News Release
Survey on Privately Placed Real Estate Funds in Japan
January 2013- Results
March ４th 2013
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 15th survey based on responses to questionnaires received from 54 real estate
investment management companies.
 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: 120
 Number of companies responded: 54 (ratio of valid responses: 45.0%)
 Time of survey: January 2013
 Survey method: Distribution and collection of questionnaires by post and e-mail

Based 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 2012 to be 17.5
trillion yen, this includes Japanese assets of global funds (*) that we were aware of. The market size asof the end of June 2012 was 18.1 trillion yen, which is a decrease of approximately 560 billion yen(3.1%) over a six-month period from the previous July 2012 survey. In this survey, we have revised thepast figures to reflect the more detailed data which was obtained.

Market size of privately placed real estate funds is 17.5 trillion yen including Japanese assets of global fundsThe survey found that, due to the increased appetite of equity investors, the continuation of the favorable debt
financing environment, and gradual recovery in investment real estate transactions, foreign investment
management companies are taking the lead in setting up new funds and expanding assets under management(AUM). Meanwhile, the survey also revealed that many investment management companies are reducing AUM
by, among other things, selling part of the property holdings of existing funds (including selling the assets ofprivately placed funds to establish listed REITs). And, as a result, total AUM of privately placed funds
decreased.
（*） We define the “global fund” as a fund targeting real estate investments in various countries including Japan.
Assets under management（Trillion yen）

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

20.0
18.0
16.0

17.1

17.6

17.7

16.9

16.8

17.6

17.2

17.6

18.1

14.0

13.8

14.9

14.7

14.7

14.8

15.8

13.7

13.6

14.3

14.0
12.0

10.2

10.0
8.0

2.0

6.1 6.7

5.4

4.5

10.0

6.1

5.5

6.0
4.0

17.5

7.8

7.6

7.5

7.4

7.4

6.8

9.0

8.7

8.3

8.0

7.8

15.3

PrivateJ‐REIT

PrivateJ‐REIT

J‐REIT

PrivatePrivateJ‐REIT

PrivateJ‐REIT

J‐REIT

PrivatePrivateJ‐REIT

J‐REIT

PrivatePrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

J‐REIT

PrivatePrivateJ‐REIT

0.0

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

J‐REITsPrivately Placed funds that only invest in domestic real estate
Privately Placed global funds (Domestically invested assets)1

News Release March 4th 2013

“ Survey on Privately Placed Real Estate Funds”

January 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 “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 3.8086 trillion yen (44%), while separate accounts stood at 3.3807 trilion yen (39%). The
commingled funds’ share of total AUM continues to trend downward.
Fig.1 Breakdown of Commingled Funds and Separate Accounts
100%

25%

26%

13%

13%

80%

11%
60%

29%
19%

6%
34%

37%

16%

17%

9%

13%

16%

Others
22%

27%

33%

36%

39%

Separate accounts
40%

64%

55%

58%

20%

50%

61%

62%

56%

58%

50%

44%

Commingled funds

0%
07/12 09/01 09/07 10/01 10/07 11/01 11/07 12/01 12/07 13/01（n=37) (n=43) （n=57) (n=51) (n=56) (n=54) (n=60) (n=54) (n=59) (n=48)

2) A description of funds under managementa. Fund types
The total number of privately placed real estate funds that are currently managed by the respondents, was 484.
By type (based on the number of funds), “Fixed Property Type” accounted for 84%, “Additional Acquisition
Type” accounted for 4%, “Discretionary Investment Type” accounted for 10%, and “Open-ended Funds”, which
is a new category inthis survey, accounted for 2%. The tendency for investors to prefer the Fixed

Property Type, with properties fixed from the start of the investment period, remains strong.
Fig.2 Breakdown of Funds by Type
100%
80%

6%

5%
13%

5%
8%

29%

12%
6%

2%

18%

10%
4%

Discretionary investment type

60%
40%

Open-ended funds

9%

82%
65%

87%

82%

73%

84%

Additional acquisition type

20%
*Fixed“Open-ended
Funds”
property
typewas added from this survey.

