NEWS RELEASE
Survey on Privately Placed Real Estate Funds in Japan
January 2012– Results
April 9th 2012
Sumitomo Mitsui Trust Research Institute Co., LtdStarting in 2003, Sumitomo Mitsui Trust Research Institute Co., Ltd. has conducted the “Survey on Privately
Placed Real Estate Funds” as part of its research activities concerning real estate investment markets. This is
the 13th survey based on responses to questionnaires received from 65 real estate investment managementcompanies.
 Survey subject: Real estate investment management companies that set up and manage privately placed
real estate funds which are focused on domestic real estateNumber of companies to which questionnaires were sent: 140



Number of companies responded: 65 (ratio of valid responses: 46.4%)

Time of survey: January 2012Survey method: Distribution and collection of questionnaires by post and e-mailBased on the results of the survey, hearings and published information, we estimated the market size ofprivately placed real estate funds (on an invested asset basis) as of the end of December 2011 to be 17.8
trillion yen. This figure involves Japanese assets of global funds that we were already aware of and havestarted to include from this survey. The market size as of the end of June 2011 was 17.4 trillion yen, which
is an increase of approximately 350 billion yen (2.0%) over a six-month period from the previous July
2011 survey. In this survey, we have revised the past figures to reflect additional data obtained.

＜Market size of privately placed real estate funds is 17.8 trillion yen including Japanese assets of global funds＞
The Sumitomo Mitsui Trust Research Institute has been conducting estimates of the market size of privately placed
real estate funds since 2003 based on surveys and hearings from investment management companies (hereafter
called the “managers”) as well as published information. As of the end of December 2011 the market size including
Japanese assets of global funds（※）is estimated to be 17.8 trillion yen, which is an increase of approximately 350
billion yen (2.0%) over a six-month period from the 17.4 trillion as of the end of June 2011.
 In this survey, some managers appeared to have decreased their assets under management by selling property, whilea certain number of them increased their assets by acquiring new property in light of the favorable conditions indebt financing and the slightly increased appetite of equity investors. As a result, there was a modest increase in theoverall assets under management. Looking at the breakdown of these assets, the growth rate of global funds showed
an increase at the end of 2011 compared to the end of June 2011 and this figure exceeded that of funds only invest
in domestic real estate.
 When responses to questionnaires were received (at the end of January 2012), the agreement among European
nations on the second support package for Greece had not been concluded. Even so, the number of managers who
felt that the extent of the negative impact of the European debt crisis on the privately placed funds business waslimited significantly exceeded the number of managers who believed the impact would be severe.
＊From this January 2012 survey, we have also asked global funds(*) about their current share of assets invested in domestic real estate
as well as asking for the figures for previous years. As a result, we found that in previous surveys the portion of the amount recorded
for the funds that only invest in domestic real estate in fact came from global funds. In addition, another part represented proprietor
investments. We accordingly made the necessary amendments to the figures previously published.

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

1April 9th

NEWS RELEASE

Assets under management（Trillion yen）

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

20.0
18.0
16.0
14.0

17.6

17.8

17.0

16.9

17.7

17.4

17.8

13.7

13.6

14.0

13.8

14.9

14.7

14.8

14.9

14.3
10.2
6.1

PrivateJ‐REIT

J‐REIT

PrivatePrivateJ‐REIT

Private

8.3

8.0

7.8

J‐REIT

J‐REIT

PrivatePrivateJ‐REIT

PrivateJ‐REIT

J‐REIT

Private

7.8

7.6

7.5

7.4

7.4

6.8

J‐REIT

J‐REIT

PrivateJ‐REIT

PrivateJ‐REIT

6.1 6.7

5.4

4.5

10.0

Private5.5

Private

12.0
10.0
8.0
6.0
4.0
2.0
0.0

17.1

2006/06 2006/12 2007/06 2007/12 2008/06 2008/12 2009/06 2009/12 2010/06 2010/12 2011/06 2011/12

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

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,

Fig.1 Breakdown of Commingled Funds andSeparate Accounts

100%

25%
80%

and “separate accounts” managed for single investors. AUMof the commingled funds managed by the respondents stood

11%
60%

at 5,534 billion yen (58%), while separate accounts stood at

40%

3,171.3 bilion yen (33%). The trend remained unchanged as20%

the comingled funds accounted for around 60 percent.

