News Release
Survey on Privately Placed Real Estate Funds in Japan
July 2012– Results
August 27th 2012
Sumitomo Mitsui Trust Research Institute Co., Ltd Starting in 2003, Sumitomo Mitsui Trust 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
the 14th survey based on responses to questionnaires received from 66 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: 135



Number of companies responded: 65 (ratio of valid responses: 48.9%)

Time of survey: July 2012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 June 2012 to be 18.3 trillion
yen. This figure involves Japanese assets of global funds that we were already aware of. The market size asof the end of December 2011 was 17.8 trillion yen, which is an increase of approximately 540 billion yen(3.0%) over a six-month period from the previous January 2012 survey. In this survey, we have revised thepast figures to reflect additional data obtained.

<The market size of privately placed real estate funds is 18.3 trillion yen, this includes Japanese assets ofglobal funds>
The Sumitomo Mitsui Trust 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 June 2012 the market size
including Japanese assets of global funds（※）is estimated to be 18.3 trillion yen, which is an increase of
approximately 540 billion yen (3.0%) over a six-month period from the 17.8 trillion as of the end of December
2011.

 In this survey some managers appeared to have decreased their assets under management by selling property
and liquidating the funds. While some managers increased their assets by acquiring new properties in light of
the improved conditions from six months ago for launching funds, including the gradual recovery ininvestment property transactions, favorable conditions for debt financing, and the increasing appetite of equity
investors. As a result, there was an increase in the overall assets under management. Looking at the breakdownof these assets, the growth rate of funds that only invest in domestic real estate showed an increase at the endof June 2012 compared to the end of 2011 and this increase notably exceeded that of the increase in global
funds .

（*） We define the “global fund” as a fund targeting real estate investments in various countries including Japan.

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Assets under management（Trillion yen）

Trends of Market Size of Privately Placed Funds and J‐REITs

20.0
18.0
16.0

17.8

17.0

16.9

17.7

17.4

17.8

18.3

13.6

14.0

13.8

14.9

14.7

14.8

14.9

15.9

13.7

PrivatePrivateJ‐REIT

PrivateJ‐REIT

J‐REIT

PrivateJ‐REIT

8.7

8.3

8.0

7.8

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivatePrivateJ‐REIT

Private

7.8

7.6

7.5

7.4

7.4

6.8

J‐REIT

PrivateJ‐REIT

J‐REIT

PrivateJ‐REIT

6.1 6.7

5.4

4.5

10.0

6.1

5.5

Private

8.0
6.0

J‐REIT

10.2

10.0

2.0
0.0

17.6

14.3

14.0
12.0

4.0

17.1

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

J‐REITsPrivately Placed funds that only invest in domestic real estate
Privately Placed global funds (Assets located in Japan)“ Survey on Privately Placed Real Estate Funds”

July 2012 Survey Results(Note) [n] shown in the charts 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 privately placed funds into two
categories, “commingled funds” that are managed for multiple
investors, and “separate accounts” which are managed for single

Fig.1 Breakdown of Commingled Funds andSeparate Accounts
100%
80%

25%
11%

60%

26%

13%
29%

19%

13%

6%
34%

37%

16%

17%

22%

27%

62%

56%

9%
33%

13%
36%

investors. AUM of the commingled funds, which is managed by
the respondents, stood at 5,228.0 billion yen (50%), while

40%

64%

separate accounts stood at 3,753.1 bilion yen (36%). The share20%of comingled funds decreased from 58% in the January 2012

0%

55%

58%

50%

61%

58%

50%

07/12 09/01 09/07 10/01 10/07 11/01 11/07 12/01 12/07（n=37) (n=43) （n=57) (n=51) (n=56) (n=54) (n=60) (n=54) (n=59)

Survey.