0%
07/12
09/01
10/01
11/01
12/01
13/01
(n=181) (n=381) (n=466) (n=574) (n=504) (n=386)2

News Release March 4th 2013
The following topics from b. to g. describe “the funds currently under management”. This does not refer to all funds
managed by respondents, but only to the funds that they could provide data for. The data also includes a small number ofglobal funds that invest in domestic real estate.

b. Management Style“Core” style funds, which place an emphasis on income, accounted for 64%, this is an increase from the 45%
in the January 2012 survey. Meanwhile, “Value-added” style funds decreased to 14% from the 29% in theJanuary 2012 survey. “Opportunity” style funds remained roughly unchanged at 21%.
Fig.3 Breakdown of Funds by Management Style
100%
18%
80%

12%

13%
13%
11%

60%

9%

10%

12%

12%

24%

24%

3%
11%

5%
26%

2%

2%

25%

21%

Debt

14%

Development

23%
11%

24%

29%

Opportunity
40%
62%
45%

20%

55%

63%

54%

64%

58%

Value-added

45%

Core
0%
05/12
(n=49)

06/12 07/12(n=45) (n=106)

09/01(n=78)

10/01(n=88)

11/01(n=65)

12/01(n=56)

13/01(n=58)

c. LTV Ratio
The average LTV ratio of funds currently under management was 68.9%, rising slightly from 67.6% in theJanuary 2012 survey. The average LTV ratio of funds scheduled to be launched within a year was 64.9%, risingfrom 59.4% in the January 2012 survey, but still lower than the 68.9% average LTV ratio of funds currently
under management. A breakdown of funds scheduled to be launched within a year shows more diversity in the
LTV ratios of future funds compared with the January 2012 survey, with many funds targeting a high LTV ratio
ranging from 70% to more than 80%, and with some funds targeting equity investment only.
Fig.4 Average LTV Ratio of Existing Funds and Funds to be launched within one year
75%

72.1% 70.9%

70.7%
70%

71.0%
68.6%

72.3% 71.3%
67.4%

70.2%

68.9%

67.6%

64.9%

65%

63.5%

60%

60.2%

59.4%

57.6%

55%
50%
05/12

06/12

07/12

Funds currently underManagement

09/01

10/01

11/01

3

12/01

13/01

Funds scheduled to be
Launched within a year

News Release March 4th 2013

d. Target Asset Size
The average target asset size of funds under management was 38.6 billion yen in the January 2013 survey,
decreased significantly from 84.3 billion yen in the January 2012 survey. It should be noted that the survey foundmany of small funds with target asset sizes of several billion yen, this significantly pushed down the averagetarget asset size.
It should also be noted that due to different funds participating in the survey from year to year and the often
wide variation in fund target size, the calculated averages do not express actual volatility.
Fig.5 Average Target Asset Size(bil yen)
120
110.3

100
80

84.3
72.9

60

61.4

66.0

59.5

40
41.1
20

38.6

33.3

32.4

0
03/12
(n=37)

04/12(n=29)

05/12(n=47)

06/12(n=41)

07/12(n=75)

09/01(n=56)

10/01(n=64)

11/01(n=44)

12/01(n=40)

13/01(n=49)

e. Target IRR (Internal Rate of Return)
The average target IRR was 14.3%, slightly down from the January 2012 survey. A breakdown by fund typeshows that target IRR fell for all types.
It should be noted that the number of responses to this question was limited.

Fig.6 Average Target IRR
(％)
25.0

Discretionary investment type
20.0

15.0

1 2.5

10.0

16 .7
14 .3
13.5
13 .1

5.0

Total
Open-ended funds
Fixed property type
Additional aqcuisition type

0.0
03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01(n=17) (n=35) (n=33) (n=32) (n=47) (n=61) (n=38) (n=26) (n=29) (n=33)

4News Release March 4th 2013

f. Target Investment Period
In the January 2013 survey, the average target investment period of funds currently under management was 6.5
years, continuing its lengthening trend after hitting a low of 3.8 years in the December 2005 survey, but slightly
shorter than in the January 2012 survey. The lengthening trend until the January 2012 survey is believed to belargely attributable to continued investment management through refinancing.
A breakdown by investment period (Fig.8) reveals that the

decline continues for the response of “Six years ormore”. The response “At least five years but less than six years” fell sharply, and the response “At least four
years but less than five years” increased significantly.
Fig.7 Average Target Investment Period(Years)

8
6.7

7

6.5

6.4

6

6
4.7

5

5.3

5.3
4.6

4.4

4.3

5.3

4.8

4

5.2

5.0

Funds scheduled to be
Launched within a year

4.2

3.8

3

6.1

Funds currently underManagement

3.5

2
1
0
03/12

04/12

05/12

06/12

07/12

09/01

10/01

11/01

12/01

13/01

Fig.8 Breakdown of Average Target Investment Period
100%
90%

18%

9%

20%
19%

80%

8%
24%

Six years or more
28%

31%

57%

70%
60%

41%

50%

16%

21%

32%

20%
10%

21%

7%

9%

35%

12%

18%

15%

14%

11%
19%

0%
04/12
(n=34)

05/12(n=43)

06/12(n=39)

07/12(n=76)

09/01(n=63)At least five years but lessthan six years
At least four years but lessthan five years

36%

22%
15%

37%

42%

16%

40%
30%

25%
10%

31%

47%

52%

29%

13%

9%

6%

2%
4%

10/01
(n=64)

11/01(n=56)

5

17%

Less than three years
2%

12/01
(n=47)At least three years but lessthan four years

13/01(n=47)

News Release March 4th 2013

g. Target Property Types and Areas* Multiple answers to questionnaires were allowed in this survey item.
The figures represent the ratios of answers against the total number of answers.

