NEWS RELEASE
Survey on Private Real Estate Funds in Japan
July 2013– Results
August28th 2013

Sumitomo Mitsui Trust Research Institute Co., Ltd Starting in 2003, Sumitomo Mitsui Trust Research Institute Co., Ltd. has conducted the “Survey on Private
Real Estate Funds” as part of its research activities concerning real estate investment markets. This is the
16th survey based on responses to questionnaires received from 63 real estate investment managementcompanies Survey subject: Real estate investment management companies that set up and manage private realestate funds which are focused on domestic real estate

Number of companies to which questionnaires were sent: 118



Number of companies responded: 63 (ratio of valid responses: 53.4%)

Time of survey: July 2013

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 2013 to be 16.7
trillion yen. This figure involves Japanese assets of global funds that we were aware of. The market sizeas of the end of December 2012 was 17.5 trillion yen, which is a decrease of approximately 880 billion
yen (5.0%) over a six-month period from the previous January 2012 survey.

Market size of privately placed real estate funds is 16.7 trillion yen, this includes Japanese assets of global fundsTransactions became brisk, reflecting the strong real estate transaction market, and each company increased its
sales of properties in the existing funds. As a result, there were a number of investment management companies
that reduced their assets under management. There were also cases in which certain companies newly listed
REITs that were managed by group companies on a stock exchange, and transferred properties from private
funds to the REITs. Although new funds were launched in the January–June 2013 period, the amount ofproperties acquired was limited. As a result, the assets under management of private funds decreased.
However, as the investment appetite of real estate equity investors has risen significantly, many real estate
investment management companies expect investments in Japanese real estate, particularly by overseas capital,
to increase.
The debt financing environment remained favorable, and the average LTV ratio of the funds launched in theJanuary–June 2013 period exceeded 70% on a real estate acquisition value basis.
Assets under management（Trillion yen）

Trends of Market Size of Private 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

13.6

14.0

13.8

14.9

14.7

14.7

14.8

15.8

13.7

12.0

10.2

10.0
8.0

6.1 6.7

5.4

4.5

7.8

7.6

7.5

7.4

7.4

6.8

15.0

9.0

8.7

8.3

8.0

7.8

15.3
10.4

10.0

6.1

5.5

6.0
2.0

16.7

14.3

14.0

4.0

17.5

J‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

Private0.0

2006/062006/122007/062007/122008/062008/122009/062009/122010/062010/122011/062011/122012/062012/122013/06

J‐REITsPrivate funds that only invest in domestic real estate
Private global funds (Domestically invested assets)（*） We define the “global fund” as a fund targeting real estate investments in various countries including Japan.

1News Release August 28th 2013

“ Survey on Privately Placed Real Estate Funds”

July 2013 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 private funds into

two categories, “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 4,534.5billion yen (53%), while separate accounts stood at 2,921.8 billion yen (34%).
Fig.1 Breakdown of Commingled Funds and Separate Accounts
100%

25%

26%

13%

13%

80%

11%
60%

29%
19%

6%
34%

37%

16%
22%

17%
27%

9%
33%

13%

36%

16%

39%

13%

34%
OthersSeparate accounts

40%

64%

55%

58%

20%

50%

61%

62%

56%

58%

50%

44%

53%

Commingled funds

0%
07/12 09/01 09/07 10/01 10/07 11/01 11/07 12/01 12/07 13/01 13/07（n=37) (n=43) （n=57) (n=51) (n=56) (n=54) (n=60) (n=54) (n=59) (n=48) (n=53)2）New Funds Launched From January to June 2013
～New Launch, Type, Style, and Period～
Out of a total of 60 respondents, 16 (27%) answered that they launched new funds during the period from January toJune 2013, which was a decrease from the 26 (41%) in the July 2012 survey.
Looking at newly launched funds, compared with the July 2012 survey, the ratio of “Fixed Property Type” remained
almost unchanged, while there were no responses indicating the launch of “Open-ended Funds.”