Commingled funds

Separate accounts

Others2）New Funds Launched From January to June 2012
～New Launch, Type, Style, and Period～
Out of a total of 63 respondents, 26 (41%) answered that they launched new funds during the period fromJanuary to June 2012, which was an increase from the 19 (28%) in the July 2011 survey. The reasons for theincrease are considered to be the favorable environment for launching funds, including the improved financing
environment, and to an extent, an increase in the appetite of real estate equity investors. The number of newly
launched funds was 49, which was an increase from the 31 in the July 2011 survey.
Of the newly launched funds, the number of “Fixed Property Type” was 22, which was an increase from the 14
in the July 2011 survey. With regard to the investment style, the number of “Core” style funds was 18, which isa great increase from the 8 in the July 2011 survey. With regard to the investment period, the number of thefunds with periods of between five and seven years was 6, and the number of funds with periods of seven years
or more was 7. The percentage of funds with long terms of five years or more rose. It seems probable that the
number of funds with stable returns over a long period actually increased in response to the needs of investors,
especially investors in pension funds.

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Fig. 2: Fund Manager’s Activity of Launching
New Funds in the First Half of Each Year
100%
80%
60%

70%

74%

72%

59%

30

1

25

3
2

20
15

40%
20%

Fig.3: Type of Funds（responses ）

3
3

4
1

1
2

13

15

14

22

10

30%

26%

28%

41%

0%

5
0

09/07
(n=65)

10/07
11/07
12/07
（n=66） （n=67） （n=63）
Launched

09/07(n=19)

Fixed Property type
Discretionary investment type

Didn't launch

Fig. 4: Investment Style（responses）

30

30

25

15

2

1
4

1

4

10
5

15

10

1

3
4
3

4

25

7

20
15

4
18

10

6

0

09/07
(n=18)

09/07(n=17)

10/07
11/07
12/07
（n=19） （n=17） （n=28）

Value‐added

Opportunity

2
4

4
2
5

5

8

0

Core

Additional acquisition type
Open‐ended

Fig. 5: Investment Period（responses）

20

10/07
11/07
12/07
（n=20） （n=17） （n=28）

9

6

10

9

5
6
3
1
1
10/07
11/07
12/07
（n=21） （n=17） （n=28）
1～3 years
More than 7 years

Within 1 year
5～7 years

Development

1
2～LTV Ratio～

3～5 years

Fig.6：LTV Ratio

The average LTV Ratio of funds launched from January to

65.0%
LTV (of the total amount of investment)

June 2012 was 63.3% of the total amount of investment, and61.3% of the acquisition price, which rose 8.1% and 7.5%

63.3%

LTV (of the acquisition price)

61.3%
60.0%
58.6%

respectively from the July 2011 survey. One reason for theincrease in the average LTV ratio is that the number of funds

57.6%
55.0%

53.8%

with an LTV ratio of around 70% increased given thefavorable conditions in debt financing, as described below.

55.2%

54.5%

52.5%
50.0%
09/07

10/07

11/07

12/07

～Reasons for Not Having Launched Funds～

About 60 percent of respondents answered that they did not launch any new funds during the period fromJanuary to June 2012 (Fig 2). As the reasons for this, the most common answer was “There are few opportunities
in the market to invest in suitable properties” with 17 respondents, followed by “Difficulty in equity raising”,“Can’t agree on real estate sales prices”(10 respondents each).
Compared to the July 2011 survey, where the main reason was “Difficulty in equity raising” (17 respondents),
indicates that the main factor preventing the launch of funds is the lack of opportunities in the market to invest insuitable properties, rather than difficulties in raising equity.

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Fig.7：Reasons for Not Having Launched Funds
n=60（Respondents 38）

There are few opportunities in the market to invest in suitable properties

17

Difficulty in equity raising

10
10

Can’t agree on real estate sales prices
Should put more emphasis on the operation of existing funds

8

Uncertainty over the rental market

3

Taking a wait and see attitude

2

Anticipating further decline in price1

Difficulty in debt financing

00Investors are concerned about the risk of earthquakes

9

Others

0

5

10

15

20

3）Circumstances of Debt FinanceRegarding debt financing, respondents answered by choosing from 1 (most severe) to 5 (least severe). The mostfrequent answer was “4” with 42 respondents, followed by “5” with 12 respondents. The respondents of “4” and“5” increased from the July 2011 survey, in which “4” had 37 respondents and “5” had 4 respondents.
Responding to a question on how debt finance circumstances changed between the January-June 2012 period
and the July-December 2011 period, answers for “Slightly improved” and “Improved” together accounted for
52% of the total and no respondents chose “More severe”. This indicates a continuous improvement in debt
financing. Regarding specific improvement, of the respondents who answered “Slightly improved” and“Improved”, 30% of them specified “Contraction of interest spread”, followed by “Expansion of underwriting
areas and types” which accounted for 24%, and “Increase of lenders considering new lending” which accounted
for 20%. The answers indicatethat due to the limited number of lending opportunities, there was morecompetition among lenders, which resulted in lower interest rates.
Fig.8 Circumstances of Debt Financing【Jan 2012 Survey】【Jul 2012 Survey】（Respondents 63）（Respondents 62）

severe

5

5

4

4

3

3

2

2

1

1
0

5

10

15

20

25

30

35

40

0

(quantity of responses)