Regarding property types, in the January 2013 survey, the share of “Office” slightly increased, “Retail” and“Industrial” fell slightly, while “Residential” remained unchanged. The share of each type has not changed
significantly. “Facilities for the elderly” and “Health-care facilities”, which are newly added categories in thissurvey, accounted for 2% and 1%, respectively.
By investment area, the highest response rate was“23 Wards of Tokyo” at 33%, followed by “Tokyo
Metropolitan area”, and “Kinki area ” The “23 Wards of Tokyo” response rate rose from the January 2012
survey, the “Tokyo Metropolitan area” response rate decreased slightly, and “Kinki area” and “Nagoya area”
response rates declined. The ratio of investment in central Tokyo is believed to have risen on expectation of asustained recovery in the rental

and transaction markets in this region.
Fig.9 Target Property Types

100%
90%

7%
9%

19%

17%

19%

80%
70%

9%

12%

20%

1%
9%

7%

10%

12%

18%
23%

1%
9%
13%

22%

20%

60%
50%

34%

43%

36%

3%
12%

1%
11%

2%
2% 1%
10%

12%

15%

11%

Health-care facilities

18%

20%

18%

Facilities for the elderly
Hotel

36%

40%

26%

25%

25%

25%

25%

25%

Industrial

30%
20%
10%

OthersRetail
30%

29%

33%

29%

30%

34%

31%

30%

28%

Residential

31%

Office0%03/12(n=44)

04/12(n=69)

05/12(n=81)

06/12(n=77)

07/12
09/01
10/01
11/01
12/01
13/01
(n=164) (n=111) (n=122) (n=151) (n=123) (n=110)* In 04/12 through to 06/12, Industrial and Hotel types were included in “Other types”

Fig.10 Target Areas
100%
90%
80%

2%
26%

31%

28%

16%

70%
60%

3%
18%

24%

16%

17%
17%

22%

27%

50%

20%

18%

12%

11%

14%

15%

16%

24%
32%

30%
48%

49%

10%

14%

0%
03/12
(n=42)

04/12(n=91)

05/12(n=99)

4%

17%

19%

40%

20%

1%

2%

27%

20%

2%
15%
14%

16%

22%

22%

20%

7%

12%

31%

25%

26%

27%

Local area

14%

Nagoya area

19%

Kinki area

33%

Tokyo Metropolitanarea
23 wards of Tokyo

37%
24%

Others

14%

8%
06/12
(n=83)

07/12
09/01
10/01
11/01
12/01
13/01
(n=231) (n=155) (n=189) (n=169) (n=157) (n=105)* In 03/12, the Kinki and Nagoya areas were included in Local areas, whereas in 04/12 through 06/12, 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.

6

News Release March 4th 20133) Circumstances of Debt FinanceRegarding debt financing, respondents answered by choosing from 1 (most severe) to 5 (least severe). The
survey found that debt finance circumstances have eased, with “4” being the most popular response, chosen by 31
respondents (60% of total responses), followed by “5” with 17 respondents (33% of total responses). When

responding to a question on how debt finance circumstances changed between the July-December 2012 period
and the January-June 2012 period, 55% chose “Slightly improved” and “Improved”, followed by “Unchanged”
with 45%. Meanwhile, in this survey, no respondents selected
responses reflect“More severe” and “Slightly severe”. Thesea continued improvement in debt financing. Regarding specific improvement, of the

respondents who answered “Slightly improved” and “Improved”, 29% specified “Contraction of interest
spread”, followed by “Expansion of underwriting areas and types” and “Rise of LTV” which accounted for 20%
and 18% respectively.

