Xymax Real Estate Institute

TOPIC REPORTTOPIC REPORTBest Practices of Small-to-Medium-Sized
Buildings – The 2nd Report- Introduction of building owners’ efforts in changing times -April 7, 2020

Xymax Real Estate Institute (“Xymax REI”) has conducted case studies through interviews with building owners
on a continuous basis. These studies contain building owners’ creative ideas and tips for managing buildings,
which we believe would be useful to other building owners. Thus, we released “Best Practices of Small-toMedium-Sized Buildings – The 1st Report” in September 2019 supervised by then Professor Yukio Komatsu of
Waseda University, in which we introduced excellent cases as best practices.*1 As the second in the series of thereport, Xymax REI introduces four excellent cases as “Best Practices of Small-to-Medium-Sized Buildings – The
2nd Report.” We hope this report will be beneficial information for the stakeholders of building leasing including
building owners.
*1 Best Practices of Small-to-Medium-Sized Buildings – The 1st Report, released on September 24, 2019https://www.xymax.co.jp/english/research/images/pdf/20190924.pdf

Purpose of the survey
The typical measures to improve the value of a building include hardware refurbishment such as renovationand seismic strengthening and intangible efforts such as thorough cleaning, additional tenant services, andcooperation with the neighboring community. However, the effectiveness of each measure varies a great deal
between buildings and there is no index that evaluates it.
This survey is to pick up the wide range of efforts being
made by building owners to tackle the huge challenge ofimproving the value of small-to-medium-sized buildings andto archive them as best practices. In addition, we classify thevalue of buildings into two groups—the value perceived by
the building owner (e.g. property value, profitability,
reduction of operational costs) and the value perceived bytenants (e.g. comfortability, satisfaction in terms of usage orneeds)—and examine how they changed before and after theowners’ specific efforts. The building owners’ efforts
introduced through the case studies include, “eliciting thefeatures and advantages of the buildings they own,”“analyzing and identifying target tenants,” and “improving
the value of the building through efforts such as revitalizing
the neighboring community.” The effects of these initiatives
are also introduced in the report.

Building

Building
Tenantleasing

Operationbusiness

Community&
environment

Xymax REI will continue to collect as many such individual
solutions as possible and analyze how the value of a building improves in the building lease business in termsof “the building,” “operation,” “tenant,” and “community and environment” with the aim of identifying
universality in the individual solutions.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

Introduction of best practices
This second report introduces initiatives at the following four buildings:
I. ATS Hirokoji Building (Nagoya), which has enhanced its potential within the community and is committed tocreating a space that provides comfort to users 24 hours a day;II. Yamasho Building (Tokyo), which carried out seismic strengthening without evacuating tenants in order toensure rent income during the renovation;
III. Kagurazaka Masumoto Building (Tokyo), which has adopted creative ideas in its equipment and operation
while focusing on changes in the surrounding environment after the building’s construction and the importanceof maintenance efficiency; andIV. Hongo Segawa Building (Tokyo), whose various initiatives in pursuit of tenant satisfaction have resulted ina positive cycle of stable business continuity.
The case studies generally examine the following matters:
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


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


Outline of the initiative;
Profile of the building;
Background and issues behind the initiatives;
Details of the initiatives;
Effects of and users’ responses to the initiatives;
Change in value following the initiatives; andBuilding owners’ comments

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate InstituteI.

ATS Hirokoji Building (Nagoya)

ATS Hirokoji Building is an example of improved profitability of an unprofitable building aged more than 35
years as a result of a full renovation with a commitment to creating a space that offers comfort to users 24hours a day and by making the most of the location of Sakae, which is home to offices, commerce, and culture.

1. Profile of the building
Location: 5-minute walk from Sakae station, Nakaku, Nagoya
Gross floor area: 1,777 square meters
Number of floors: 7 above ground, 1 underground
Year built: 1979
Surrounding environment: A commercial district
containing department stores andhigh-class specialty shops, as well as
multiple cultural facilities such as the Nagoya City Science Museum. It is also a mature officearea that represents Nagoya.
Age of owner: 60s

2. Developing a building with the aim of providing space that provides comfort to users 24hours a day
The owner of the building owns several other buildings apart from office buildings, such as condominiums
and commercial buildings, and is involved in the improvement of the buildings as well as their operation andmaintenance. In all of the property types, the owner is committed to create a space available (i.e., where users
can live/work) for 24 hours a day that provides comfort as well as extensive features in eating, sleeping, andenjoying, which are the basis of human life, have the entire building evaluated by its users (i.e., tenants andcustomers of shops) and satisfying them, and improve the potential within the community by blending into thesurrounding communities. When the owner purchased the building, ATS Hirokoji Building had rental offices astenants but with low occupancy rates and poor equipment and usability. The building is an example of improved
value through renovation aimed at greater profitability and efficiency.