20

30

40

【Jul 2012 Survey】
Moresevere5%50(quantity of responses)【Jan 2012 Survey】

Improved
18%

10（Respondents 61）

Improved
14%

Unchanged
44%

Slightly
Improved
38%

Slightly
Improved
33%

4

More
severe0%（Respondents 64）

Unchanged
48%

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August 27th4) Circumstances of Equity Raisinga. Appetite of Equity Investors
With respect to the appetite of equity
investors, 57% of respondents answered

Fig.9 Appetite of Equity Investors
100%
18%
80%

“Unchanged”. Compared to the January
2012 survey, “Rising” increased from
26% to 38%, and “Declining” decreased

40%

20%
45%

45%
46%
54%

The July 2011 survey, which was

24%
0%

57%
64%
61%

74%

20%

from 10% to 5%.

5%

10%

54%

62%

83%

59%

2%

34%

41%

60%

1%

7%

16%

13%

9%
06/12
(n=34)

07/12(n=37)

08/07(n=54)

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

20%

44%

31%

20%

26%

38%

09/07 10/01 10/07 11/01 11/07 12/01 12/07(n=64) （n=55）（n=67）（n=61）（n=66）（n=58）（n=65）

RisingUnchanged

Declining

conductedsoon after the Great East
Japan Earthquake, showed that partly because of the effects of the earthquake and the problems with the nuclear
power plants, the investment appetite, which had been improving in the aftermath of the Lehman Brothers
collapse, began to deteriorate. However, the July 2012 survey indicates that the upward trend shown in theJanuary 2012 survey continued.
b. Increases and Decreases in Investment Volume by Investor Category

Of all the investor categories, thoseFig.10 Expectation for Volume Change By Investor

surveyed said that they expected “Foreign
Institutional Investors” (40 votes) would
increase their investment volume, followed by“Foreign Pension Funds” (34 votes), and“Domestic Pension Funds” (28 votes). The
three most common answers were the same as
those reported in the January 2012 survey.
The ratios of domestic investors andoverseas investors across all categories wereDomestic pension funds
Domestic union financial
Domestic major banks
Domestic regional banks
Domestic other institutional banks
Domestic corporations
Domestic high net worth
Foreign pension funds
Foreign institutional
Foreign high net worth
Sovereign funds
Fund of funds
Others

54% and 46%, while the ratios of domestic

010Increase n=241（Respondents 64）

investors exceeded those of overseas investors.

20

30

40

Decrease n=60（Respondents 32）

50

Compared to the January 2012 survey, in which the domestic-overseas ratio was 49% and 51%, this survey
suggests that managers have been focusing more on domestic investors.
However, “Domestic Major Banks” and “Domestic Regional Banks” were expected to decrease theirinvestment volume. These received 13 and 12 votes, respectively.
c.

Expectation of Cash Inflow from Investors by Region

Managers’ expectations of a cash inflow from foreign investors by region improved from the January 2012 survey
in each region. Regarding the Middle East, the combined total of “Increase” and “Slightly increase” rosesignificantly to 64% from 24% in the January 2012 survey, also North America increased from 22% to 40%. With
respect to inflows from investors in Europe, in the January 2012 survey, the combined total of “Decrease” and“Slightly decrease” accounted for 45%. However, in this survey, the combined total of “Increase” and “Slightly
increase” accounted for 47%. Inflows from investors have clearly recovered since January 2012, when there wereconcerns about a decline in the appetite of equity investors due to the European debt crisis.