Fig. 2 Fund Manager’s Activity of Launching
New Funds in the First Half of Each Year

Fig.3 Type of Funds

100%

100%

80%
60%

80%

74%

70%

72%

59%

73%

40%
20%

Didn't launch
Launched

26%

30%

28%

41%

27%

0%
09/07
10/07
11/07
12/07
13/07
(n=65) （n=66） （n=67） （n=63） （n=60）

16%

20%

16%

5%

6%

4%

12%

11%
7%

12%
12%
Open‐ended

60%
40%

Discretionary investment type

68%

75%

82%

79%

76%

20%

Fixed Property type

0%
09/07
(n=19)

2

Additional acquisition type

10/07
11/07
12/07
13/07
（n=20） （n=17） （n=28） （n=17）

News Release August 28th 2013

By investment style, the ratio of “Core” style funds remained almost unchanged, and that of “Opportunity” stylefunds rose from 14% to 24%, while there were no responses indicating the launch of “Development” style funds. As
for the expected investment period, the response “Seven years or more” declined sharply, from 25% to 6%, and“periods between five and seven” also dropped from 21% to 6%. A number of funds with a long-term investment
period were launched in the January–June 2012 period. Due to the limited number of investment managementcompanies managing the long-term funds, it is believed that the launch of long-term funds in the January–June 2013
period was restrained.

Fig. 4 Investment Style
100%
80%

11%
6%

5%

Fig. 5 Investment Period

6%

21%

24%

14%

21%

60%

10%

6%

Development

24%

21%

60%

29%

53%

64%
47%

43%

35%

0%

0%
09/07
(n=18)

09/07(n=17)

10/07
11/07
12/07
13/07
（n=19） （n=17） （n=28） （n=17）

5～7 years
3～5 years

32%

20%

Core

50%

59%

Value‐added

65%

6%
6%
More than 7 years

12%

40%

83%

20%

25%

19%

80%

Debt

Opportunity
40%

12%

24%

24%

11%

6%

100%

6%

11%

1～3 years

31%

24%

18%

5%

6%

Within 1 year

21%
6%

10/07
11/07
12/07
13/07
（n=21） （n=17） （n=28） （n=16）*Please refer to the Definitions of Terms on page 17 for the details of “Fixed Property Type,” “Additional Acquisition Type,” “Discretionary Investment Type,”“Open-ended Funds,” “Core,” “Value-added,” “Opportunity,” and “Development.”

Fig.6 LTV Ratio～LTV Ratio～
The average LTV ratio of thefunds launched in the first half of2013 (January–June) was 66.0% of75%
LTV (of the total amount of investment)
LTV (of the acquisition price)

71.1%

70%

the total amount of investment and71.1% of the acquisition price,

66.0%

65%

63.3%

maintaining an upward momentum.
The reasons for the rise in the

60%

average LTV ratio include anincrease in the number of funds

61.3%
58.6%
55.2%

55%

54.5%

57.6%

that set the LTV ratio at a highlevel under the circumstances ofthe favorable debt financing

52.5%

53.8%

50%
09/07

10/07

(Fig.8).

3

11/07

12/07

13/07

News Release August 28th 2013

～Reasons for Not Having Launched Funds～
More than 70% of investment management companies did not launch any new funds during the period fromJanuary to June 2013 (Fig. 2). The top reasons for this were “There are few opportunities in the market to invest insuitable properties” (17 votes) and “Can't agree on real estate sales prices” (15 votes). In addition, a quarter of
respondents (11) chose “Real estate prices have already surged” indicating they feel acquisition prices appeared to
be overvalued.
Fig.7 Reasons for Not Having Launched Funds
n=72（Respondents 42）
There are few opportunities in the market to invest in suitable properties