64%

26%

13%
29%

19%

55%

58%

6%

13%

34%
37%

61%

50%

16%

17%

23%

27%

62%

56%

9%
33%

58%

0%
07/12 09/01 09/07 10/01 10/07 11/01 11/07 12/01（n=37) (n=43) （n=57) (n=51) (n=56) (n=54) (n=60) (n=54)2)A description of funds under management

Commingled funds

a. Fund types

Separate accounts

OthersFig.2 Breakdown of Funds by TypeThe total number of privately placed real estate funds thatare currently managed by the managers who responded to thequestionnaires was 581. By type (based on the number offunds),“FixedPropertyType”

accounted

for 73%,

100%

6%

80%

29%

5%
8%

12%
6%

18%
9%

60%

“Additional Acquisition Type” accounted for 9% and

40%“Discretionary Investment Type” accounted for 18%. This20%

confirmed that investors continue to favor “Fixed Property

0%Type”, in which invested real estate is known and decided

5%
13%

82%
65%

87%

82%

73%

07/12 09/01 10/01 11/01 12/01(n=181) (n=381) (n=466) (n=574) (n=504)

from the beginning. However, the fixed property type share

Fixed property typedecreased from 87% in the January 2010 survey to 73%. On

Discretionary investment type

Additional acquisition typethe other hand, “Discretionary Investment Type” increased to 18% from 5%. It is believed that this is due to an
improvement in risk appetite.

2

NEWS RELEASE

April 9th

＊In the following topics from b. to g. describe “the funds currently under management” which does not refer to all funds
managed by responded managers, 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.

Fig.3 Breakdown of Funds by Management Style

b. Management Style

100%“Core” style funds which place an emphasis on income

80%

accounted for 45%, this is a decrease from the 58% in the

9%
12%

13%

18%

13%

12%

60%

increased to 29% from the 11% in the January 2011 survey.

40%“Opportunity” style funds remained unchanged at 25%.

20%

*Please refer to the “Definitions of Terms” on Page15 for more

0%

24%

55%

45%

05/12
(n=49)
Corec. LTV Ratio

24%

2%

26%

25%

11%

24%

62%

detailed information about the various style and types of funds.

12%

5%

23%

11%

January 2011 survey. Meanwhile, “Value-added” style funds

3%
11%

10%

63%

54%

29%

58%

45%

06/12 07/12 09/01 10/01 11/01 12/01(n=45) (n=106) (n=78) (n=88) (n=65) (n=56)
Value-added
Opportunity
Development

Fig.4 Average LTV Ratio of Current and Future Funds

The average Loan to Value Ratio of funds currently under75%

management stood at 67.6%. The average LTV ratio declined70%

to 67.4% in the January 2011 survey from 72.3% in the

68.6%

65%

January 2009 survey, down for two consecutive years. In this

72.3% 71.3%

72.1%70.9%

70.7%

67.4% 67.6%

71.0% 70.2%

63.5%

60%

survey, the LTV ratio of funds currently under management

55%

remained unchanged from the January 2011 survey, breaking

59.4%

60.2%
57.6%

50%

the downward trend. Meanwhile, the projected average LTV

05/12

06/12

07/12

09/01

10/01

11/01

12/01

Funds currently under Management
Funds scheduled to be Launched within a year

ratio of funds to be launched within a year declined to 59.4%
from 63.5% in the January 2011 survey. The LTV ratio thatFig.5 Average LTV Ratio Desired by Equity Investors

managers believed to be desirable for equity investors alsoslightly declined from the January 2011 survey.