【Jul 2012 Survey】

Fig.11 Circumstances of Debt Financing
12

5

17

4
3

severe

42

31
4

2

0

1

0
0
0

Unchanged
48%

Slightly
Improved
38%

10

15

20

25

30

35

40

More
severe Severe0%0%
Improved
22%（Respondents 64）

7

2

5

More
severe0%

Improved
14%【Jan 2013 Survey】（Respondents 51）

Unchanged
45%

Slightly
Improved
33%

45(quantity of responses)

July 12（Respondents 63）

Jan 13（Respondents 52）4) Circumstances of Equity Raisinga. Appetite of Equity Investors
With respect to the appetite of equity investors, compared to the July 2012 survey, the results clearly indicate anincrease in the appetite of equity investors, with the “Rising” response rate jumping to 60%, from 38% in the July2012 survey, and with response rates of 40% for “Unchanged” and 0% for “Declining.”
Fig.12 Appetite of Equity Investors
100%
18%
80%

1%

45%

5%
40%

54%
64%

Unchanged

61%

74%

45%
46%

20%
24%
9%
06/12
(n=34)

07/12(n=37)

13%
08/07(n=54)

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

20%

Declining

57%

62%

83%

59%

10%

34%

54%

0%

2%
20%

41%

60%
40%

7%

16%

31%

60%
44%

38%
20%

26%

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

7

RisingNews Release March 4th 2013b. Increases and Decreases in Investment Volume by Investor Category
Of all the investor categories, those surveyed said that they expected “Foreign Institutional Investors”(excluding SWF and Foreign Pension Funds), (34 votes) would increase their investment volume, followed by“Foreign Pension Funds” (29 votes), and “Domestic Pension Funds” (26 votes).
On the other hand, “Domestic Regional Banks” (10 votes) and “Domestic Major Banks” (9 votes) were
expected to decrease their investment volume. There were many managers who considered, that due to the BIS
Capital Adequacy Requirements, the investment volume by domestic banks was likely to decline. However,managers expected growth in the investment volume of pension funds, institutional investors (other than banks),and high net worth individuals, regardless of whether they are domestic or foreign.

Fig.13 Expectation for Volume Change By Investor

2

Domestic pension funds

26
4

Domestic union financial
Domestic major banks

14
9

4

Domestic regional banks

9

10

5

Domestic other institutional banks

16

4

Domestic corporations
Domestic high net worth0

Foreign pension funds

0

22
17
29

2

Foreign institutional (ex.SWF and Pensions)34

1

Foreign high net worth
Sovereign funds

0Fund of funds

0

Others

0

18
21
13
2

0

10

Decrease n=39（Respondents 19）

20

30

Increase n=223（Respondents 48）

840

News Release March 4th 2013c. Investment Stance of Equity Investors ( by investor category)
When investment management companies were asked about the investment stance of equity investors byinvestor category, a relatively large number responded that domestic pension funds, domestic corporations andforeign pension funds invested for the purpose of core long-term investment. According to thissurvey,responses indicating that domestic corporations, foreign pension funds and foreign high net worth investors saw
investment as a good opportunity to earn capital gains remained at a reasonable level. Overall, , responses
indicating a positive investment stance for domestic corporations, foreign pension funds and foreign high net
worth investors accounted for almost 90% of the total, this included responses related to the rental market.
On the other hand, there were some signs of a negative investment attitude, with 10% responding that domestic
pension funds “Will not invest in the immediate future, given bad performance in the past,” and 7% respondingthat domestic pension funds “Will not invest in the future, given the high risk of real estate.”
Fig.14 Investment Attitude of Equity Investors

100%

2%
2%
13%

90%
80%

Began investing as a good opportunity to earn capital gains

10%
24%

27%

12%

Considering investment as a good opportunity to earn capital gains
Began investing as the core long-term investment

13%

Considering investment as the core long-term investment

70%

24%
24%

60%
50%

30%
20%
10%
0%

16%
3%
5%
3%
3%
2%

17%
2%

7%

11%
6%
4%

Domestic
pensionfunds(n=59)

Domestic
corporations(n=54)

Foreignpensionfunds(n=51)

Examining investment, given signs of recovery in rental market
Cannot embark on investment given uncertainty over the rental market
Unwilling to invest because of lack of growth potential in GDP, consumption, and population
Unwilling to invest due to high earthquake risk

16%
20%

5%
3%

16%

2%
8%

11%

10%

Waiting for real estate prices to cease to fall, though willing to invest
Resuming investment, given partial recovery in rental market

8%

27%

40%

16%

8%

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

4%

Will not invest in the future, given the high risk of real estate

8%

Will not invest in the future due to BIS regulations

Foreignhigh net
worth(n=25)

Will not invest in the future due to tighter solvency margin regulation
Will control in the future due to tighter regulation in view of AIJ problem
Others* Multiple answers (up to three answers) to questionnaires were allowed in this survey item. The figures represent the ratios
answers against the total number of answers.