3. Details of initiatives aiming to create a space that provides comfort to users 24 hours a day① Full renovation
At the time of purchase, the rental offices had poor
occupancy rates and the profitability was low. The reasons
included aging and deterioration of the building andequipment. The owner thought that a renovation of theentire building was necessary in order to achieve his aim ofmaking the building a space where users can spend 24 hours
a day in comfort. He carried out the renovation by examining
the building in detail, from the exterior to the equipment
inside. For the exterior for the 1st to 3rd floors, which
determines the impression of the building, the ownerpresented a warm image based on the idea of a “3-story
Matte black is also used on the
Manhattan” by adopting bricks and matte black toguideboard
differentiate from neighboring office buildings that mostly
had glass and silver exterior. He repaired the roof, airconditioning, electric equipment, water supply/drainage pipes, and the interior design, renewing

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

everything except for the building frame and the emergency power generator. He renovated thefourth floor and above with a local operating company (KCC), which operated the rental meetingrooms and offices.
② Creating functional and comfortable space
As a space where workers spend long hours, the owner installed
floor-to-ceiling glass windows to take in the green of the adjacentsite (Asahi Shrine). He hung paintings in the elevator halls andproduced a creative space by incorporating art. For the convenienceof tenants, the owner allocated a convenience store on the first floor,
as well as attracting an Italian restaurant on the second floor and adesign-conscious hair salon on the third floor. The rental offices areequipped with a large-capacity server that SMEs will have difficulty
introducing, as well as facilities such as meeting rooms, meeting
space, and printers so that startups can start business without any
investment. There is digital signage at the entrance to share andprovide information.
Paintings by the owner adorn
the elevator hall of each floor③ Efficient operation
In order to make the building operational for 24 hours a day,
it would be necessary to ensure security and emergency
response to users. The ATS Hirokoji Building makes the mostof various systems to enable efficient operation by the owneralone. Surveillance cameras installed all over the building
watches what is happening inside the building at all times, andthe reception service of the offices at normal times is carriedout remotely by the reception staff of the operating company(KCC). Any trouble that occurs can be handled immediately bychecking the situation with the surveillance cameras within thebuilding.

Digital signage at the entrance

An open space with a view of greenery

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

4. Costs, effects, and user reactions concerning the creation of a space that provides comfort tousers 24 hours a day
The cost of the renovation was approximately 300 million yen. The effects and users’ reactions to therenovation were as follows:[Income of the building]

Income increased significantly by more than 10 times from before the renovation.

[Tenants’ reactions]

Many tenants said they were satisfied with the building, which focused on tenants that required
good location, security, high specs, and 24-hour operation.

Communication companies and foreign companies appreciate the large-capacity server, which
was the decisive factor for deciding to move into the building.

The tenants value the building’s facilities and equipment such as rental meeting rooms andprinters, which enable them to sufficiently carry out work even if there is no meeting room within
the space they rent.



Tenants’ satisfaction is high due to a calm and comfortable space that was achieved through art
and building design that takes in views of greenery.

5. Changes in the value of the building by creating a space that provides comfort to users 24hours a day (evaluation by the owner)
We examined the change in the value of the building before and after creating a space that provides comfort
24 hours a day. The value is currently below the target level since the building is still in the midst of initiatives
for improving the occupancy rates of the rental offices.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