17

Can't agree on real estate sales prices

15

Real estate prices have already surged

11

Should put more emphasis on the operation of existing funds

6

Difficulty in equity raising

5

Taking a wait and see attitude

4

Uncertainty over the rental market

2

Difficulty in debt financing

0

Anticipating further decline in price0

Investors are concerned about the risk of earthquakes

0

Others

12
0

5

10

15

20

3）Circumstances of Debt Financing
Regarding debt financing, respondents answered by choosing from 1 (Very severe) to 5 (Very improved). The mostfrequent answer was “4” with30 respondents, followed by “3” with 20 respondents.
Compared with the survey in January 2013, the number of respondents that chose “3” rose from 4 to 20, and thosethat chose “5” declined from 17 to 12. Because no respondents indicated “Very severe” or “Severe,” the increase in thenumber of respondents that chose “3” was not the deterioration of the debt financing environment, but the fact that the
debt financing environment continued to be favorable.
Regarding specific improvement, 39 respondents specified “Contraction of interest spread”, followed by“Expansion of underwriting areas and types” which accounted for 32 respondents, and “Increase of lenders
considering new lending” which accounted for 25 respondents. “Contraction of interest spread” was also the mostpopular response in the January 2013 survey. This indicates that spreads have been contracting further.
Fig.8 Circumstances of Debt Financing【Jul 2013 Survey】【Jan 2013 Survey】
Improved

5

Improved

17

4
4

2

1

1

Severe

5

30

3

2

0

12

4

31

3

5

10

15

20

25

30

20

0

35

SevereJan 13（Respondents 52）

4

5

10

15

20

25

July 13（Respondents 62）30

35

News Release August 28th 2013

Fig.9 Changes in Circumstances of Debt Financing（Respondents 61）
Contraction of interest spread
Expansion of underwriting areas and types
Increase of lenders considering new lending
Rise of LTV
Increase in loan extension projects
Decrease in upfront fees
Relaxation of covenants (LTV standards, DSCR standards, etc.)
No particular changes
Decrease of lenders considering new lending
Contraction of underwriting areas and types
Decrease in loan extension projects
Decline of LTV
Expansion of interest spread
Increase in upfront fees
Tightening of covenants (LTV standards, DSCR standards, etc.)
Others

39
32
25
24
11
11
9
7
0
0
0
0
0
0
0
0
0

10

20

30

40

50

4）Circumstances of Equity Raisinga. Appetite of Equity Investors
With respect to the appetite of equity investors, 75% of respondents answered “Rising,” marking a rise for the fourthconsecutive term since the July 2011 survey (20%). Meanwhile, there was no response for “Declining” and 25% of
respondents chose “Unchanged.”With the expectation of a recovery in the real estate rental and transaction markets, it is assumed that the investment
appetite of real estate equity investors including domestic and foreign pension funds and foreign institutional investors
has been growing further.

Fig.10 Appetite of Equity Investors
100%
18%
80%

10%

5%
25%
40%

54%

57%

62%
45%

75%

46%
54%
24%
9%
06/12
(n=34)

Declining

64%
61%

74%

20%
0%

2%
20%

45%
83%

59%

1%

34%

41%

60%
40%

7%

16%

07/12
(n=37)

13%
08/07(n=54)

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

20%

Unchanged

60%
44%

31%

20%

26%

38%

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

5

RisingNews Release August 28th 2013b. Increases and Decreases in Investment Volume by Investor Category“Foreign Institutional Investors (excluding Foreign Pension Funds and SWF)” attracted the largest number of
respondents (38 votes) as investors whose investment volume would increase in the future, followed by “Foreign
Pension Funds” (35 votes) and “Foreign High Net Worth” (31 votes), representing popular responses for the
expectation that the investment volume of foreign investors would increase.
Moreover, regarding “Domestic Major Banks” and “Domestic Regional Banks” whose investment volume wasconsidered to decrease, the number of responses in this survey choosing “Increase” exceeded that of “Decrease.” In
general, compared with the January 2013 survey, the number of responses that supported the expectation of a higher
investment volume increased.
Fig.11 Expectation for Volume Change By Investor
Domestic pension funds
Domestic union financial

20
3

Domestic major banks

22
22

14

23

7

21

24
25

0

Domestic corporations

18

2

Domestic high net worth000Others

0

26

18

0

Fund of funds

Decrease

31

11

1

Sovereign Wealth Funds(SWF)

Unchanged
38

81Foreign high net worth

Increase35

101Foreign institutional Investors(ex.Foreign pension funds and SWF)

29

16

0

Foreign pension funds

c.