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Fig.11 Expectation of Cash Inflow from Foreign Investors By Region【Jan 2012 Survey】
North America(n=32)【Jul 2012 Survey】

22%

Europe(n=29)

28%

Middle East4%(n=25)

20%

China(n=27)

7%

Australia(n=26)

64%
52%

20%
Slightly increase

14%

Europe(n=34)

6%

41%

12%

Middle East
(n=28)

Asia excl. China(n=35)

27%

40%

60%

Unchanged

80%

Slightly decrease

100%

4%

Slightly increase

3%

26%

60%

11%

Increase

7%

29%

74%

20%

9%

52%

19%

0%

Decrease

12%

32%

48%

Australia
4%(n=27)

3%

57%

50%

14%

China
(n=31)

19%

65%

0%
Increase

31%

41%
65%

8%

9%

3%

31%

28%

15%

Asia excl. China(n=26)

North America(n=35)

25%

50%

40%

60%

80%

Unchanged

Slightly decrease

100%
Decrease～Reasons for Foreign Investors investing or not Investing in the Japanese Real Estate Market～

As for the reasons for investors moving into the Japanese real estate market, the most comon responses were
“The size of the real estate market is large” and “Relatively attractive due to the yield gap”, followed by “Highly
stable income”. The share of “Allocation as part of the global portfolio”, which was the most common responsein the January 2012 survey, decreased slightly.
As for the reasons for investors not investing in Japan, the most common response was “Lack of growthpotential in GDP, consumption, population, etc.”, followed by “Low growth potential in rental income”.
These results suggested that managers believed that some investors appreciated the large size of the real estatemarket and the highly stable income, while other investors did not invest because of the low growth potential asa nation and the relatively small rental increase.
Fig.12 Reasons for foreign investors investing in Japan100%

The size of the real estate market is large

90%

17%

15%

80%

7%

12%

70%

20%

14%

Allocation as part of the global portfolio

8%

Allocating investments in Japan, a mature market, while expanding
investments in Asia ※2

13%

18%

Undervalued real estate prices offer investment opportunities
17%

20%

40%

17%
9%
24%

16%

15%
12%

13%

12%

12%

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

22%

20%

0%

15%

11%

20%

10%

13%

Relatively attractive due to the yield gap ※1

16%

17%
18%

30%

15%

Highly stable income

60%
50%

18%

15%

11%

9%

9%

11%

Politically and economically stable

10%

8%

The effects of the European debt crisis are relatively limited ※36%8%Highly transparent real estate market

7%

8%

The nuclear power plant problems have been addressed to a certain extent※3
Income with growth potential

5%
3%
2%
1%

6%
3%
4%
5%
2%
4%
3%
1%
1%
1%
10/01
10/07
11/01
11/07
12/01
12/07
（n=127） （n=153） （n=101） （n=139） （n=162） （n=189）

Others※1：Since the 2010/07 survey this has been changed from "Yield gap due to low-interest rate” in the 2010/01 survey※2：This category has been included since the July 2011 Survey.
※3：This category has been included since the January 2012 survey.

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Fig.13: Reasons for Foreign Investors Not Investing in the Japanese Real Estate Market
Lack of growth potential in GDP, consumption, population, etc※1
Low growth potential in rental income

100%
90%

22%

25%

30%

25%

23%

11%

15%

24%

Lack of attractive investment opportunities

80%

Decrease in benefits from investments due to the strong yen ※4

70%
60%

32%

28%

16%
50%
19%
40%
30%

8%

10%
0%

10%
10%
17%

22%

20%

Risk of earthquakes ※4

18%

15%

20%

7%
4%
3%
1%
11%

7%
1%
4%

6%

7%

10/01
（ n=97）

10/07（ n=83）11/01（ n=81）

Cannot embark on investment given uncertainty on the rental
market outlook ※1
Low transparency in the real estate market

16%

No end of the decline in real estate prices in sight
10%
1%
6%
1%
17%

7%

10%

17%

20%

Declining investment value due to a contraction in the yield gap

16%

Stagnant economy since the Great East Japan Earthquake ※2
9%Inability to promptly end nuclear power plant problems ※2

8%

Few opportunities in the market to invest in suitable properties※3
Concerns over radioactive contamination from accidents in the
nuclear power plant ※3
No sign of botomming out on the rental market

2%

9%
2%

4%
2%
1%
2%

11/07
（ n=123）12/01（ n=120）

12/07（ n=139）

Others※1：This category has been included since the January 2011 survey.
※3：This category included only in the January 2012 survey※2：This category included only in the July 2011 survey※4：This category has been included since the July 2012 survey.

