NEWS RELEASE
Survey on Private Real Estate Funds in Japan
January 2014– Results
March 31, 2014
Sumitomo Mitsui Trust Research Institute Co., Ltd Starting in 2003, Sumitomo Mitsui Trust Research Institute Co., Ltd. has conducted the “Survey on Private
Real Estate Funds” as part of its research activities concerning real estate investment markets. This is the
17th survey based on responses to questionnaires received from 55 real estate investment managementcompanies.
 Survey subject: Real estate investment management companies that set up and manage private realestate funds which are focused on domestic real estate

Number of companies to which questionnaires were sent: 114



Number of companies responding: 55 (ratio of valid responses: 48.2%)

Time of survey: January 2014

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 ofprivate real estate funds (on an invested asset basis) as of the end of December 2013 to be 16.1 trillion
yen. This figure involves Japanese assets of global funds (*) that we were aware of. The market size as ofthe end of June 2013 was 16.7 trillion yen, which is a decrease of approximately 600 billion yen (3.7%)
over a six-month period from the previous July 2013 survey.

The market size of private real estate funds is 16.1 trillion yen including Japanese assets of global funds
・Assets under management (AUM) as of the end of December 2013 were 16.1 trillion yen, declining approximately
600 billion yen (3.7%) for half a year from the time of the previous survey. The factor for the decline was that theamount of assets decreased in many investment management companies as they sold properties to J-REITs etc.
(including listing) under the strong real estate market conditions, as in the time of the previous survey.
・As most of investment management companies feel that the financing environment continues to be favorable inboth debt and equity aspects, it was confirmed that many investment management companies planned to set up new
funds, including open-ended funds, with such a favorable financing environment as a backdrop.
・The next and subsequent surveys we will focus on whether the private real estate funds market will continue todecline due to the sale of properties or if the contraction will show signs of touching bottom as new private funds
are created.
(*) We define “global fund” as a fund targeting real estate investments in various countries including Japan.
Assets under management（Trillion yen）

Trends of Market Size of Private Funds and J‐REITs

20

17.6

17.1

18
16

17.7

17.6

16.9

16.8

13.8

14.9

16.7

16.1

15.0

14.9

14.3

14
12

10.2

14.0

13.6

13.7

10

14.7

15.8

14.8

14.7

15.3

11.2

10.4

8

5.5
4.5

10.0

6.1

5.5

6
4

17.5

18.1

17.6

17.2

6.1
5.4

6.7
6.1

7.8

7.6

7.5

7.4

7.4

6.8

8.3

8.0

7.8

9.0

8.7

2
J‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

Private0

2006/06 2006/12 2007/06 2007/12 2008/06 2008/12 2009/06 2009/12 2010/06 2010/12 2011/06 2011/12 2012/06 2012/12 2013/06 2013/12
J‐REITsPrivate funds that only invest in domestic real estate
Private global funds (Domestically invested assets)1

News Release March 31, 2014

“ Survey on private real estate funds”

January 2014 Survey Results(Note) [n] shown in the figures throughout this document indicates the number of effective responses.

1. Current Status of Fund Management
1) Breakdown of Commingled Funds and Separate Accounts
This survey categorized private real estate funds into “commingled funds” that are managed for multiple
investors, and “separate accounts” managed for single investors. AUM of the commingled funds managed by the
respondents stood at 3,277.2 billion yen (40%), while separate accounts stood at 2,399.4 billion yen (29%) (Fig. 1)

Fig.1 Breakdown of Commingled Funds and Separate Accounts

100%

13%
25%

13%

11%

16%

17%

9%

13%

16%

13%
30%

80%
60%

6%

26%
29%
19%

34%
37%

22%

27%

33%

36%

34%
39%
29%

40%
64%

55%

20%

58%

50%

61%

62%

56%

58%

50%

44%

53%
40%

0%
07/12 09/01 09/07 10/01（n=37) (n=43) （n=57) (n=51)

10/07(n=56)

Commingled funds

11/01(n=54)

11/07(n=60)

12/01(n=54)

Separate accounts

12/07(n=59)

13/01(n=48)

13/07(n=53)

14/01(n=47)

Others2) A Description of Funds under Management (Results of Tallying Funds Currently under Management for
Which Data can be Recorded in the Survey)
The result of tallying responses on the content of funds currently under management showed that the ratio of“additional acquisition type” in the fund types and the ratio of “Development” in management style was increasing,a result that reflects the risk-on attitude of investors (Fig. 2 and Fig. 3).
With respect to the target property types, the ratio of “Office” declined, while the ratio of “Industrial” increased
substantially (Fig. 4). Investment in “Facilities for the elderly” was also confirmed, although it is modest, and as
for target areas, it was confirmed that the ratio of all areas other than “23 wards of Tokyo” and “Others” increased(Fig. 4 and Fig. 5).
A trend of expanding areas of investment from “23 wards of Tokyo,” where the acquisition of properties isdifficult, to other areas was observed, as was a trend of diversifying portfolio properties to those other than “Office”
and “Residential” from the standpoint of investment profitability.