9

News Release March 4th 2013

d. Sources of Foreign Funds by Country or Region
The highest response rate was 27% (based on the number of respondents) for investors from “Asia excluding
China and Middle East”, followed by “North America” and “Europe” with 24% each. In the January 2013
survey, the “China including Hong Kong” response rate was 8%, down from 12% in the January 2012 survey.
Fig.15 Sources of Foreign Funds by Country or Region
100%
90%

30%

33%

35%

80%

27%

31%

70%

North America

23%

24%

60%
50%

25%

25%

8%

10%

40%

10%

33%

30%

08/07
(n=52)

3%
09/01(n=40)

10%
0%

8%
6%

11%

30%
20%

27%

24%

31%

24%

28%

6%
7%

9%

25%

27%

27%

24%

24%

24%

10%

12%

12%

8%

17%

27%

EuropeMiddle East
Asia including Australia
China including Hong Kong
Asia (excl. China / M.East)
Australia

2%
8%
2%
2%
09/07 10/01 10/07 11/01 12/01 13/01(n=61) （n=49） （n=67） （n=70） （n=59） （n=49）
7%

6%Others7%* Since the January 2010 survey, Asia-Pacific has been broken down into China, Middle East, Asia (excluding China and Middle East),
and Australia.
* In the January 2011 survey, questions were asked separately for institutional investors and individual investors. The figures of 11/01
in Fig.16 shows the total of institutional and individual investors.

e. Expectation of Cash Inflow from Investors by Region
Compared to the July 2012 survey, for all regions, the share of managers who responded with “Increase” and“Slightly increase” grew. In particular, there was a marked increase in the share of “Slightly increase” in relation
to North America and Europe. Results suggest that the expectation of cash inflow from foreign investors is
improving on the positive outlook for a sustained recovery in Japan’s domestic rental and transaction markets.
Fig.16 Expectation of Cash Inflow from Foreign Investors By Region【Jul 2012 Survey】
North America
9%(n=35)
Europe6%(n=34)
Middle East14%
(n=28)
China(n=31)
Australia
4%19%(n=27)
Asia excl. China
11%(n=35)
0%

Increase【Jan 2013 Survey】

31%

57%

41%

32%
50%

12%
29%

48%

60%

Slightly increase

9%
7%

52%
74%

20%

North America
9%(n=22)
Europe14%(n=22)
Middle East18%
(n=17)
China
6%(n=18)
Australia(n=17)
Asia excl. China14%(n=21)

3%

40%

Unchanged

4%
26%

60%

80%

Slightly decrease

3%
100%

0%

Decrease

Increase

10

14%

73%

5% 9%

73%

6%

29%

47%

17%

61%

11% 6%
6% 6%

47%

41%

19%

67%
20%

Slightly increase40%

Unchanged

5%

60%

80%

Slightly decrease

100%

DecreaseNews Release March 4th 2013

“Reasons for Foreign Investors entering or not entering the Japanese Real Estate Market”
Regarding reasons for investors entering the Japanese real estate market, the most comon response (25respondents) was “The size of the real estate market is large.” followed by “Allocation as part of the global
portfolio”, with 24 respondesnts, and “Relatively attractive due to the yield gap” with 21 respondesnts. The top
three reasons were the same as those in the January 2012 survey.
The reasons “Highly stable income,” “Making investment in Japan, a mature market, while expanding
investment in Asia” and “Rental market is in a recovery phase” secured a reasonable level of votes, with 16
respondents each.
As for the reasons for investors not entering the Japanese market, the most common response (24 respondents)
was “Lack of growth potential in GDP, consumption, population, etc.”, followed by “Low growth potential inincome” with 16 respondesnts, and “Lack of attractive investment opportunities” with 11 respondents.
Fig.17 Reasons for foreign investors investing in Japann=163（Respondents 30）