6. Owner’s comments on creating a space that provides comfort to users 24 hours a day and on
future building management
A building is an important place where people spend their time to live and work. The provision of comfort
and well-being is required. I want buildings to be a place where people can carry out basic activities such as
eating, sleeping, and enjoying without effort. That’s exactly why offices require elements of comfort and healing,
and the reason why I actively incorporate paintings and other artistic elements as well as greenness. Refurbishing
the building takes time but I have not made compromises. I have shared information closely with allcollaborators involved in the refurbishing and achieved a better space. To create better space, you must be
sensitive to various needs. I have also made a building in Nishiki where I matched artists and ordinary peopleinterested in art and exhibited the artwork created in a restaurant within the building. I operate the entire
building by myself, and the matchings have gone well.
When I was 37 I set my retirement year as 2029, set goals for each year, and made efforts to achieve them. I
intend to continue taking on new challenges in the next ten years.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate InstituteII. Yamasho Building (Tokyo)
The Iidabashi area where Yamasho Building is located has seen a change in the environment surrounding thebuilding, such as redevelopment, an increase in tourists from abroad, and the rise in interest in earthquakes andother natural disasters. This has led to more diverse requirements in offices. While only 22% (according to Xymax
REI’s study) of aged small and medium-sized buildings built under the old seismic standards have declared theirquake resistance, the Yamasho Building, in consideration of the safety of the area and users of the building,spent two years carrying out seismic strengthening renovations without evacuating tenants to ensure rent
income.

1. Profile of the building
Location: 1-minute walk from Iidabashi station, Chiyoda-ku, Tokyo
Gross floor area: 1,700 square meters
Number of floors: 9 above ground
Year built: 1971
Surrounding environment: With connections to four railway lines (JRand subway), Iidabashi offers good transportation accessas well as access to major railway stations such as Tokyoand Ikebukuro within ten minutes. With many officebuildings and schools, it is a bustling area with constantfoot traffic.
Age of owner: 50s

2. Background to the seismic strengthening renovations without evacuating tenants
The owner decided to carry out seismic strengthening renovations as the building was deemed notconforming to standards in a seismic diagnosis upon the enforcement of mandatory seismic strengthening ofstructures along designated transportation roads (Mejiro Dori) under the “Tokyo in Ten Year’s Time”
Implementation Program 2011 following the Great East Japan Earthquake. As the building was in the Iidabashi
Station Central Area Redevelopment Project area, re-building on its own was not an option.
The owner foresake the use of subsidies for the renovation. To use subsidies, it was necessary to finish therenovation within a certain amount of time, which required evacuating the current tenants to carry out a swift
renovation. Amid concerns toward the building lease market due to the impact of the financial crisis and upon
considering the fact that there will be no income during the renovation of an estimated period of two years aswell as after the renovation until new tenants moved in and that costs will be incurred to evacuate the tenants,
the owner chose to carry out seismic construction work in stages without evacuating the tenants.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

3. Details of the seismic strengthening renovations without evacuating tenants
The main quake-proof measures are installing braces on the outer walls and quake-proof walls within thefloors. The braces were set up inside the outer walls and the quake-proof walls were installed within the lower
floors. The exclusive areas on the lower floors were to be split up.
The construction work started off with the floors from which tenants whose contracts expired in 2012 moved
out. Since the building is located in front of the station with many foot traffic, the owner took due care of safety
and traffic jams caused by construction vehicles. Work that made noise was carried out at night and the braces
were transported in pieces since they could not be brought in in their full length, and were assembled on thefloor they were to be installed. There was no major trouble with the tenants since the owner had formed good
relationships with them. The renovations were carried out in turns by asking the tenants to move to a floor using
the weekend where renovations had been completed. It took around three months to renovate one floor, witha total of a little more than two years spent until the renovations were completed in May 2014. The building
succeeded in meeting seismic standards in all of its floors. At the same time as the seismic strengthening
renovations, the owner also re-covered the ceilings and replaced air conditioners, as well as reviewed thecontracts of the rooms which decreased in rentable area due to the braces.

Braces inside the building

Floor divided into smaller rooms due to the quake-proof walls

4. Costs, effects, and user reactions concerning the seismic strengthening renovations without
evacuating tenants
The cost of the seismic strengthening renovations was approximately 100 million yen. The percentage of therenovation costs and tenant handling costs was 70% and 30%, respectively. Tenant handling costs included
moving costs, interior fitting costs, sales compensation payments for stores on the first floor, and compensation
for printed matter, etc. due to changes in tenants’ room numbers.
The effects and users’ reactions to the renovation were as follows:[Tenants’ reactions]

The tenants appreciated the move to a newly renovated floor with no suspension of businessor evacuation.



The tenants agreed to the renovation, which required the understanding and cooperation of allof the tenants, partly since it was in the wake of the Great East Japan Earthquake.