16
7

Domestic regional banks
Domestic other institutional Investors

28

18

2

22

16
3

5

10

15

20

25

30

35

40

Expectation of Cash Inflow to Japanese Real Estate from Foreign Investors
The expectation of a cash inflow to Japanese real estate from foreign investors generally improved comparedwith the January 2013 survey. The share of “Slightly increase” declined in all regions except the Middle East, andthe share of “Increase” grew. Specifically, the share of responses choosing “Increase” grew from 9% to 29% inNorth America, from 14% to 19% in Europe, from 6% to 23% in China (including Hong Kong), from 0% to 8% inAustralia, and from 14% to 24% in Asia excluding the Middle East and China.

Fig.12 Expectation of Cash Inflow to Japanese Real Estate from Foreign Investors【Jan 2013 Survey】
North America(n=22)

9%

Europe(n=22)

14%

Middle East
(n=17)

18%

73%
73%
47%

China(incl HK)
6%(n=18)
Australia(n=17)
Asia excl. thr Middle East and China(n=21)

14%

Slightly increase

29%

61%

17%

41%

0%
Increase【Jul 2013 Survey】

47%
67%

20%

40%

Unchanged

14% 5%

North America(n=28)

5% 9%

Europe(n=27)

6%

Middle East
(n=26)

11% 6%

China(incl HK)(n=26)

6%6%

Australia(n=24)

19%
60%

80%

Slightly decrease

29%
19%

100%

6

26%

46%

23%

38%

8%

38%
24%

0%
Increase

21%

52%

12%

Asia excl. thr Middle East and China(n=29)

Decrease50%

20%

Slightly increase

35%

4%4%

31%

4%4%

50%
38%
40%

Unchanged

4%

4%
38%

60%

80%

Slightly decrease

100%
DecreaseNews Release August 28th 2013

～Reasons for Foreign Investors investing or not Investing in the Japanese Real Estate Market～
Regarding the reasons for foreign investors entering the Japanese real estate market, the most common responses
were “The size of the real estate market is large” (27 votes), “Politically and economically stable” (26 votes), and“Allocation as part of the global portfolio” (24 votes). In addition, 21 respondents selected a newly introduced
category, “Expectation of an economic recovery from Abenomics,” representing the hopes for a recovery in theeconomy and the real estate market under the administration led by the Liberal Democratic Party of Japan.
Regarding reasons for foreign investors not to enter the Japanese real estate market, the most common responses
were “Lack of growth potential in GDP, consumption, population, etc.” (25 votes), “Low growth potential in income”(21 votes), and “Lack of attractive investment opportunities” (21 votes). These responses indicate the concerns overJapan’s sluggish economic growth and the lack of investment opportunities. It is therefore believed that there is alimited appetite for investments in Japanese real estate from foreign investors who value growth potential.
Fig.13 Reasons for Foreign Investors Investing in Japan（Respondents 41）
The size of the real estate market is large

27

Politically and economically stable

26

Allocation as part of the global portfolio

24

Increase in investment merits from the weak yen

22

Relatively attractive due to the yield gap

22

Expectation of an economic recovery from Abenomics

21

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

Highly stable income

11

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

11

Emergence of investment opportunities due to undervalued real estate prices

7

Highly transparent real estate market

6

Income with growth potential

2

Others

0
0

5

10

15

20

25

30

Fig.14 Reasons for Foreign Investors Not Investing in the Japanese Real Estate Market（Respondents 37）
Lack of growth potential in GDP, consumption, population, etc.