The size of the real estate market is large

25

Allocation as part of the global portfolio

24

Relatively attractive due to the yield gap

21

Highly stable income

16

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

16

Rental market is in a recovery phase

16

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

14

Politically and economically stable

9

The effects of the European debt crisis are relatively limited

7

Expectation of correction of strong yen

7

Highly transparent real estate market

4

Undervalued investment opportunities

2

Income with growth potential

1

More deal opportunities

1

Others

0
0

5

10

15

20

25

30

Fig.18 Reasons for foreign investors not investing in Japann=91（Respondents 27）

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

24

Low growth potential in income

16

Lack of attractive investment opportunities

11

Earthquake risk

9

Cannot embark on investment given uncertainty in the rental market outlook

8

Low transparency in the real estate market

7

Strong yen makes investment less enticing

6

Lack of policy consistency due to government instability

6

Declining investment value due to a contraction in the yield gap

2

No end of the decline in real estate prices in sight2

Others

0
0

5

11

10

15

20

25

News Release March 4th 20135) Circumstances for Acquisition and Sale of Properties
Looking at circumstances for acquisition, the number of respondents answering “Acquired” was 51%, up from
42% in the July 2012 survey. As for the number of properties examined for acquisition (assessment of
profitability, etc.), “11 ~ 30 properties” was the most popular response, with 18 respondents, followed by “10properties or less,” with 14 respondents. The most common reason for not acquiring property was “Failure toreach agreement on price,” with 36 respondents.
Turning to circumstances for sale in the second half of 2012 compared to the first half of 2012, circumstances
for sale show improvement, with zero respondents answering “More severe” and “Slightly severe” comparedwith 8 respondents answering “Improved” and 20 respondents answering “Slightly improved.”

Fig.20 Examined for acquisition

Fig.19 Circumstances for Acquisition（Respondents 41）（Respondents 49）

10 properties or lessDidn'tacquire49%

14

11～30 properties

Acquired51%

1831～50 properties

3

More than 50
properties

60

Fig.21 Reason for not acquiring property

5

10

15

Fig.22 Ease of disposition（Respondents 47）

n=45（Respondents 43）

Did not plan to acquire from theoutset2

Did not examine as properties
are not moving in the market

2

More severe0

Slightly severe0Unchanged

Failure to reach agreement on
price

10

Slightly Improved

36

20

Improved

Others20

85

Had no plan to sale
0

10

20

30

40

9
0

12

5

10

15

20

25

News Release March 4th 2013

6) Exit Strategies
With respect to the exit options available over the next one year, the largest share of 24% chose “Sale to thethird party other than REITs or private funds”. The second largest share (23% of respondents) was “Extension of
investment period with refinance”, followed by ” Sale to the third party REITs” and ” Sale to the third party
private funds” with 20% each.
Fig.23 Exit Options Available Over the Next One Year
100%

15%
80%

20%

26%

17%

28%

27%

23%

24%

24%

27%

33%
40%

36%

30%

13%

10%
26%
16%

12%
11%

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

22%

14%

20%

27%

12%

60%

40%

30%

27%

5%
8%
4%

4%
7%
4%

6%

11%

11%

14%

4%
5%
4%

5%
2%
4%

30%

15%

25%

19%

25%

23%

23%

19%

22%

20%

21%

20%

20%

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

21%

17%

19%

5%
3%
3%

6%
8%
6%
6%
5%
3%
3%
2%
3%
4%
4%
3%
2%
2%
1%
1%
0%
07/12 08/07 09/01 09/07 10/01 10/07 11/01 11/07 12/01 12/07 13/01（ｎ=108） （n=122) （n=114) （n=113) （n=113） （n=150） （n=127） （n=165） （n=154） （n=156） （n=119）

13

Sale to the affiliate private funds
OthersNews Release March 4th 2013

2. Outlook for the Market and Management
1）The Bottoming out of Rents

Fig. 24: The Bottoming out of Rents

Regarding the timing of the bottoming out ofrents, the majority of respondents said that office

Already bottomed out

rents would stop declining in 2013, with 17

January to June 2013

respondents answering “January to June 2013”

July to December 2013

and

16

respondents

answering

“July

to

16

16

3
0

January to June 2014

3
2
1

December 2013,” compared with 16 respondents
July to December 2014

answering “Already bottomed out”

38

17

5

Since July to December … 11

As for the residential sector, an overwhelming

0

majority (38 respondents), answered “Already10

Officebottomed out”. This indicates that a good

20

30

40

Residential

majority of managers believe the residential
rental market has already bottomed out. .
2) Real Estate Transaction Activity for the Second Half of 2012 and Forecast.
Responding to the question of how the transaction activity changed between the first and second halves of 2012,
the most common response (31 respondents) was “Slightly Increase.” Meanwhile, “Increase significantly” had 6
respondents, suggesting that the transaction environment is on the road to recovery.
Regarding expectation of investment transactions by privately placed funds and J-REITs in the first half of2013 (January to June), 68% of respondents answered that transactions by privately placed funds would “Slightly
increase” and 14% said that transactions by privately placed funds would “Increase significantly.” Meanwhile,
36% of respondents answered that transactions by J-REITs would “Slightly increase,” and 52% said thattransactions by J-REITs would “Increase significantly.” The results show there are more managers with stronger
expectations that investment transactions by J-REITs will be the first to significantly pick up, while investment
transactions by private funds will see a milder recovery from January 2013..