[Income of the building]

Although the owner was concerned of a future decrease in income since the building was old
and under old seismic standards, there was no decline in rent (unit rent per tsubo) and thebuilding has been fully occupied.



Since a redevelopment project had already been decided, the owner wanted to avoid a large
investment and a drop in income during the renovation. There was no period of no income, withstable rent income during the renovation.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

5. Changes in the value of the building by carrying out seismic strengthening renovations
without evacuating tenants (evaluation by the owner)
We examined the change in the value of the building before and after the seismic strengthening renovations
without evacuating tenants. Since the same tenants continue to occupy the building it is not possible to makea comparison with when a renovation were not carried out, but the value of the building has improved morethan was expected beforehand as tenants appreciated the replacement of air conditioning equipment, etc.

6. Owner’s comments on seismic strengthening renovations without evacuating tenants and on
future building management
Although the trigger was the mandatory seismic strengthening of buildings on the Meiji Dori, I am glad that
I carried out the renovations since the tenants feel safer and have continued to stay in the building, and due tothe fact that I was able to minimize the burden on tenants during the renovations as well as on the finance ofthe building. If I had not done it, the rent may have dropped and vacancies may have increased.
The area surrounding Iidabashi is becoming more sophisticated with redevelopment being planned or
implemented. Due to the construction of high-rise condominiums, there has been an increase in supermarkets
and nursery facilities. Foreign tourists have also increased due to the construction of hotels, which is bringing
about changes to the area. The areas that changed and the areas that have not will see differences not only inthe seismic performance of buildings but also in the specifications of their equipment. However, not everyone
requires high specification buildings, and the needs will vary between users. The differences in the buildings’
performances and rent mean that various needs can be met, which would lead to greater diversity of the area.
In order to ensure that the area remains comfortable, it will be necessary not only to promote improvements in
hardware such as seismic strengthening, but also to strengthen and respond in intangible aspects such as
reinforcing the relationship between the neighborhood association and the administration.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate InstituteIII.

Kagurazaka Masumoto Building (Tokyo)

Kagurazaka Masumoto Building was constructed in 1985 on the site of a liquor store. By focusing on theimportance of the changes in the surrounding environment after the construction and on improved
efficiency of maintenance since the time of the planning of the building around 40 years ago, it has become
an example of building management that maintains the quality of the building at a certain level through uniqueequipment and operation. Periodic and efficient maintenance based on the idea that maintaining not only theinterior and exterior that are visibly appealing but also the building frame and equipment that is hidden fromview is important, has resulted in less trouble in building management and less maintenance costs.

1. Profile of the building
Location: 1-minute walk from Kagurazaka station, Shinjuku-ku, Tokyo
Gross floor area: 2,634 square meters
Number of floors: 5 above ground, 1 underground
Year built: 1985
Surrounding environment: Kagurazaka prospered in
the Taisho era, which has left behind small
alleys retaining the feeling from the era
between large streets. The area is popularfor its matureness, with its mix ofcommercial outlets, such as restaurants,
and residences.
Age of owner: 70s

2. The background to the pursuit of meeting tenant needs and implementing efficientmaintenance
The owner of this building previously belonged to the central laboratory of a major manufacturer. He hasabundant knowledge of equipment and materials, and learned the importance of maintenance in retaining thehealth of the building and extending the building’s life while studying in the United States. When his father built
the building, the current owner was deeply involved from the designing stage and introduced various measures
to prevent the age deterioration of the building as much as possible to maintain the quality of the building.

3. Details of the pursuit of meeting tenant needs and implementing efficient maintenance① Unique ideas in building materials
Outdoor iron building material that is exposed to wind and rain is usually protected with paint toprevent it from rusting and corroding. However, since paint deteriorates and chips off after a while, it
requires periodic maintenance such as repainting. As a way to avoid rusting or corrosion, the building
adopted aluminum and stainless materials, which are not prone to rust or corrosion. Although ironmaterials were common when the building was constructed 36 years ago, it used stainless steel forthe rings and the stairs to the rooftop penthouse, which rust easily, and doors that are easily scarred,
and aluminum for rooftop fences that do not require strength. Stainless steel pipes were adopted forthe water pipes within and outside the building, instead of the usual lining steel pipes.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

The interior walls of the sections for lease were painted, not upholstered. If wallpaper is used, peelingit off each time the rooms are restored to the original state would result in rugged groundwork,
making it difficult to achieve a clean finish after reupholstering. In addition, complete reupholstering
will be required if the same wallpaper is not available. If the walls are painted, not only can they berepainted but also easily find matching color and partially painted.