25

Low growth potential in income

21

Lack of attractive investment opportunities

21

Low transparency in the real estate market

14

Earthquake risk

12

Real estate prices have already surged

8

Cannot embark on investment given uncertainty in the rental market outlook

3

Declining investment value due to a contraction in the yield gap

2Believe that declining real estate prices is continuing

2Strong yen makes investment less enticing

0

Others

0
0

7

5

10

15

20

25

30

News Release August 28th 20135） Circumstances for Acquisition and Disposition of Properties in the First half of 2013
Looking at the circumstances for acquisition, the number of respondents answering “Acquired” was 49%, a slightdecrease from the 51% in the January 2013 survey. As for the number of properties examined for acquisition(assessment of profitability, etc.), 7 respondents answered “31–50 properties” and 11 respondents answered “51properties or more.” An increase in the share of these answers compared with the January 2013 survey suggests a
strong appetite for acquiring properties and a rise in the number of properties for potential acquisition available in themarket. The most common reasons for not acquiring property were “Can’t agree on prices” (19 votes) and “Severe
competition in bids” (9 votes).
Turning to the circumstances for disposition in the first half of 2013, compared with the second half of 2012, 29
respondents answered “Improved” and 18 respondents chose “Slightly improved” while zero respondents answered“More severe” or “Slightly severe,” showing an improvement in the sales environment.

Fig.15 Circumstances for Acquisition

Fig.16 Number of properties examined for acquisition（Respondents 61）

11

10 properties or lessDidn'tacquire51%

1411～30 properties

18

Acquired49%

31～50 properties

3

More than 51 properties

Fig.17 Reason for not acquiring property

5

Jan 13（Respondents 41）

7
11

6
0

July 13（Respondents 53）

24

10

15

20

25

30

Fig.18 Circumstances for Disposition（Respondents 56）（Respondents 29）
Improved

Can't agree on prices

29

19
Slightly Improved

Severe competition in bids

18

9Unchanged

Did not plan to acquire from the outset

3

6

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

Slightly severe

0More severe01Others2
Had no plan to sale

0

5

10

15

6

20
0

8

5

10

15

20

25

30

35

News Release August 28th 2013

6） Exit Strategies
With respect to the exit options available over the next one year, the largest share of 21% chose “Sale to the third
party REITs”. The second largest share (20% of respondents) was “Sale to the third party other than REITs or
private funds”, and ” Sale to the third party private funds（Closed-ended Funds）” (18% of respondents), ” Sale tothe third party private funds（Open-ended Funds）” (14% of respondents). Meanwhile, the share of “Extension of
investment period with refinance” came to 13%, a significant drop from the 23% in the January 2013 survey.
In this survey, in which closed-ended funds and open-ended funds were separated for the first time, it was also
confirmed that a certain number of investment management companies regarded open-ended funds as a purchaser.
The sales environment has been improving, and conditions are assumed to be favorable in the future for theredemption of existing private estate funds.

Fig.19 Exit Options Available Over the Next One Year
100%

Sale to the third party other than REITs or private funds

15%
80%

20%

26%

30%

27%

27%

28%

27%

23%

24%

24%

25%

23%

23%

20%
Extension of investment period with refinance

12%
13%
17%

22%

60%

40%

27%

33%
14%

40%

30%

13%

10%
26%
20%

16%

12%
11%

0%

36%

4%

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%

30%

15%

25%

19%

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

21%

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

20%

19%

22%

20%

20%

14%

6%
3%
3%

8%
3%
2%

8%
3%
3%
1%

18%
Sale to affiliate REITs

17%

19%

21%

6%
4%
1%

5%
2%
2%

6%
3%
1%

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

09/07
10/01
10/07
11/01
11/07
12/01
12/07
13/01
13/07
（ n=113) （ n=113） （ n=150） （ n=127） （ n=165） （ n=154） （ n=156） （ n=119） （ n=193）

Others*Since the July 2013 survey, privately placed real estate funds have been segmentalized to closed-ended funds and open-ended funds.

2. Outlook for the Market
Fig. 20 Timing of the Bottoming out of Rents

1） Timing of the Bottoming out of Rents
As for the office sector, an overwhelming
majority (31 companies), answered “Already31

Already bottomed out

bottomed out”, followed by “July to December
July to December 2013

2013” (20 companies).
Regarding the timing of the bottoming out of

5
4

residential rents, the largest number of respondents
and only a limited number of respondents chose

July to December 2014

1
1

Since July to December 201421other answers.