Fig.26 Transactions by privately placed funds

Fig. 25: Changes in Transaction Activity

and J-REITs（Respondents 52）

Increase significantly

6

100%

Slightly increase31

Remain unchanged
1

Decrease significantly

1
0<J-REIT>

2%
16%

2%
10%

Decrease significantly

36%

Slightly decrease

80%

13

Slightly decrease<Private>

60%

Remain unchanged

68%
10

20

30

40%

40

52%

20%

Increase significantly

14%0%2013/01（n=50）

14

Slightly increase

2013/01（n=50）

News Release March 4th 2013

3) Managers’ Investment Strategies for Target Sectors and Areas* Multiple answers to questionnaires were allowed in this question.
These percentages represent the share of answers for each investment category and area against the total number of answers.

Regarding the response rates for target property types, “Office” decreased from 33% to 26% (53 respondents to
41 respondents), while “Logistics” increased from 10% to 15% (16 respondents to 23 respondents), and“Facilities for the elderly” increased from 4% to 9% (7 respondents to 14 respondents). Turning to the response
rates for target areas, while “Central 5 wards of Tokyo” decreased from 43% to 34% and “23 wards of Tokyo”
decreased from 28% to 21%, “Tokyo metropolitan area” increased from 14% to 20%, “Kinki area” increased
from 9% to 12%, and “Nagoya area” increased from 3% to 8%. These results infer that managers are shifting
their investment target to high yield property types and areas based on expectations that competition over theacquisition of offices and other properties in central Tokyo will gradually intensify in the future with abottoming out and recovery of the sales market.
Fig.27 Target Property Types
100%
90%
80%

1%

4%
4%

13%

17%

10%

70%

20%

60%
50%

11%

14%

7%
10%
20%

15%
22%

41%

11%
8%

30%

1%
4%
8%

1%
4%
11%

16%
21%

1%
4%
9%

6%
10%

15%

20%

1%
8%
13%

17%

1%
1%
4%
9%
10%

1%
2%
9%

20%

28%
27%

13%

Hotel
19%
18%

30%
20%

33%

10%

30%

33%

36%

44%

40%

36%

41%

38%

Health-care facilities
Facilities for the elderly

23%
29%

31%

Others

9%
15%

18%

27%
26%

40%

2%
5%

33%

33%

Logistics
Retail26%

Residential

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(n=46) (n=69) (n=61) (n=96) (n=87) (n=123) (n=119) (n=140) (n=138) (n=158) (n=160) (n=157)

OfficeFig.28 Target Areas
100%

8%

90%
80%

21%

2%
8%

11%
25%

70%
60%

10%
0%

2%
7%
6%

4%
3%
7%

10%

11%

1%
4%
3%
13%

2%
2%
5%
14%

3%
2%
6%
17%

12%
11%

18%
15%
32%

7%
5%

3%
3%
9%

10%
14%

4%
8%

Others12%

Nationwide

20%

Local cities

14%
29%

28%

29%

30%
32%

23%

28%

23%

Nagoya area
21%

25%

30%
20%

4%
24%

13%

50%
40%

18%

9%

25%

5%
21%

46%
33%

14%

48%

50%

47%

40%

41%

43%

Tokyo metropolitan area
34%

11%
8%

Kinki area

4%

23 wards of Tokyo
Central 5 wards of Tokyo

04/12 05/12 06/12 07/12 09/01 09/07 10/01 10/07 11/01 11/07 12/01 13/01(n=38) (n=51) (n=55) (n=98) (n=89) (n=107) (n=98) (n=131) (n=121) (n=148) (n=127) (n=122)

15

News Release March 4th 2013

4) Managers’ Involvement with Open-ended Funds
Regarding managers’ involvement in open-ended funds, although the majority of investment managementcompanies have no involvement, with 24 respondents answering “Not specifically examining involvement,” thenumber of investment management companies that have actually set up or currently manage an open-ended fundis starting to increase, with 4 respondents saying “Already started managing an open-ended fund” and 7
respondents saying “Preparing to start managing open-ended fund after some examination,” indicating thatinterest in open-ended funds among investment management companies is increasing.
Fig.29 Managers’ involvement with Open-ended Funds（Respondents 51）

Tried to comprehend details and gather information but
not specifically examining involvement
Examined and deferred setting up open-ended fund, but
may examine again in the future
Preparing to start managing open-ended fund after someexamination

24
9
7

Have heard of them but not examined them5

Already started managing an open-ended fund4

Deferred setting up open-ended fund after someexamination, and unlikely to examine again in the future

