Fig. 26 Forecast for Office Cap Rate by Area
100%
80%

11%

9%

2%
9%

2%
30%

Fig. 27 Forecast for Residential Cap Rate by Area
100%

2%
20%

80%

32%

60%

80%
40%

59%

70%

20%

27%

0%
5 wards ofcentralTokyo（n=52)

9%

Kinki area
23 wards ofTokyo（n=50)
Tokyo
metropolitan（n=51)
area（n=51)

DeclineRemain unchanged Rise

2%
16%

2%
14%

60%

61%

23%

23%

55%
71%

40%

57%
9%

2%
4%

39%

60%

64%

20%

5%

4%

55%
39%
23%

9%

0%
5 wards ofcentralTokyo（n=51)

Nagoya area（n=50)

Substantial rise

23 wards ofTokyo
Kinki areaTokyo
metropolitan（n=49)（n=50)
area（n=50)

Decline Remain unchanged Rise

11

Nagoya area（n=49)

Substantial riseNEWS RELEASE Ｍａｒｃｈ 10th 20113）Necessary Changes for Recovery
With respect to changes necessary for the recovery of the privately placed funds market, the most frequentanswer was “Recovery of the real estate rental market”, followed by “Inflow of global investment money”, and“Increase in the volume of real estate transactions”. Recoveries of lease market and transaction market were themost urgent concerns for managers.
Fig.28

Necessary Changes for Recovery

Recovery of the real estate rental market

43
33

Inflow of global investment money
Increase in the volume of real estate transactions

31

Sale of distressed properties on the market

28

Improvement in the debt financing environment

26

Recovery of the J-REIT market

25

Relaxation of regulations by the government

21

Development of new products such as open-ended funds

10

Development of investment indexes

7

Othersn=227 (Respondents 62)

3
0

10

20

30

40

50

4）Launch of Open-ended Funds
The largest share with 38% of respondents answered that they “Have no plan, but may consider in the future”
to launch open-ended funds. Meanwhile the combined total of responses for “Have launched” and “Have a plan
to launch” was only 13%. This suggests that in spite of increasing interest in open-ended funds, many managers
are still taking a wait and see attitude.

Fig.29 Development of new products such as open-ended(n=61）

10%

3%
38%

23%

Have no plan, but may consider
in the futureWill not launch
Don’t know
Have a plan to launch
Have launched

26%

12

NEWS RELEASE Ｍａｒｃｈ 10th 20115）Impact of BOJ’s Purchase of J-REITs
Around 70% of managers consider that The Bank of Japan’s purchase has contributed to the recent recovery of
the J-REIT market, as a total of 73% of respondents said that either it “Restored confidence and contributed to
the recovery of the J-REIT market” or it “Stimulated trading and helped the recovery of the market”.
With regard to the future impact on the J-REIT market, the most popular response was “Continuation of the
program for a certain period will underpin the market”, which accounted for 54% of all responses. Meanwhile,answers for “It will have only a temporary effect and limited impact” and “It will bring about a bifurcation ofstocks due to the qualification hurdle” made up 40% in total. Opinions on the future impact were diverged.
Fig.30 Impact of BOJ’s purchase of J-REITs funds on the J-REIT market【Impact on the Market】【Future Impact】(n=68）

4%

Restored confidence and contributed
to the recovery of the J‐REIT market

12%

13%

(n=63）

6%

Continuing purchasing for a certain
period will underpin the market

Stimulated trading and helped therecovery of the market

10%

The effects are temporary and theimpact is limited

Contribution was limited as thevolume of purchase was small

There will be polarization between
stocks due to purchases being
limited to certain stocks
Don’t know

Contribution was limited as qualified
27%
stocks are limited

19%
54%

Don’t know

54%

62% of respondents answered that the BOJ’s purchase of J-REITs would have a “Positive Impact” on theprivately placed fund market. The main reasons cited for this answer were prospective increases in thetransaction volume and exit options in the market.