0

10
Office920

5January to June 2014

answered “Already bottomed out” (48 companies),

48

20

30

40

Residential

50

60

News Release August 28th 2013

2） Cap Rates Forecast by Area

<Office>
The number of respondents who answered that the cap rate would “Decline” increased in all areas compared with
the January 2013 survey. In the previous survey, many respondents answered that the cap rate in the central fivewards of Tokyo would “Decline.” In this survey, more areas had responses that the cap rate would “Decline.”< Residential>
The number of respondents who answered that the cap rate would “Decline” increased in all areas compared with
the January 2013 survey. Approximately half of respondents also answered that the cap rate would “Decline” in otherareas.

Fig. 21 Forecast for Cap Rates by Area
<Office>【Jan 2013 Survey】
100%

2%
10%

10%

80%

6%

【Jul 2013 Survey】
6%

8%

100%

3%

3%

2%

3%

2%

47%

47%

54%

4%

19%

24%

80%
46%

60%

73%

61%

71%

Substantially rise
Rise

40%
65%

40%

21%

31%

76%
63%

0%
23 wards of
Tokyo
Tokyo
metropolitan(n=48)
area(n=48)

Kinki area(n=49)

Remain unchanged
51%

50%

45%

Nagoya area(n=49)

Decline30%

Decline0%
Central 5
wards
of Tokyo(n=49)

Rise

20%
22%

Substantially rise
66%

60%

Remain unchanged

42%

20%

34%

Decline significantly

2%
Central 5
wards
of Tokyo(n=59)

23 wards ofTokyo
Kinki area Nagoya area Other areas
Tokyo metropolitan (n=58)(n=56)(n=56)(n=59)
area(n=59)< Residential>【Jan 2013 Survey】

100%

4%

4%

4%

2%
2%

【Jul 2013 Survey】

100%

2%

80%

80%
60%

61%

67%

70%

59%

60%

Substantially rise
Rise

40%
35%

29%

26%

23 wards ofTokyo(n=49)

Tokyo
metropolitanarea(n=46)

37%

5%

5%

4%

39%

42%

42%

40%

41%

7%

47%

Remain unchanged
53%

51%

53%

54%

55%

46%

DeclineKinki area(n=49)

Nagoya area(n=48)

0%

DeclineDecline significantly

2%
Central 5
wards
of Tokyo(n=59)

10

Substantially rise
Rise

40%
20%

38%

0%
Central 5
wards
of Tokyo(n=49)

5%

60%

Remain unchanged
20%

5%

23 wards of
Tokyo
Tokyo
metropolitan(n=59)
area(n=59)

Kinki area
(n=57)

Nagoya area Other areas(n=56)(n=57)

News Release August 28th 2013

3） Real Estate Transaction Activities in the first half of 2013 and Forecast
Responding to a question on how the transaction activities in the January to June 2013 period changed comparedwith the July to December 2012 period, the most common response (40 votes) was “Increased.” and “Increased
significantly” had 8 respondents , suggesting that many respondents have experienced an increase in real estatetransactions.
Regarding expectation of investment transactions by private funds and J-REITs in the second half of 2013 (July to
December), 65% of respondents answered that transactions by J-REITs would “Increase” and 6% said “Increasesignificantly”, totaling 71%. Meanwhile, 69% of respondents answered that transactions by private funds would“Increase,” and 5% said “Increase significantly”, totaling 74%.
No respondents indicated that transactions by either J-REITs or private funds would “Decrease significantly,” anda number of respondents expected investment transactions by listed or unlisted funds to continue to grow.

Fig.23 Forecast for Transactions by private funds and
J-REITs in the second half of 2013

Fig.22 Real Estate Transactions(July-Dec 2012 to Jan-Jun 2013)（Respondents 61）
Increased significantly