Stainless steel stairs leading up to the penthouse

Aluminum fence and stairs

Inner door of the entrance② Specifications that assumed changes in usage
From his experience of seeing buildings abroad, the owner predicted that tenants’ usage of offices
will change significantly in the future. There was no internet when the building was designed and noone had a computer of their own. However, the owner had set a large electricity capacity and also set
aside a spare system (a power distribution board), expecting that the use of personal computers will
spread in the future. Even though he had assumed renting out entire floors to tenants, he also divided
the power system so that the floors could be separated so as to be able to address economic
fluctuation and changes in the industry of tenants they attract. He adopted an individual air
conditioning for ease of use. Since a multiple-type individual air conditioning system did not exist atthat time, he introduced one-to-one (air conditioner and compressor unit) individual air conditioning.
In terms of plumbing, he installed western toilets on the back of a trend in 1980 where the shipmentof western toilets outnumbered that of Japanese toilets by more than 20%. Furthermore, he naturally
introduced new seismic standards for buildings since the timing coincided with the switch from old
to new seismic standards.
③ Systematic repairs
The owner ensures periodic maintenance in order to prevent the rise of complaints from tenants andunexpected trouble. In addition to the regular maintenance, he has renewed the water-resistantcoating on the walls and the rooftop water-resistance twice, replaced the air conditioners twice (thesecond time was with subsidy from the metropolitan government of Tokyo), renewed the toilets, andrenovated the paints of the common areas.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

4. Costs, effects, and user reactions concerning the pursuit of meeting tenant needs andimplementing efficient maintenanceAlthough the construction costs for the design changes to emphasize maintenance efficiency ended 30%
more than was estimated during the initial design, the changes have achieved larger-than-expected effects.
[Maintenance of the building]Management costs have been reduced due to less trouble of repairing.

The cycle of the repair plans can be long, enabling adjustment of repair timings without trouble
even when the tenant market is sluggish.

In addition to maintaining the aesthetic of the exterior since rust does not form easily, there has
not been any trouble of rusty water or water leakages even after 35 years from construction.



The target tenants have changed over time, but I have been able to address the changes
relatively easily.

[Tenants’ reactions]

Air conditioning is comfortable compared to buildings of the same age and size, which has
resulted in few complaints.

Tenants’ satisfaction is high, and they have stayed at the building for a long period of time.

5. Changes in the value of the building by pursuing to meet tenant needs and implementing
efficient maintenance (evaluation by the owner)
We examined the change in the value of the building from when the building was completed to the present.
Due to a design that focuses on maintenance efficiency and fine-tuned responses since the time of completion,
the building has retained a certain level of quality and its value has declined less than if it had not taken these
initiatives.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

6. Owner’s comments on the pursuit of meeting tenant needs and implementing efficientmaintenance and on future building management
The business conditions of this building had remained poor due to a large interest burden as the building
was planned before the bubble economy when construction costs were high, but faced the burst of the bubble
after it was completed, which resulted in a drop in rent and a rise in vacancies. There was also a period whensufficient maintenance could not be carried out, but I was able to continue operating the building without
lowering the quality thanks to the initiatives I took when the building was designed.
At the planning stage of a building, I think aesthetic designs are the center of focus and it is rare for opinions
on the maintenance of the building based on a long-term perspective to be reflected. However, to utilize abuilding at a healthy state for a long period of time, the maintenance of the building frame and equipment thatis hidden from view becomes very important, in addition to the exterior and interior that appeal to the eye.
Although additional costs will be incurred, I feel that a design that takes extensive maintenance into accountreduces costs and trouble in the long run.
40 years after the planning of the building, the environment surrounding the building has changed, requiring
responses in both hardware and intangible aspects. Going forward, I plan to refurbish the water supply
equipment to a direct connection boost water supply system. As a way to provide against natural disasters, I
have built a maintenance hole toilet and also intend to stockpile sea biscuits and water (for 150 people).
When I rebuild the building in the future, I also want to raise the ceiling height by about 30 centimeters fromthe current height to make it easier to carry out renovations. I also intend to consider installing the pipe work
for water supply and drainage outside the building for ease of maintenance and replacement. I will continue to
implement creative ways to manage the building efficiently and to address changes in the social environment.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate InstituteIV. Hongo Segawa Building (Tokyo)
The Hongo Segawa Building has maintained high levels both in terms of environmental performance andfunctionality by carrying out equipment refurbishments on a continual basis to create a comfortable space for
its tenants. It also has a track record in intangible aspects, such as energy saving measures carried out incooperation with the tenants and seasonal events to encourage exchanges between the tenants. Suchcomprehensive initiatives with an overarching goal of improving tenant satisfaction have led to a virtual cycle
toward stable business continuity. In 2014, the building was the first building in Japan to obtain a BOMA 360
certification (described later).