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News Release March 31, 2014

Fig. 2 Fund types

Fig. 3 Management Style
2%

100%
11%

90%

20%

23%

12%

70%

41%

32%
28%

60%

36%

16%

94%

30%

23%

6%

11%

80%

37%

28%

25%

100%

5%

18%
32%

80%

50%

8%

17%

20%

2%

12%

13%
13%

60%

40%

10%

12%

12%

24%

24%

3%
11%

5%

2%

2%

25%

21%

12%

26%

17%

23%
11%

3%

9%

14%
11%

17%

29%

24%

40%

30%
48%

20%

56%

52%

56%

56%

41%

63%
50%

51%

61%

62%
20%

55%

54%

06/12
(n=45)

07/12(n=106)

09/01(n=78)Core

Value‐added

45%

63%

64%

58%
45%

55%

10%
0%

6%
03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01(n=18) (n=44) (n=50) (n=44) (n=85) (n=61) (n=72) (n=62) (n=59) (n=54) (n=44)
Fixed property type
Additional acquisition type
Discretionary investment type
Open‐ended funds

・ “Open‐ended funds” was added from the January 2011 survey.

90%

7%
9%

19%

17%

19%

80%
70%

9%

12%

20%

18%

1%
9%
10%

7%
12%

23%

22%

60%
50%
40%

34%

43%

36%

36%

26%

25%

1%
9%
13%
20%

3%
12%

1%
11%

12%

15%

18%

20%

2%
1%
2%
10%

10%

3%
4%
11%

18%

22%
18%

25%

25%

25%

25%

29%

33%

29%

30%

34%

31%

30%

28%

31%

2%
26%

31%
16%

70%

24%

16%

12/01
(n=56)

13/01(n=58)Development

Debt

22%

27%

Industrial
Others

2%
17%

1%

4%

20%

18%

12%

11%

14%

15%

16%

19%
24%

30%
20%

20%

03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01(n=44) (n=69) (n=81) (n=77) (n=164) (n=111) (n=122) (n=151) (n=123) (n=110) (n=74)
RetailHealth‐care facilities

17%
17%

50%

48%

49%

10%

32%

14%

0%

Residential
Facilities for the elderly

28%

40%

0%

OfficeHotel

11/01(n=65)

Opportunity

3%
18%

90%

60%

23%
30%

10/01
(n=88)

14/01(n=42)

Fig. 5 Target Areas
100%
80%

11%

30%
20%

05/12
(n=49)・ “Debt ” was added to management investment style from the January 2013 survey.

Fig. 4 Target Property Types
100%

0%

20%

16%

2%
15%

7%

4%

14%

19%

14%

12%

15%

22%

14%

27%

22%

20%

25%

26%

27%

17%

19%
20%

37%
24%

31%

33%

25%

8%

03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01(n=42) (n=91) (n=99) (n=83) (n=231) (n=155) (n=189) (n=169) (n=157) (n=105) (n=75)
23 wards of Tokyo

Tokyo metropolitan area

Kinki area

Nagoya area

Local areas

Others・In the December 2003 survey, the Kinki and Nagoya areas were included in Local areas, whereas in the December
2004 survey through the December 2006 survey, the Nagoya area was included in Local areas.
・The Kinki area was called the Osaka area until the January 2009 survey. The constituent prefectures remain the same.

・In the December 2004 survey through the December 2006 survey, Industrial and Hotel types were included in“Other types.”・“Facilities for the elderly” and “Health‐care facilities” was added from the January 2013 survey.

The survey result showed that the average target investment period of funds currently under management was 6.4
years, almost the same as the 6.5 years in the previous survey (Fig. 6). Looking at the responses (Fig. 7), the reason
why the average target investment period remains almost unchanged from the previous survey despite the strong
increase in the ratio of “Less than three years” is that several funds set up a long investment period of 15 or 20
years (which are counted as “Six years or more” in the tallying). Response of “At least five years but less than six
years” disappeared, and the ratio of response of “Less than three years” increased significantly. As a result, thetrend of diversifying the investment period according to the characteristics of funds was confirmed.
LTV remained at a level a little higher than 65% on an acquisition price basis (Fig. 9). As the greatest number of
respondents answered 75%, it was assumed that funds that were leveraged beyond this level were few under thepresent circumstances. It was also confirmed that some funds did not raise finance from banks but madeinvestments using equity financing only.
The result suggests that the LTV level remains stable even under a favorable financing environment.