5) Circumstances for Acquisition and Disposition of Properties
With respect to the acquisition of properties, in this survey the most common response (42% of respondents) was“Acquired”. In the January 2012 survey, the most common response (43%) was ”Sought acquisition opportunities
but did not agree on prices”, suggesting that the circumstances for acquisition have been improving.
With respect to the disposition of properties, the most common response (44% of respondents) was “The severe
status remains unchanged”, Meanwhile, “Improved”(42%) and “Improved significantly ”(7%) together accounted
for 49%, indicating that about half of the respondents see signs of improvement.

100%
80%

Fig.14 Circumstances for Acquisition

Fig.15 Circumstances for Disposition

3%

5%

100%

3%

5%

2%
5%

5%
4%

33%

22%

22%

80%

21%

60%
40%

5%
18%

40%
41%

50%

47%

20%
19%

19%

25%

3%
2%
20%

43%

2%
8%
17%

32%

OthersNo opportunity was available
Had no plan to acquire

37%

33%

42%

3%
2%
2%
50%

60%

2%
8%
8%
3%
65%

33%

7%
2%
5%

7%
7%
Others47%

42%More severe
Improved significantly ※1

40%

Sought acquisition opportunities
but did not agree on prices

20%

Acquired0%

Improved ※2

70%
43%

48%
33%

39%

44%

The severe status remains
unchanged

0%

10/01 10/07 11/01 11/07 12/01 12/07（n=58) （n=64) （n=60) （n=65) （n=61) （n=60)

10/01 10/07 11/01 11/07 12/01 12/07（n=56) （n=60) （n=55) （n=61) （n=57) （n=57)※1：This category was not included in the January 2010 survey and the January
2011 survey.
※2：This category in the Jan 2010 survey, the Jan 2011 survey, and the Jan 2012
survey was "Slightly improved"6) Exit Strategies
With respect to the exit options available over the next one year, the largest share of 24% chose “Sale to the third
party other than REITs or private funds”. The second largest share (23% of respondents) was “Extension of
investment period with refinance”, the latter has been on a declining trend since the January 2011 survey.
Meanwhile, “Sale to third party REITs” accounted for 22%, continuing a steady rise from 6% in the July 2009
survey.

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These results showed that, in light of the ongoing improvement in the appetite of REITs and private funds toacquire properties, as shown below, the exit strategies of funds appear to have been gradually shifting from
“Extending the investment period with refinancing.” and “Sale to general business companies”, to ”Sale tothird-party REITs” and ”Sale to third-party private funds”.
Fig.16 Exit Options Available Over the Next One Year
100%

15%
80%

20%

26%

17%

27%

28%

23%

24%

27%

33%
40%

36%

30%

13%

10%
16%

12%
11%
4%

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

26%

0%

27%

22%

14%

20%

27%

12%

60%

40%

30%

5%
8%
4%

07/12
08/07
（ ｎ =108） （ n=122)

4%
7%
4%
09/01
（ n=114)

6%

11%

11%

14%

4%
5%
4%

5%
2%
4%

21%
5%
3%
3%

25%

30%

19%

15%

25%

23%

19%

22%

Sale to the third party REITs
Sale to the third party private funds
Sale to affiliate REITs

17%

19%

21%

6%
4%
1%

5%
2%
2%

6%
3%
1%

20%
Sale to the affiliate private funds

6%
3%
3%

Others

09/07
10/01
10/07
11/01
11/07
12/01
12/07
（ n=113) （ n=113） （ n=150） （ n=127） （ n=165） （ n=154） （ n=156）

2. Outlook for the Market
Fig. 17: The Bottoming out of Rents

1）The Bottoming out of Rents
With respect to the bottom-out timing of office rents, thelargest number of managers answered it would be hit

Already hit the peak11

from “July-December 2012”. With that in mind, in theJuly to December 2012

12

January 2012 survey, the largest number of managers

January to June 20132

answered it would be hit from “July-December 2012”.