1. Profile of the building
Location: 5-minute walk from Hongo 3-chome station, Bunkyo-ku, Tokyo
Gross floor area: 3,703.9 square meters
Number of floors: 7 above ground, 1 underground
Year built: 1988
Surrounding environment: With connections to two subway lines, thelocation offers good access to major railway stations in Tokyo.
There are many historic buildings in the area, as it used tocontain residences of Daimyos during the Edo era. The area isalso an educational district, with several universities scatteredin the surrounding neighborhoods, and is also a popular residential district.
Age of owner: 70s, 40s

2. Initiatives that continuously pursued tenant satisfaction and the policy for managing thebuilding
The building was newly constructed in 1988. The owner had set
aside a three-year planning period prior to the construction to
study examples of buildings in the United States, etc., andintroduced a structure that would facilitate the replacement ofequipment and a concept of maintenance that does not let thetenants feel the age of the building. Post boxes at the entrance ofthe building are designed to drop mail from the outside andreceive from the inside, which were rare at that time but havebecome common today. This has eliminated the need for a majorrenovation when a security system was later installed. A sharedmeeting room has also been provided since the beginning toaddress expansion needs of existing tenants as well as the needs of
SMEs, even though it meant a reduction in the percentage ofrentable area.

A shared meeting room that can address
tenants’ expansion needs

To improve tenant satisfaction, the owner fosters day-to-day communication with the tenants and encourages
exchanges between them. He also pays delicate attention when tenants of the same industry occupy the building.
Although the building is located in an educational and residential district, and is not centered around offices,
the building has been fully occupied due to the owner’s management policy of continuously pursuing tenantsatisfaction as well as to focusing his marketing toward tenants who favor such a policy. This policy does notvary with the fluctuation of the tenant market.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

3. Details of the initiatives that continuously pursued tenant satisfaction① Thorough pursuit of safety and comfort
Continuous introduction of new technology: New,environmentally friendly equipment based on the comfort oftenants have been introduced or renewed on a continual basis.
LED lights and desiccant air conditioning*1 have been
introduced, and the windowpanes are double glazing. Repairs
and refurbishment for the water resistance of the exterior walls,
etc. are also carried out on a regular basis. To address theincrease in the use of toilet cubicles in men’s restrooms in recent
years, the men’s restrooms were fully renovated to include more
cubicles, among others.

Functional toilets that address
tenants’ needs*1 An energy saving air conditioning system that controls temperatureand humidity separately. By controlling humidity directly, the system
ensures comfortable room temperatures during the summer without
overcooling and prevents drying during the winter.

Day-to-day inspection and other maintenance: Safety
inspections include twice-a-month inspections ofelevators. Water filters are also installed in the staff kitchen
to ensure safe water.

Desiccant air conditioning that pursues
the comfort of tenants② Communication with tenants and seasonal events
BBQ meet (three times a year), rice-cake making meet(once a year): All tenants, local parties concerned, building
maintenance companies, and clients are invited to themeets. When the meets are held the entrace space of thebuilding becomes as crowded as the terrace seats of a beer
restaurant.
Tea party: This is held at the “Hongo Segawa residence,” aRegistered Tangible Cultural Property located on thepremises of the building. The event offers an opportunity
to enjoy tea while viewing the quaint gardens and culturalproperty antiquities that are not open to the public. During
the Doll Festival and the foliage season the Hongo Segawa
residence is also open to tenants, who visit there forlunch breaks.