3

News Release March 31, 2014

Fig. 6 Average Target Investment Period

Fig. 7 Breakdown of Average Target Investment Period（Years）

100%

8
7

6.7

6.4

6

6.5

18%

90%

6.4

6

5.3

5.3
4.7

5

4.4

4.3

5.3

4

4.8

5.9

41%

60%

5.2

5.0

50%

4.2

3.8

3

9%

10%

1
0
06/12
(n=39)

07/12 09/01 10/01 11/01 12/01 13/01(n=76) (n=63) (n=63) (n=53) (n=47) (n=47)

32%

04/12
(n=34)

14/01(n=30)

31%

16%

10%

35%

05/12
(n=43)

15%

18%

15%

14%

06/12
(n=39)

07/12(n=76)

19%
09/01(n=63)

Less than three years
At least four years but less than five years
Six years or moreFunds currently under management
Funds scheduled to be launched within a year

Fig. 8 Average Target Asset SizeFig. 9 Average LTV Ratio of Existing Funds
（%）

120

76

84.3

6%

9%
2%
4%

17%

10/01
(n=63)

11/01(n=53)

12/01(n=47)

70.9

20%
2%
13/01
(n=47)

41.1

38.6

14/01
(n=30)

71.3

68.6

66

45.5

33.3

32.4

13%

52%

68.9
68.2

59.5

40
20

11%

36%

68

66.0

61.4

47%
29%

70

72.9

60

7%
42%

72.3
71.0

72
80

33%

37%

74.2

74

110.3

47%

At least three years but less than four years
At least five years but less than six years（bil yen）

100

28%

25%

22%

12%

0%
05/12
(n=43)

24%

57%

21%

30%
20%

04/12
(n=34)

20%

31%

16%
21%

40%

3.5

2

03/12
(n=16)

8%

70%

6.1

4.6

9%
19%

80%

67.4

67.6

66.2

64
62
03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01(n=15) (n=38) (n=33) (n=39) (n=72) (n=61) (n=51) (n=51) (n=48) (n=53) (n=37)

003/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01(n=37) (n=29) (n=47) (n=41) (n=75) (n=56) (n=64) (n=44) (n=40) (n=49) (n=28)

・The question was made if the LTV standard is based on the total investment amount or the acquisition
price. As responses based on the acquisition price made up the majority, the average value is calculated
based on the acquisition price.

Fig. 10 Average Target IRR
（%）

25
20

19.7

15

14.6
12.7

10

9.4

5
0
03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01(n=17) (n=35) (n=33) (n=32) (n=47) (n=61) (n=38) (n=26) (n=29) (n=33) (n=20)

Total
Additional acquisition type
Open‐ended funds

Fixed property type
Discretionary investment type3) Circumstances of Debt Financing
In a survey on the debt financing environment, most investment management companies answered “4” or “5.”(43 of 53 companies), suggesting that the number of investment management companies that believed the debt
financing environment had improved from the previous survey (July 2013) increased (Fig. 11).

Fig.11 Circumstances of Debt Financing
13

improve 5

12
30
30

4
9

3

20

1

2

0
0
0

severe 1
05

10

Jan 14（Respondents 53）

15

20

25

30

July 13（Respondents 62）

435

News Release March 31, 20144) Circumstances of Equity Raisinga. Appetite of Equity Investors
With respect to the appetite of equity investors, as in the previous survey, no respondents answered “Declining”
in the survey this time, while the ratio of responses of “Rising” increased solidly (Fig. 12).
Fig. 13, which shows the numbers of equity investors considered to be increasing or decreasing their investment
amount, indicates that the response that the investment amount will increase made up the majority of all attributesof equity investors.
The survey found that equity investors have a very strong appetite in Japan and overseas.
Fig.12 Appetite of Equity Investors
100%
80%

1%

7%

60%

45%

25%

0%

0%
19%

75%

81%

40%
54%

57%

62%

83%

0%

5%

10%

20%

34%

41%

2%

64%
61%

40%

45%
46%
54%

20%
0%

13%
08/07
(n=54)

15%
2%
09/01
(n=48)

20%

31%

60%
44%

38%

26%

20%

09/07
10/01
10/07
11/01
11/07
12/01
12/07
13/01
13/07
14/01
(n=64) （n=55） （n=67） （n=61） （n=66） （n=58） （n=65） （n=50） （n=60） （n=54）
RisingUnchanged