2

Have neither heard of them nor examined them

0
0

5

10

15

20

25

30

5) Important Factors Necessary for Improvement
With respect to important factors necessary for the recovery of the privately placed funds market, the largest
share, 33 respondents, answered “Increase in the supply of investable real estate”, this was followed by“Recovery of the real estate rental market” with 31 respondents, and “Inflow of global investment money” with27 respondents.
Regarding conditions necessary to increase the supply of investable real estate to the market, the largest share,
35 respondents, answered “Banks’ release of real estate collateral to the market,” this was followed by“Promotion of CRE strategy,” with 18 respondents, and “Diversification of investable property types,” with 17
respondents.
Fig.30 Important Factors Necessary for Improvement
n=168（Respondents 53）

Increase in the supply of investable real estate

33

Recovery of the real estate rental market

31

Inflow of global investment money

27

Increase in the volume of real estate transactions

21

Relaxation of regulations by the government

18

Recovery of the J-REIT market

14

Development of investment indexes

12

Increase in buyers of real estate

4

Improvement in the European sovereign debt problem

4

Improvement in the debt financing environment2

Progress with reconstruction following the Great East Japan Earthquake

1

Others

1
0

5

10

16

15

20

25

30

35

News Release March 4th 2013

Fig.31 Conditions necessary to increase supply of investable real estate to the market
n=100（Respondents 50）

Banks’ release of real estate collateral to themarketGreater emphasis on corporate real estate
strategy

35
18

Diversification of investable property types

17

Possible future reduction of capital gains tax

14

Possible future deferal of tax on properties
used as an equity investment

13

Others

3
0

10

20

30

40

6) Fund Managers’ Involvement in the Overseas
Real Estate Management BusinessWith respect to the question of fund managers’ involvement in the overseas real estate management business,
52% of managers said that they had “No plans now or in the future”, which decreased from 55% in the July 2012
survey. On the other hand, the share for “Currently considering” increased to 26% from 23%, and those for“Have already launched” increased to 22% from 19%. These results showed that the number of managers who
were considering developing an overseas real estate management business had slightly increased over thepreceding six months.
Fig.32 Fund Managers’ Involvement in the Overseas Real Estate Management Business【Jul 2012 Survey】

Havealreadylaunched
19%【Jan 2013 Survey】

Will launch
3%

Currently
consdering
23%（Respondents 50）

Havealreadylaunched
22%（Respondents 64）

No plans now
or in the future
55%

No plans now
or in the future
52%

Currently
consdering
26%

Fig.33 Target countries（Respondents 23）

United Kingdom

43%

United States

As for targeted countries, the highest response rate of

43%

China

43% was for “The United States” and “The United

35%

France30%

Kingdom”, followed by “China” with 35%. In theGermany

30%

January 2012 survey “China” had the largest share, with

Other European

30%

Other Asian26%

54.8% of the total, whereas in the January 2013 survey,

Hong Kong22%

its share decreased significantly. Results show that

Singapore

22%

Australia

compared with the January 2012 survey, investment

22%

Korea

interest has shifted from Asia, including China and17%

OthersSingapore, to the United States and Europe.

4%
0%

17

20%

40%

60%

News Release March 4th 2013

7) 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 “Strengthen property acquisition capabilities,” followed by “Enhancement of AM
capabilities”, “Management strategy and its accountability” and “Enhancement of equity raising capabilities.”
Although both investors’ appetite and the transaction situation showed a slight improvement in the January
2013 survey, compared with the levels in the previous survey, the results showed that there were still
difficulties in acquiring investable properties.

Fig.34 Requirements for Sustainability and Growth of Managers
33

Strengthen property-acquisition capability
30

Enhancement of AM capabilities
16

Management strategy and its explanatory ability

16

Enhancement of equity raising capabilities
13

Reinforcement of compliance structure

12

Enhancing the ability to handle foreign investors
8

Enhancement of relations with investors

8

Entry into open-ended funds business
5Competence in special expertise4

Enhancement of research capabilities
2

Sufficient of information disclosure

2

Expansion of target property types
1

Corporate strength (financial health, scale of operations)1

Capabilities for NPL investment activity
0

Enhancement of debt financing capabilities
Expansion of foreign real estate fund managementbusiness

00Strengthening of earthquake/disaster response capability

2

Others0

Jan 13（n=153 Respondents 52）

10

July 12（n=189 Respondents 62）

18

20

30

Jan 12（n=215 Respondents 64）

40

50

News Release March 4th 2013

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.

19

News Release March 4th 2013

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/

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The contents of this document are subject to change without prior notice.
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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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20