Lunch coupons for the restaurant on the firstfloor are distributed to employees of tenants

Meal coupons: A restaurant operates on the first floorof the building since there are few restaurants in thesurrounding area, which consists mainly of residences.
The building offers advantages to both the restaurant
and the tenants by distributing meal coupons on aregular basis to the employees of all of the tenants aspart of its services to tenants.

Hongo Segawa residence, a Registered
Cultural Property on the site of the building(closed to the public)

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute③ Cooperation with tenants
Energy saving activities: Efforts to raise tenants’ awareness toward energy saving are carried out atthe building by sharing information on energy saving, such as measuring energy data and displaying
the CO2 emission volume in the elevator hall. This is meant to lead to a reduction of energy use andalso forms the basis of a strong relationship with the tenants.
④ The first building in Japan to obtain certification
BOMA 360: BOMA 360, which was granted to the building for the first time in Japan, is a certificationof an excellent building by the Building Owners and Managers Association International, which
evaluates the overall business management of a building and daily maintenance levels. It is rapidly
spreading in the United States. It is a 360-degree evaluation of the performance of building
management, including not only in terms of the environment and energy but also security,
management, and tenant relations. The certification was justifiably granted to the building, which
pursues a management service that satisfies tenants.

4. Costs, effects, and user reactions concerning the initiatives that continuously pursued
tenant satisfaction
The effects and user reactions after the initiatives were as follows:[Tenants’ reactions]

In a questionnaire of tenants carried out by the Building Association to study tenants’satisfaction, the building obtained an average score of 95 points, while the nationwide average
was a little short of 70 points. Around half of all tenants gave 100 points to the building.

The desiccant air conditioning is appreciated by the tenants since it maintains stabletemperature and humidity throughout the year.

Equipment with high energy-saving effects has led to a reduction in electricity costs. Tenants
have also valued the information on the approximate electricity cost, provided prior to moving
into the building.

Communication between the tenants has increased due to the events, developing into businessin some cases.



There is good communication between the tenants and the building management side, so muchso that there are few complaints even during construction work that accompanies noise or smell.

[Other]

Although the owner was sure that he had achieved a high level of management service thatsatisfied tenants as well as strong tenant relations, he was able to confirm and tackle new issues
upon receiving a third-party certification of BOMA 360.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

5. Changes in the value of the building through initiatives that continuously pursued tenantsatisfaction (evaluation by the owner)
We examined the change in the value of the building by comparing the value at the time the building was built
and that at present. The building’s value from the perspective of the tenant has improved from initial forecasts
due to measures such as day-to-day maintenance, equipment replacements to improve tenant satisfaction,and events, while the objective at the time the building was completed was to retain the building’s value.

6. Owner’s comments on initiatives that continuously pursued tenant satisfaction and on futurebuilding management
I want the tenants to remain for a long period of time. That is why I have continued to make efforts to create
a comfortable space ever since the building was built. I value talking with them directly so as to convey theappeal of this building and to understand my tenants.
The building received the BOMA 360 certification, but that does not mean there was a significant
improvement in the profits of building management. However, the issues that I overcame upon obtaining thecertification led to new awareness toward improving tenant satisfaction and proved extremely useful.
This building is built on a site that belonged to my ancestors. Hongo has historically been an attractive area
and is also an area where students who graduate from university, etc. choose to continue to live in. As
coexistence with and contribution to the community will continue to be important in the future, I intend to placeemphasis on my involvement with the community.
Going forward, I have a great deal of interest in how office space will change resulting from the effects of the
population decline and work style reforms. The usage of offices should also change due to wellness factors andgreater diversity in tenants. At this building in Hongo, I would like to think of services and measures that would
lead to the intellectual productivity of offices. I also intend to watch and determine when the majortransformation will occur as well as the timing for new investment.

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

17

TOPIC REPORT｜Xymax Real Estate InstituteAcknowledgement:
We gratefully acknowledge the cooperation of the building owners, management companies, and other related
persons who provided information for this report.

(Reference) Reports by Xymax REI related to building owners:
https://soken.xymax.co.jp/category/
Building Owner Survey 2019, released on December 17, 2019https://www.xymax.co.jp/english/research/images/pdf/20191217.pdf

For further inquiries please contact:
Xymax Real Estate Institutehttps://soken.xymax.co.jp

E-MAIL: info-rei@xymax.co.jp

TOPIC REPORT: Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Real Estate Institute Corporation. All rights reserved.

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