DecliningFig.13 Expectation for Volume Change By Investor
Domestic pension funds
Domestic union financial

24

13

2

Domestic major banks

31

12

2

17

2

Domestic regional banks

33

6

0

Sovereign Wealth Funds(SWF)

0

23

9

0
0
1
0

Others26

100Fund of funds

36

9

0

Foreign high net worth

30

6

0

Foreign institutional Investors(excl. SWF and foreign pension funds)

28

11

0

Foreign pension funds

28

12

1

Domestic high net worth

25

15

1

Domestic corporations

26

15

0

Domestic other institutional Investors

21

Increase
5

10

15Unchanged
20

25

30

Decrease
35

40

b. Sources of Overseas Capital by Country or Region
The results of a question on the location of settlors of overseas capital in investment management companies thatmanage the overseas capital of foreign investors shows that the ratio of “North America” declined from theprevious survey while the ratio of responses of managing overseas capital from “Europe” was the largest (Fig. 14).

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News Release March 31, 2014
Fig. 14 Sources of Overseas Capital by Country or Region
100%
90%
80%

35%

33%

30%

31%

27%

24%

27%

23%

60%
40%
30%
20%
10%

24%

21%

24%

24%

29%

Middle East

10%

12%

10%

China including Hong Kong

14%

Asia including Australia

Europe70%
50%

North America

27%

25%

25%

8%

10%

33%

30%

31%

8%
6%

6%
7%

10%
9%

12%

8%

24%

25%

27%

17%

27%

24%

7%

8%
2%

2%
2%

2%

11%
28%

6%

3%

0%
08/07
(n=52)

09/01(n=40)

24%

7%

Asia (excl. China / M. East)
Australia

09/07
10/01
10/07
11/01
12/01
13/01
14/01
(n=61) （n=49） （n=67） （n=70） （n=59） （n=49） （n=42）

Others・Since the January 2010 survey, Asia‐Pacific has been broken down into China, Middle East, Asia (excl. China / M East), and Australia.
・Since the January 2010 survey, China has been changed to China including Hong Kong.

c. Expectation of Cash Inflow from Foreign Investors by Region and Reasons for Investing/Not Investing inJapan (Multiple answers allowed)
Regarding the expectation of cash inflow from foreign investors, although the responses of “Slightly decrease”
and “Decrease” were often observed in the previous survey (July 2013), these responses disappeared in this latest
survey. The result shows that more investment management companies than in the previous survey think that
foreign investors in all areas are more willing to invest in real estate in Japan (Fig. 15).
Among the reasons for foreign investors to invest in Japan that ranked highly, many respondents pointed out
economic merits such as “the large size of the real estate market,” “allocation as part of the global portfolio” and“relatively attractive due to the yield gap” (Fig. 16). As for the reasons for investors not investing in Japan, some
respondents pointed out non-economic factors such as “different language” (included in “Others” in the tallying),
while many respondents cited economic factors (Fig. 17).
Fig.15 Expectation of Cash Inflow to Japanese Real Estate from Foreign Investors‐Jan 2014 Survey‐‐Jul 2013 Survey‐
North America(n=28)
Europe(n=27)
Middle East(n=26)

Australia(n=24)

38%

23%

0%

35%

4% 4%

Australia(n=17)

31%

4%4%

China(incl HK)(n=18)

20%
Unchanged

40%

60%

Slightly decrease

80%

26%

6%

Increase

6

53%
67%

17%

42%
43%

Slightly increase

21%

41%

26%

0%

100%

22%

42%

17%

Asia (excl. China / M. East)(n=23)

Decrease

52%

38%

Middle East(n=19)

4%
38%

38%

24%

Slightly increase

Europe(n=24)

50%

38%

8%

Asia (excl. China/M. East)(n=29)

Increase

46%

12%

China(incl HK)(n=26)

4%

26%

52%

19%

North America(n=23)

21%

50%

29%

20%
Unchanged

32%
43%

40%

60%
Slightly decrease

13%80%
Decrease

100%

News Release March 31, 2014

Fig.16 Reasons for Foreign Investors Investing in Japan

n=127（Respondents30）

The size of the real estate market is large

21

Allocation as part of the global portfolio

21

Relatively attractive due to the yield gap

20

Highly stable income

18

Politically and economically stable

17

Rental market is in a recovery phase10

Highly transparent real estate market

5

Making investments in Japan, a mature market, while expanding investments in Asia

5

Making investments in Japan as part of investment strategies in Asia, while avoiding other
cities where there are risks of a fall in prices in the future

3

Investment merits due to foreign exchanges are anticipated3

Income with growth potential

2

Increase in investment opportunities due to undervalued real estate prices

1

The effects of the European debt problem are relatively limited

0More deal opportunities

0

Others

1
0

5

10

15

20

25

Fig.17 Reasons for Foreign Investors Not Investing in the Japanese Real Estate Market
n=70（Respondents25）

Lack of growth potential in GDP, consumption, population, etc.