July to December 2013

3

This indicated that many managers have not changed

January to June 201400

their expectation that the timing of the bottoming out ofSince January to June 2014

0
1

office rents would be in 2012.

0

Regarding the bottoming-out of rents in the residential

45
24

15
13

10
Office20

30

40

Residential

sector, 45 respondents expected that “rents had already
hit the peak”, suggesting that a majority of managers believed that residential rents had already bottomed out.
2）Cap Rates Forecast by Area
The majority of managers answered that the office cap rate would “Remain unchanged”. However, for thecentral 5 wards of Tokyo, the 23 wards of Tokyo and the Tokyo metropolitan area, the share of “Decline”
exceeded that of “Rise”, indicating that a majority of managers believed that the office cap rate decline is wellunderway in Tokyo, Kanagawa, Saitama, and Chiba.
The majority of managers answered that the residential cap rate would “Remain unchanged”. Meanwhile,the share of “Decline” exceeded the sum of “Rise” and “Substantially rise”. This shows that a certain amount ofmanagers believed that the residential cap rate would decline not only in Tokyo but also in local regions.

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Fig. 18：Forecast for Cap Rates by Area
【Residential】【Office】
100%

3%

8%

100%

7%

16%

20%

8%

8%

57%

57%

34%

35%

8%

10%

8%

72%

67%

72%

20%

23%

20%

Tokyo
metropolitan
area(n=60)

Kinki area(n=60)

Nagoya area(n=60)

80%

80%
53%
60%

64%

60%

77%

62%

72%

40%
44%

20%

28%

20%
16%

18%

11%

Tokyo
metropolitanarea(n=61)

Kinki area(n=61)

Nagoya area(n=61)

0%Central 5 wards 23 wards ofof TokyoTokyo(n=62)(n=61)

Decline40%

Remain unchanged

Rise

0%
Central 5 wards 23 wards ofof TokyoTokyo(n=61)(n=60)

DeclineSubstantially rise

Remain unchanged

Rise

Substantially rise3)Environment and Forecast for Real Estate Transactions
Responding to a question on how the transaction environment in the January to June 2012 period changed
compared with the July to December 2011 period, the largest share of 42% chose “Slightly increase”, and thesum of “Slightly Increase” and “Increase significantly” accounted for 50%, suggesting that half of the
respondents have experienced an increase in real estate transactions.
For transactions by J-REITs, the combined total of “Slightly Increase” and “Increase significantly” accounted
for 75%, meanwhile, transactions by privately placed funds accounted for 61%. No respondents answered thatthe transactions by J-REITs would “Slightly decrease” and “Decrease significantly”. This showed that many
managers expected that transactions by J-REITs would expand earlier and those by privately placed funds would
also increase at a later date in the footsteps of the J-REITs.
Fig.20: Forecast for Transactions
by privately placed funds and J-REITs

Fig.19: Real Estate Transactions(July-Dec 2011 to Jan-Jun 2012)
8%
9%

3%

（Respondents 64）

Slightly increase

42%

100%

<Private>
3%
2%

80%

34%

<J-REIT>
25%

Slightly decrease

Remain unchanged
60%

Slightly decrease38%

Decreasesignificantly

Remain unchanged

Increase significantly

40%

Decrease significantly

20%

67%
58%

0%

3%
2012/07（n=64）

Slightly increase8%

Increasesignificantly

2012/07（n=64）

3. Business Environment of Private Real Estate Investment Management1）Managers’ Involvement with Open-ended Funds
With respect to the involvement with open-ended funds, the largest share, with 46% of respondents, answered thatthey “Seek to develop a better understanding and gather information, but not working on a detailed study”.
Meanwhile, “Decided not to launch after consideration, but may consider again in the future” (13%), “Preparing
for a launch after consideration” (11%) and “Have already launched” (11%) accounted for 35% in total,suggesting that a certain amount of managers have an interest in the open-ended funds.
As for the target investors of open-ended funds, the largest number of managers chose “Domestic Pension Funds”,
suggesting that currently a majority of managers target domestic investors including domestic pension funds.