Fig.31

Impact of BOJ’s purchase of J-REITs funds on the privately placed fund market(n=63）

14%
2%

62%
Positive impact
Little impact

22%

Negative impact
Don’t know

13NEWS RELEASE Ｍａｒｃｈ 10th 20116）Requirements for Sustainability and Growth of Managers
The most frequent answer for this matter was “Enhancement of asset management capabilities” followed by“Management strategy and its accountability”. The result was similar to those of the January 2010 and July 2010
surveys, and respondents emphasized enhancing their basic asset management capabilities. Furthermore,“Enhancing the ability to accommodate foreign investors” was ranked highly, showing that satisfying foreign
investors, who they anticipated would increase investments in Japan, was deemed to be an urgent issue to be
tackled.
Fig.32Requirements for Sustainability and Growth of Managers
40

Enhancement of AM capabilities
32

Management strategy and its accountability
27

Enhancement of capabilities to acquire properties
17

Enhancing the ability to handle foreign investors
15

Enhancement of equity raising capabilities
Enhancement of relations with investors

11

Competence in special expertise11

Reinforcement of compliance structure1199

Reinforcement of information disclosure
Enhancement of debt financing capabilities
Enhancement of corporate strength

4

Enhancement of research capabilities

4
4

Other

2
0

Building a bad debt investment system

0

5

10

Jan 11 (n=196 Respondents 63）

14

15

20

25

30

July 10 (n=214 Respondents 68）

35

40

45

NEWS RELEASE Ｍａｒｃｈ 10th 2011

Definitions of Terms
The definitions of terms used in this report are as follows;
Privately placed real estate fund： The privately placed real estate fund is a structure under which investors’ funds are managed byprofessional investment managers. In this report, commingled funds that are designed for
multiple investors, and separate accounts, investment programs for single investors are bothcategorized as privately placed funds. This does not include products governed by the Act
Concerning Designated Real Estate Joint Enterprises.
Fixed property type：

A type of fund in which properties to be invested have been identified at the launch of the fund

Additional acquisition type：

A type of fund in which certain percentage of properties to be invested have been identified at
the launch of the fund, leaving additional investments after the launch usually at the discretion ofmanager subject to pre-determined investment guidelines

Discretionary investment type：

A type of funds in which the properties to be invested have not been identified at the launch of thefund, and properties are acquired after the launch at the discretion of a manager subject topre-determined investment guidelines; Also called a blind pool type

Closed-ended fundThis refers to privately placed real estate funds with stipulations on the management period.

Open-ended fundThis refers to privately placed real estate funds without stipulations on the management period.
The system enables participation, cancellation and reimbursement for a certain period. The valueof the holding is calculated based on the appraisal value at the time.

＜Management Style＞
Core style：An investment style in which stable long-term investments are envisaged by investing in soundOpportunity style：An investment style in which high-risk high-return investments are contemplated, such as

properties generating steady income flows
investments in currently unstable properties seeking for a large capital gain by increasing value
with improvement of asset and/or management, by betting on the market cycle, or by employing
a large discount power for bulk transactions. Opportunity style may exploit various opportunities,
such as investment in development type projects and corporate stocks.
Value-added style：An investment style that lies between Core and Opportunity, and aiming at both income gains andcapital gains

Development style：An investment style that specializes in achieving development gains＜Investment Area＞
Tokyo Metropolitan Area：

Tokyo excluding 23 Wards, Kanagawa, Saitama, and Chiba Prefecture

Kinki Area：

Osaka, Kyoto, Hyogo, Nara, Wakayama, and Shiga Prefecture

Nagoya Area：

Aichi, Gifu, and Mie Prefecture

LTV（Loan To Value）：

The Loan to Value (LTV) ratio is a ratio of debt against asset value. Asset value represents theappraisal value, actual acquisition price, or total investment cost for acquisition.

IRR (Gross) ：The internal Rate of Return (IRR) is the discount rate that makes the present value of future cash
flows of an investment equal its current value of the investment.

15

NEWS RELEASE Ｍａｒｃｈ 10th 2011

Contact:

STB Research Institute Co., Ltd.
3F Kamiyacho Central Place. 4-3-13, Toranomon, Minato-ku, Tokyo
105-0001, Japan
https://www.stbri.co.jp/english/contact/form-private/private_investment.html
http://www.stbri.co.jp/

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16