18

Low growth potential in income

12

Earthquake risk

11

Lack of attractive investment opportunities

11

Low transparency in the real estate market

8

Investment merits due to foreign exchange are not anticipated

5

Cannot embark on investment given uncertainty in the rental market outlook

1

Lack of policy consistency due to government instability

1

Declining investment value due to a contraction in the yield gap

0

No end of the decline in real estate prices in sight0

Others

3
0

5

10

15

20

5) Circumstances for Acquisition and Disposition of Properties in the Second Half of 2013
a. Circumstances for Acquisition and Disposition of Properties in the Second Half of 2013
The result of a survey on the acquisition and disposition of properties from July 2013 to December 2013 is asfollows (Fig. 18 and Fig. 20):As the reason for not acquiring property, the largest number of respondents indicated “Can’t agree on prices”
followed by “Severe competition in bids,” and investment management companies said that the environment for
acquiring properties was difficult (Fig. 19).
As the reason for not selling property, although many respondents selected “Did not plan to sell from the outset,”some answered “Continued to hold properties through refinancing, following favorable loan terms,” indicating asignificant move by some funds to invest in properties with a flexible approach (Fig. 21).

7

News Release March 31, 2014

Fig.19 Reason for not acquiring property

Fig.18 Circumstances for Acquisition（Respondents 52）

Didn'tacquire42%n=30（Respondents 23）

Can't agree on prices

17

Severe competition in bids

6

Did not plan to acquire from the outset

Acquired58%

4

Did not examine, due to a limited supplyof properties in the market

1

Others20

5

10Fig. 21 Reason for not Selling Property

Fig. 20 Circumstances for Disposition1520

n=22（Respondents 21）（Respondents 50）
Did not plan to sell from the outset

Didn’t sellproperty
40%

19

Continued to hold properties throughrefinancing, following favorable loan terms

Soldproperty60%

1

No inquiries despite sales activities

0

Can’t agree on prices

0

Others

2
0

5

10

15

20

b. Exit Options Available Over the Next One Year (Multiple answers allowed)
In the question asking what options are likely to be taken over the next year as an exit strategy for the fund, thegreatest number of respondents answered “Sale to a third-party REIT,” confirming that many investment
management companies assume that REITs have a strong capacity to acquire properties at present (Fig. 22).
There are a certain number of responses of “Sale to a third party other than a REIT or private fund,” suggestingthat investment management companies think that there are a variety of potential purchases under the present
conditions.
Fig.22 Exit Options Available Over the Next One Year

n=158（Respondents 48）

Sale to the third party REITs

33

Sale to the third party private funds(closed‐ended funds)

28

Sale to the third party other than REITs or private funds

28

Sale to the third party private funds(open‐ended funds)

20

Extension of investment period with refinance

19

Sale to affiliate REITs

16

Sale to the affiliate private funds(closed‐ended funds)

4

Sale to the affiliate private funds(open‐ended funds)

4

Others

6
0

5

10

15

20

8

25

30

35

News Release March 31, 2014

2. Status of the Investment Real Estate Market and Efforts of Investment Management Companies
1) Real Estate Transaction Activity from July 2013 to December 2013 and Forecasts
In a question on real estate transaction volume from July 2013 to December 2013, “Increased significantly” and“Slightly increased” accounted for 80% of all responses, indicating that investment management companies that
increased their real estate transaction volume accounted for the majority (Fig. 23).
In a question on forecasts for the real estate transaction volume of private funds and J-REITs in 2014, many
investment management companies expected that real estate transactions would be pick up in both private funds
and J-REITs (Fig. 24).
In 2014, as real estate transactions are likely to be active, especially in private funds and J-REITs, competition
among market players is expected to remain severe, particularly in the acquisition of properties.