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Fig.21 Managers’ involvement with Open-ended Funds

Fig.22 Target Investors of Open-ended Funds
n=51（Respondents 14）（Respondents 63）

11%

2%

46%

11%

Domestic pension funds
Domestic major banks
Domestic regional banks
Domestic other institutional banks
Domestic corporations
Foreign pension funds
Domestic other institutional banks
Foreign institutional
Sovereign funds
Foreign high net worth
Domestic high net worth
Fund of funds
OthersSeek to develop a better understanding and gather
information, but not working on a detailed study
Have heard of the name, but have not considered
involvement
Decided not to launch after consideration, but
may consider again in the future
Have already launched

13%
Preparing for a launch after consideration
Decided not to launch after consideration and not
likely to reconsider in the future

17%

Have not heard of the name and have notconsidered involvement

8
6
6
6
6
6
5
4
3
1
0
0
0
0

2

4

6

8

10

With respect to the factors necessary for the expansion of the open-ended funds market, the largest number, 43
respondents, answered “Expansion of the investor base.” The main investors are domestic institutional investors,
including pension funds in the present circumstances. However, a majority of managers consider that raising funds
from a wide range of investors is necessary for the market expansion..
Meanwhile, a certain amount of managers chose “Increase in frequency of disclosure” and “Standardization of
items to be disclosed”. These responses showed that not an insignificant number of managers consider disclosure
to be an important factor as well as publicly traded J-REITs.
As many as 15 respondents answered “Support of sponsors” which suggests that managers believe that someinvestors pay attention to the sponsor support systems associated with the acquisition and sale of properties,
including “pipeline support” agreements, and other investors feel that the creditworthiness of sponsors affects afund’ financing.
Fig.23: Factors Necessary for the Expansion of the Open-ended Funds Market
n=134（Respondents 57）

Expansion of the investor base

43

Increase of the number of funds and assets under management

34

Support of sponsors

15

Increase in frequency of disclosure

14Standardization of items to be disclosed

12

Review of laws and regulations, and tax accounting

9

Further development of compliance structure

3

Others

4
0

10

20

30

40

50

2) Managers’ Involvement in the Overseas Real Estate Management BusinessWith respect to the question of fund managers’ involvement in the overseas real estate management business,
55% of managers said that they had “No plans now or in the future”, which increased from 42% in the January
2012 survey. As for the reasons for not engaging in the overseas real estate management business, the mostcommon answer was “Inadequate internal systems and investment management systems” (59%), followed by“Will focus on investments in Japan” (38%). The survey showed that many managers focus on the domestic realestate management business at present.

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Fig.25: Reasons for Not Doing
the Overseas Real Estate Management BusinessFig.24: Managers’ Involvement with
the Overseas Real Estate Management Business（Respondents 32）（Respondents 64）

3%
55%

19%

Inadequate internal system andinvestment management system

No plans now or in the
future59%

Will focus on investments in Japan

Currently considering38%

Large risks in investing in realestate overseas

Have already launched

23%

3%

Others13%

Will launch

0%

20%

40%

60%

3) Important Factors for Improvement in the Privately Placed Real Estate Funds Market
With respect to important factors necessary for the recovery of the privately placed real estate funds market, themost common answer was “Recovery of the real estate rental market”, followed by “Recovery of the J-REIT
market”, and “Increase in the volume of real estate transactions”. The share of responses for “Inflow of global
investment money”, which was the second-largest share (59%) in the January 2012 survey, decreased to 40%.
There are many managers who think that for improvement in the privately placed real estate funds market, a
recovery in the domestic real estate rental market is of more importance than the inflow of global investment money.
Fig.26: Important Factors for Improvement in the Privately Placed Real Estate Funds Market（Respondents 64）【Jan 2012 Survey】