100%

8

80%
Increased<Private>
3%<J-REIT>
2%

23%

27%

40

Remain unchanged

Decrease

60%

10Decreased

Remain unchanged3

Decreased significantly

40%

69%

65%
Increase

00Decreasesignificantly

20%
20

40

60

0%

5%

6%

2013/07（n=62）

2013/07（n=62）

Increasesignificantly

3. Business Environment of Private Real Estate Investment Management
1） Managers’ Involvement with Open-ended Funds
With respect to the involvement with open-ended funds, the largest share, with 27 respondents, answered thatthey “Seek to develop a better understanding and gather information, but not working on a detailed study”.
Regarding open-ended funds, while some respondents answered “Have heard of them but not examined them” (8votes), 7 respondents indicated that they were “Preparing to start managing an open-ended fund after someexamination,” 7 respondents answered that they have “Examined and deferred setting up an open-ended fund, but may
examine again in the future,” and 6 respondents answered that they have “Already started managing an open-ended
fund.” These responses show that a certain number of investment management companies have been examining or
managing specific open-ended funds.

As for the target investors of open-ended funds, the largest number of managers chose “Domestic Pension
Funds” (12 votes), suggesting that currently a majority of managers target domestic institutional investors
including domestic pension funds.

11

News Release August 28th 2013

Fig.24 Managers’ involvement with Open-ended Funds（Respondents 57）
Seek to develop a better understanding and gather information, but notworking on a detailed study

27

Have heard of the name but not considered involvement

8

Preparing for a launch after consideration

7

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

7

Have already launched

6

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

2

Have neither heard of the name nor considered involvement

0
0

5

10

15

20

25

30

Fig.25 Target Investors of Open-ended Funds（Respondents 14）
Domestic pension funds

12

Domestic regional banks

8

Domestic other institutional Investors

8

Domestic corporations

8

Domestic major banks

6

Foreign pension funds

5

Domestic union financial

4

Foreign institutional Investors(ex.Foreign pension funds and SWF)

4

Sovereign Wealth Funds(SWF)

2

Fund of funds

2

Domestic high net worth0

Foreign high net worth0

Others

0
0

2

12

4

6

8

10

12

14

News Release August 28th 2013

2） Real estate investments by pension funds
Eighty nine percent of respondents “Expect” real estate investments by domestic pension funds to increase. As thereasons for it, respondents pointed out that, although pension funds are long-term investors fitting real estate
investments, their current allocation to real estate was still low. As for the category of the pension funds that are
expected to increase investments, “Government Pension Investment Fund (GPIF)” and “Corporate pension(employees’ pension fund and defined benefit corporate pension fund)” attracted 39 respondents each.

Fig.27 Expectation for the real estate investment by
each category of pension funds

Fig.26 Real estate investments by pension funds（Respondents 56）

Not expect
7%（Respondents 51）

Others4%

Government Pension Investment Fund (GPIF)

39

Corporate pension (employees’ pension fund anddefined benefit corporate pension fund)39

Pension Fund Association (PFA)30

Mutual aid association of national civil servants andlocal officials, etc.

16

OthersExpect
89%

0
0

10

20

30

40

3） The effects of Abenomics on the real estate market
With respect to the effects of Abenomics on the real estate market, 30 respondents each chose “It would bringabout positive effects” and “Not sure, depending on the success of Abenomics.” Although there was still uncertainty
in terms of the success of Abenomics, only one respondent answered “There are concerns over possible negative
effects, such as the occurrence of a bubble.” The survey showed an equal number of investment managementcompanies adopting a conservative view and anticipating positive effects from Abenomics.
Regarding the changes in the equity finance environment that will take place over a year by continuation of
Abenomics, 45 respondents answered “Increase in investment capital supported by the expectation for higher realestate prices,” 35 respondents answered “Inflows of investment capital into the private real estate fund market on theback of the buoyant stock market and the J-REIT market,” and 23 respondents chose “Increase in the investment
capital of foreign investors with the depreciation of the yen.”Fig.28 The effects of Abenomics（Respondents 61）
It would bring about positive effects

30

Not sure, depending on the success of Abenomics

30

There are concerns over possible negative effects,
such as the occurrence of a bubble

1

Others

0
0

10

13

20

30

40

50

News Release August 28th 2013

Fig29 Changes taking place over a year by continuation of Abenomics in the equity finance environment（Respondents 61）
Increase in investment capital supported by the expectation for higher
real estate prices