Fig.23 Real Estate Transactions（Respondents 50 ）Increased significantly

Fig.24 Forecast for Transactions by private funds and
J‐REITs of 2014
<J‐REIT><Private >Increase100%

9Slightly increased

80%

31

4%
10%
10%

6%
14%

significantly

62%

63%

Remainunchanged

Slightly
increase

60%
Remain unchanged

740%

Slightly decreased

1

Decreased significantly

2
0

20%
14%

16%

2014/01（n=50）

2014/01（n=49）

0%
10

20

30

40

Slightly
decrease
Decreasesignificantly2) Future Efforts for Real Estate Investment
a. Target Property Types in the Future (Multiple answers allowed)
In a question on target property types in the future as an effort for real estate investment, the ratio of responses of“Hotel” increased, while the ratio of responses of “Retail” was the second highest after “Office” but higher than
“Residential” (Fig. 25). Real estate types such as “Hotel” and “Retail,” which tend to be linked to business
confidence appear to be selected by investment management companies.
In addition, as in the previous survey, some investment management companies answered “Facilities for theelderly,” in anticipation of higher demand in the future, confirming the existence of investment managementcompanies that continue to be interested in healthcare assets.
b. Target Areas in the Future (Multiple answers allowed)
A question on target areas in the future as an effort for real estate investment suggests the tendency of many
investment management companies to expand investment areas to secure investment profitability, as multiple
investment management companies answered areas other than the “Central 5 wards of Tokyo” and “23 wards ofTokyo (excluding Central 5 wards)” (Fig. 26).
In addition, among the responses of “Others,” a number of investment management companies gave “Fukuoka” asa specific area, indicating a high degree of attention and interest directed at this area.

9News Release March 31, 2014
Fig. 25 Target Property Types (Multiple answers allowed)
100%
90%
80%

4%
4%
17%

1%
13%
10%

14%

11%

7%
10%

70%

15%

8%

1%
4%
8%

Fig. 26 Target Areas (Multiple answers allowed)

1%
4%

1%
4%

6%

11%

9%

10%

22%

15%
21%

29%

31%
27%

20%

1%
2%
9%

9%

17%

30%

33%

36%

44%

40%

36%

27%

10%

41%

38%

80%

21%

19%

17%

26%

24%

4%
3%
7%

10%

11%

1%
4%
3%
13%

2%
2%
5%
14%

11%

RetailFacilities for the elderly

・“Facilities for the elderly” and “Health-care facilities” were newly established from the January 2012 survey.

17%

15%

7%
5%

3%
3%
9%

10%
14%

4%
8%

5%

12%

15%

8%

14%
29%

28%

29%

20%

30%
32%

32%

23%

21%

28%

23%

21%
25%

25%

30%

10%

3%
2%
6%

12%
24%

50%

25%

5%
21%

46%

48%

50%

33%

14%

47%

40%

41%

43%
34%

26%

11%
8%

0%
04/12 05/12 06/12 07/12 09/01 09/07 10/01 10/07 11/01 11/07 12/01 13/01 14/01(n=46) (n=69) (n=61) (n=96) (n=87) (n=123) (n=119) (n=140) (n=138) (n=158) (n=160) (n=157) (n=162)
Residential
Hotel
Others

25%

13%

40%

0%

OfficeIndustrial
Health‐care facilities

11%
4%

2%
7%
6%

18%

19%

33%

9%
18%

60%

20%
33%

2%
8%

70%

20%

30%
33%

16%

8%

90%

11%

18%

20%

100%

15%

28%

13%

1%
3%
9%

9%
10%

23%
30%

41%
26%

8%

1%
1%
4%

18%
20%

40%

1%

13%
16%

20%

60%
50%

11%

2%
5%

4%

04/12 05/12 06/12 07/12 09/01 09/07 10/01 10/07 11/01 11/07 12/01 13/01 14/01(n=38) (n=51) (n=55) (n=98) (n=89) (n=107) (n=98) (n=131) (n=121) (n=148) (n=127) (n=122) (n=151)
Central 5 wards of Tokyo
23 wards of Tokyo (excluding Central 5 wards)
Tokyo metropolitan area
Kinki area
Nagaya area
Local cities
Nationwide
Others・“Nagaya area” was included in “Local cities” or “Others” until the December 2006 survey.
・The Kinki area was called the Osaka area until the January 2009 survey. The constituent prefectures remain the same.

3. Business Environment of Private Real Estate Investment Management
1）Involvement in Open-Ended Private Funds (so-called Private REITs)
In a question on involvement in open-ended private funds (so-called private REITs), 17 companies, the largest
number of respondents, answered “Seek to develop a better understanding and gather information, but not working
on a detailed study,” while 10 companies answered “Preparing for a launch after consideration.” This result
suggests that interest in private REITs remained high (Fig. 27).
Many investment management companies pointed to high investor interest as well as the possibility of flexible
investment due to the unrestricted investment period of fund as a reason for a launch or preparing for a launch. As
mentioned above (refer to 1. 4) a. Appetite of Equity Investors), the strong appetite of equity investors was an
impetus for the launch and the study of private REITs.
Fig.27 Managers’ involvement with Open‐ended Funds（Respondents 47）

Seek to develop a better understanding and gather information, but not working on a detailed study