Recovery of the real estate rental market

69%

Inflow of global investment money

59%

Recovery of the J‐REIT market

53%

Sale of distressed properties on the market

52%

Increase in the volume of real estate transactions

45%

Relaxation of regulations by the government

39%

Ending of the European debt problems to a certain extent

39%

Eliminating concerns of investors over the nuclear power plant problems

25%

Development of new products such as open‐ended funds

16%

Development of investment indexes

13%

Improvement in the debt financing environment

11%

Others0%【Jul 2012 Survey】

20%

40%

60%

80%

（Respondents 63）
Recovery of the real estate rental market

59%

Recovery of the J‐REIT market

46%

Increase in the volume of real estate transactions

44%

Sale of distressed properties on the market

43%

Inflow of global investment money

40%

Ending of the European debt problems to a certain extent

27%

Relaxation of regulations by the government

24%

Development of investment indexes

17%

Eliminating concerns of investors over the nuclear power plant problems

10%

Improvement in the debt financing environment

3%

Advance of recovery from the Great East Japan Earthquake

2%

Others

3%
0%

11

20%

40%

60%

80%

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4) Managers’ Requirements for Future Growth and Sustainability of their Businesses
The most common answer to the question regarding requirements for the future growth and sustainability of
their businesses was “Improving property-acquisition abilities”, followed by “Enhancement of AM capabilities”
and “Enhancement of equity raising capabilities”. The six most common answers were the same as thosereported in the January 2012 survey.
The share of managers who chose “Improving property-acquisition abilities” increased to 69% from 56% in
the January 2012 survey. In the July 2012 survey, it has become apparent that both investors’ appetite and thetransaction situation has improved and as a result many managers are now looking at the acquisition availabilityof desirable properties for launching new funds.
Fig.27: Manager’s Requirements for Future Growth and Sustainability of their Businesses（Respondents 64）【Jan 2012 Survey】

56%

Improving property‐acquisition abilities
Enhancement of AM capabilities

52%
47%

Enhancement of equity raising capabilities
Management strategy and its accountability

41%

Enhancement of relations with investors

25%

Enhancing the ability to handle foreign investors

19%
16%
16%

Reinforcement of compliance structure
Competence in special expertise
Enhancement of research capabilities

16%
13%
11%
11%
9%

Enhancement of corporate strength
Enhancement of debt financing capabilities
Development of new products such as open‐ended funds
Reinforcement of information disclosure
Expansion of foreign real estate fund that targets businesses
Building a bad debt investment system
Others

5%
2%
0%
0%

20%

40%

【Jul 2012 Survey】

60%（Respondents 62）
Improving property‐acquisition abilities

69%
53%

Enhancement of AM capabilities
Enhancement of equity raising capabilities
Management strategy and its accountability
Enhancement of relations with investors
Enhancing the ability to handle foreign investors
Competence in special expertise
Reinforcement of compliance structure
Enhancement of research capabilities
Entry into open‐ended funds business
Reinforcement of information disclosure
Enhancement of corporate strength
Enhancement of debt financing capabilities
Enhancement of debt financing capabilities
Expansion of target property types
Expansion of foreign real estate fund that targets businesses
Others

39%
31%
24%
23%
16%
13%
10%
6%
6%
5%
3%
2%
0%
0%
5%
0%

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20%

40%

60%

80%

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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 discretionof manager subject to pre-determined investment guidelines

Discretionary investment type：

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 type

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

Open-ended fund：This 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
value of 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 soundproperties generating steady income flows.

Opportunity style：An investment style in which high-risk high-return investments are contemplated, such as
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
and capital 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
flow of an investment equal to its current value of the investment.

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Contact:

Sumitomo Mitsui Trust Research Institute Co., Ltd
3F Kamiyacho Central Place. 4-3-13, Toranomon, Minato-ku, Tokyo
105-0001, Japan
https://www.smtri.jp/english/contact/form-private/private_fund.html
http://www. smtri.jp/

Disclaimer:
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2. Although any materials provided by SMTRI, including this document, are prepared based on information
which SMTRI considers reliable, SMTRI cannot be held responsible for their accuracy or completeness. In
addition, as this document was prepared based on the information available at the time of preparation or
research, all contents provided herein represent the judgments at the time at which the material was prepared.
The contents of this document are subject to change without prior notice.
3. All rights related to this document are reserved by SMTRI. Copying, reproduction or revision of this document,
in whole or in part, is not permitted without the prior consent of SMTRI, irrespective of the purpose or method.
4. SMTRI is not a real estate appraiser, nor provide clients with any appraisal reports on real estate properties.
SMTRI is a real estate investment advisor authorized by the related Japanese law and regulation, and conducts
advisory services for investment judgments based on the values or value analyses of investment products. In
the process of implementing advisory services, SMTRI may calculate asset values of real estate properties.
However, such calculations are for the necessity of implementing advisory services, and calculated values are
not indicated with single values, but with multiple indications, ranges or distributions.

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