45

Inflows of investment capital into the private real estate fund market
on the back of the buoyant stock market and the J‐REIT market

35

Increase in the investment capital of foreign investors with thedepreciation of the yen

23

The buoyant stock market and the J‐REIT market constrain inflows ofinvestment capital in the private real estate fund market

5

Contraction in investment capital due to higher interest rates

4

Contraction in investment capital due to the surge in real estate prices

2

Others

5
0

10

20

30

40

50

4） 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, morethan half of respondents answered “No plans now or in the future,” while the share of respondents who answered“Have already launched” increased from the January 2013 survey, to approximately a quarter (24.1%).
As for the reason for not entering the overseas real estate investment management business, a large number of
respondents answered “Will focus on investments in Japan” (48%). Although a number of investment managementcompanies currently tend to focus on domestic investment businesses, there are apparently a certain number ofinvestment management companies that are targeting overseas real estate for their investments.

Fig.30 Managers’ Involvement with the Overseas Real Estate Management BusinessJan 12（Respondents 64）

34.4%

42.2%

18.8%

4.7%
3.1%

July 12（Respondents 64）

54.7%

23.4%

18.8%

Jan 13（Respondents 50）

52.0%

26.0%

22.0%

July 13（Respondents 58）

55.2%

20.7%

24.1%

0%
No plans now or in the future

20%

40%

Currently considering

14

60%
Have already launched

80%

100%
Will launchNews Release August 28th 2013

Fig.31 Reasons for Not Doing the Overseas Real Estate Management Business（Respondents 28）
Will focus on investments in Japan

48%

Inadequate internal system and investment
management system

45%

Large risks in investing in real estate overseas

3%

Others

3%
0%

10%

20%

30%

40%

50%

60%

70%

5） Important Factors for Improvement in the Private Real Estate Funds Market
With respect to important factors necessary for the recovery of the private real estate funds market, the mostcommon answer was “Recovery of the real estate rental market” this shows that there are a number of investment
management companies that value the growth of cash flows. A number of respondents also answered, “Increase in
the supply of investable real estate” (56%) and “Relaxation of regulations by the government” (42%).

Fig.32 Important Factors for Improvement in the Privately Placed Real Estate Funds Market（Respondents 59）
Recovery of the real estate rental market

66%

Increase in the supply of investable real estate

56%

Relaxation of regulations by the government

42%

Inflow of global investment money

41%

Increase in the volume of real estate transactions

39%

Steady expansion of the J‐REIT market

34%

Development of investment indexes

25%

Increase in the number of real estate buyers

10%

Improvement in the debt financing environment

5%

Others

5%
0%

20%

15

40%

60%

80%

News Release August 28th 2013

6) Managers’ Requirements for Future Growth and Sustainability of their Businesses
The most common answer to the question regarding requirements for the future growth and sustainabilityof their businesses was “Improving property-acquisition abilities” (42 votes), followed by “Enhancement of
AM capabilities” (31 votes).These responses represent a situation, in which, while real estate equity investors’
appetite for investments is growing, real estate prices are rising, and having enhanced capabilities to acquire
properties has become more desirable.

Fig.33 Manager’s Requirements for Future Growth and Sustainability of their Businesses
42

Strengthen property‐acquisition capability

31

Enhancement of AM capabilities

19

Management strategy and its explanatory ability

17

Enhancement of equity raising capabilities

14

Enhancing the ability to handle foreign investors

13

Enhancement of relations with investors

11

Reinforcement of compliance structure
Entry into open‐ended funds business

7

Enhancement of research capabilities

7
6

Sufficient of information disclosure
Competence in special expertise4

Expansion of foreign real estate fund management business

4
2

Corporate strength (financial health, scale of operations)

2

Enhancement of debt financing capabilities
Expansion of target property types

0

Capabilities for NPL investment activity

0

Strengthening of earthquake/disaster response capability0
1

Others0
July 13（Respondents 60）

10
Jan 13（Respondents 52）

16

20

30

July 12（Respondents 62）

40

50

News Release August 28th 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.

17

News Release August 28th 2013

Contact:

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

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

18