17

Preparing for a launch after consideration10

Decided not to launch after consideration but may consider again in the future

9

Have already launched

5

Decided not to launch after consideration, and unlikely to reconsider in the future

3

Have heard of the name but not considered involvement

3

Have neither heard of the name nor considered involvement

0
0

10

5

10

15

20

News Release March 31, 2014

2) Fund Managers’ Involvement in the Overseas Real Estate Management Business
The result of a question on efforts for real estate management business targeting foreign properties is as follows(Fig. 28).
Among investment destinations selected by investment management companies that invest, plan to invest or are
considering investing in foreign properties, the ratio of “United States” was the highest (Fig. 29). The investment
environment, such as market size and transparency, were pointed out as the reason for investing in the United Statesand Europe, while economic factors such as the earning of income and capital gains were pointed out as the reason
for investing in Asia, showing a contrasting result (Fig. 30 and Fig. 31).

Fig. 28 Fund Managers’ Involvement in theOverseas Real Estate Management BusinessFig. 29 Target countries（ Respondents 47）

Have already launched

8

Will launch

1Currently considering

12

No plans now or in the
f uture

26
0

10

20

United States
United Kingdom
Singapore
FranceGermany
China
Hong Kong
Korea
Australia
Other European
Malaysia
Indonesia
Other Asian
Others30n=69（Respondents 21）
57%
48%
33%
24%
24%
19%
19%
19%
19%
19%
14%
14%
14%

5%
0%

10%

20%

30%

40%

50%

60%

Fig. 30 Reasons for Investing in Foreign Countries (Europe and the United States)

Fig. 31 Reasons for Investing in Foreign Countries (Asia)

100%

100%

90%

The size of the real estate market is large
17%
25%

20%

20%

33%

80%
10%
70%

10%

29%
20%

20%

80%

Investment merits due to foreign exchange are
anticipated

20%

40%

13%

13%

38%

6%

8%

30%

9%

20%

3%
6%

10%
0%

6%
6%
3%

10%

10%

10%

10%

High growth potential in GDP, consumption andpopulation, etc.
Income with growth potential

4%
30%
17%

20%

20%
33%

4%
8%

33%

13%

13%

13%

33%

14%

10%

10%

United United France Germany Other Others
States Kingdom (n=10) (n=10) European (n=3)(n=32) (n=24)(n=10)

17%

20%

20%

40%
30%

29%

25%

Investment opportunity to gain a large capitalgain has arisen

20%

Diversify risks by investing overseas

10%

There is a partner for joint investment overseas

0%

Income with growth potential
40%

13%

14%

20%

25%

6%
Hong
Kong
(n=8)

Korea
(n=8)

Legal system has been developedHigh growth potential in GDP,
consumption and population, etc.

20%

11%
11%

China
(n=9)

11

20%

13%

33%

Others6%

There is a head office, a branch
office or an operating base
Investment merits due to foreignexchange are anticipated

25%

6%
13%

The size of the real estate market islarge
Highly transparent real estatemarket

25%

60%
13%

20%

40%

14%

14%

13%
10%

38%

22%

70%

50%

33%
10%

6%
6%
25%

Legal system has been developed
50%

14%

Highly transparent real estate market
There is a head office, a branch office or an
operating base

10%

22%
60%

11%
90%

20%

Australia Singapore Malaysia Indonesia Other(n=7)(n=18)
(n=5)
(n=4)
Asian
(n=5)

Investment opportunity to gain alarge capital gain has arisen
Diversify risks by investingoverseas
There is a partner for joint
investment overseas
OthersNews Release March 31, 20143) Important Factors for Improvement in the Private Real Estate Funds Market (Multiple answers allowed)
In a question on important factors for improvement in the private real estate funds market in the future, thelargest number of respondents answered “Increase in the supply of investable real estate” followed by “Recovery of
the real estate rental market” (Fig. 32).
Fig.32 Important Factors for Improvement in the Private Real
Estate Funds Market

n=142（Respondents 49）

Increase in the supply of investable real estate

33

Recovery of the real estate rental market

28

Increase in the volume of real estate transactions

19

Inflow of global investment money

17

Relaxation of regulations by the government

15

Steady expansion of the J‐REIT market

14

Development of investment indexes

9

Improvement in the debt financing environment

3

Increase in the number of real estate buyers

3

Others

1
0

10

20

30

40

4) Manager’s Requirements for Future Growth and Sustainability of their Businesses (Multiple answers
allowed)In the question on manager’s requirements for future growth and sustainability of their businesses, “Strengthening
property-acquisition capability” was the most common response, as in the previous survey (Fig. 33).
As discussed above (refer to 2. 1) Real Estate Transaction Activity from July 2013 to December 2013 andForecasts), as active real estate transactions are expected to be carried out mainly in private funds and J-REITs in2014, the property-acquisition capability of investment management companies is likely to be focused more thanever.
Fig. 33 Requirements for Sustainability and Growth of Managers
37

Strengthen property‐acquisition capability
30

Enhancement of AM capabilities
20

Enhancement of relations with investors
18

Management strategy and its explanatory ability
12

Enhancement of equity raising capabilities
8

Reinforcement of compliance structure
7

Enhancement of research capabilities
6

Entry into open‐ended funds business4

Corporate strength (financial health, scale of operations)
3

Competence in special expertise2

Enhancing the ability to handle foreign investors

2

Expansion of foreign real estate fund management business
Enhancement of debt financing capabilities

1

Expansion of target property types

1
1

Capabilities for NPL investment activity
Sufficient of information disclosure0Strengthening of earthquake/disaster response capability0

Jan 14（n=153 Respondents 49）
July 13（n=180 Respondents 60）
Jan 13（n=153 Respondents 52）

1

Others
0

5

10

15

20

25

30

35

40

45

・“Enhancing the ability to handle foreign investors” and “Capabilities for NPL investment activity” were added from the January 2010 survey.
・In the July 2010 survey, “Additional development of new products such as open‐ended funds ” was added, and from the July 2012 survey, this item has been changed
to “Entry into open‐ended funds business.”
・“Expansion of foreign real estate fund management business” was added from the July 2011 survey.
・“Strengthening of earthquake/disaster response capability” was added from the January 2013 survey.

12

News Release March 31, 2014

Definitions of Terms
The definitions of terms used in this report are as follows;
Private real estate fund:A private 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 private real estate funds. This does not include products governed by the Act
Concerning Designated Real Estate Joint Enterprises. Commissioned AM means only theacceptance of only asset management commissioned by funds set up by other companies,
without engaging in fund management.
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 discretionof manager subject to pre-determined investment guidelines
Discretionary investment type:

Closed-ended fund:Open-ended fund:

Equity commitment fund:＜Management Style＞
Core:
Opportunity :A type of fund in which the properties to be invested have not been identified at the launch of
the fund, and properties are acquired after the launch at the discretion of a manager subject topre-determined investment guidelines; Also called a blind pool typeThis refers to private real estate funds with stipulations on the management period. In principle,
this system does not allow reimbursement during the management period.
This refers to private real estate funds without stipulations on the management period.
The system enables additional investment, cancellation and reimbursement during themanagement period. The value of the holding is calculated based on the appraisal value at thetime. Open-ended funds currently managed in Japan take the form of a private RE1T.
A type of private real estate funds in which equity is contributed in block or installments
according to capital needs of the fund within the equity limit prescribed in the investment
agreement. This is also called a capital call fund.
An investment style in which stable long-term investments are envisaged by investing in soundproperties generating steady income flows.
An investment style in which a large capital gain is aimed at by investing in unprofitableproperties and selling them after increasing value with improvements.
Some of opportunity investments invest in development projects and funds that invest incompanies.

Value-added:

An investment style that lies between Core and Opportunity, and aiming at both income gains
and capital gains.

Development:

An investment style that specializes in achieving development gains.

Debt:

An investment style in which an investment is made in loans that pay the principal and interestsfrom income from real estate and real estate trust beneficiary rights. Compared with the equity
investment, the debt investment generally has a lower risk and a lower return.

＜Investment Area＞
Tokyo Metropolitan Area:
Kinki Area:

Tokyo excluding 23 Wards, Kanagawa, Saitama, and Chiba prefectures
Osaka, Kyoto, Hyogo, Nara, Wakayama, and Shiga prefectures

Nagoya Area:

Aichi, Gifu, and Mie prefectures

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.

Cash-on-cash yield:

The cash-on-cash yield is the yield of an annual cash flow on the total investment amount.

IRR (Gross):

The Internal Rate of Return (IRR), an indication of return on investment, is the discount rate thatmakes the present value of future cash flow of an investment equal to its original value of theinvestment.

13

News Release March 31, 2014

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Sumitomo Mitsui Trust Research Institute Co., Ltd
3F Hulic Kamiyacho Building. 4-3-13, Toranomon, Minato-ku, Tokyo
105-0001, Japan
https://www.smtri.jp/en/contact/index.html
http://www.smtri.jp/en/

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Forecasts, projections, or estimations included in this document are neither assured nor guaranteed. The
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SMTRI is a real estate investment advisor authorized by the related Japanese law and regulation, and conducts
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14