68%
65.1%

As a result of improvements in the risk tolerance ofinvestors and the lending stance of lenders, the LTV ratio of

64%
61.0%
60%

funds that were to be launched in the future trended higher in
the January 2011 survey. The ratio fell in the January 2012
survey, reflecting the fact that the funds that participated in

57.8%

61.0%

61.0%

56.7%

58.2%
56.6%

56.1%

56%

56.1% 57.4%
55.7%

55.5%

56.2%

52%
05/12

06/12

this survey included open-ended funds whose LTV ratio was

07/12 09/01 10/01 11/01 12/01
Against the total amount of investment
Against the acquisition priceset at a relatively low level compared to the averageclosed-ended funds. The fall in the ratio was also attributable to the fact that many managers believed that the LTV
ratio that was sought by equity investors was at a low level, eventhough the lending stance of lenders remained steady.
This mindset appears to have been reflected in the structuring of the funds that are expected to be launched in the
future.
Fig.6 Average Target Asset Size

d. Target Asset Size(bil yen)

The average target asset size of funds under management
reached 84.3 billion yen in the January 2012 survey, rising morethan 100% from 41.1 billion yen in the January 2011 survey.

1200
1000

1,103

800

843
729

600

This rise was mainly due to the inclusion in this survey of large
existing funds . Until this survey, we had not received responses
from the managers of these large funds. Excluding thelarge-scale funds whose target asset size exceeded 500 billion

3

614

660

595

400
200

324

333

411

0
03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01(n=37) (n=29) (n=47) (n=41) (n=75) (n=56) (n=64) (n=44) (n=40)

NEWS RELEASE

April 9th

yen, the average size stood at 60.8 billion yen. It should be noted that due to different funds participating in thesurvey from year to year and the often wide variation in fund target size, the calculated averages do not express actual
volatility.
Fig.7 Average Target IRR％

e. Target IRR (Internal Rate of Return)

25.0

The average target IRR was 15.4%, slightly down from20.0

the January 2011 survey. By fund type, the “Discretionary

18.2
15 .4
13.4
12 .5

15.0

Investment Type” and “Fixed Property Type” declined,

10.0

while the “Additional Acquisition Type” rose. As a result,

5.0

the spread between types narrowed . It should be noted that0.0

the number of responses to this question was limited.

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

Total
Additional aqcuisition type

Fixed property type
Discretionary investment typef. Target Investment Period
The average investment period of funds under management has continued to increase reaching 6.7 years in theJanuary 2012 survey, up from the low of 3.8 years recorded in the December 2005 survey. An investment period of
six years or more accounted for 47%, declining from the 57% recorded in the January 2010 survey. However, thefigure, including an investment period of five years or more accounted for 83%, remaining almost unchanged fromthe 86% in the January 2011 survey. This extension of the investment period was chiefly attributable to the fact that
there were a number of funds whose investment periods were extended through refinancing. Meanwhile, norespondents chose an investment period of less than four years. The average investment period of funds that were
expected to be launched within one year stood at 6.1 years, increasing from the 5.0 years in the January 2011 survey.
We think that this is due to there being a number of investors who expected steady long-term investments.
Fig.8 Average Target Investment Period
8
7

Year

100%

6.7
6
4.7

4.3

4.4

4.6

5.3
4.8

4
3

90%

6.4

6
5

Fig.9 Breakdown of Average Target Investment Period

5.3
5.3

6.1
5.0

20%

41%

16%

30%
20%

0
03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01

10%

47%

25%
42%

21%

10%

31%
16%

36%

21%
9%

22%
11%

15%

18%

15%

14%

19%

12%

06/12
(n=39)

07/12(n=76)

09/01(n=63)

0%04/12(n=34)

29%

35%

05/12
(n=43)

Less than three years
At least four years but less than five years
Six years or moreg. Target Property Types and Areas

28%
57%

32%

40%

1

24%

31%

50%

2

Funds currently under Management
Funds scheduled to be Launched within a year

8%

70%
60%

3.5

9%
19%

80%

4.2

3.8

18%

13%

9%
2%
4%

17%

6%
10/01
(n=64)

11/01(n=56)

12/01(n=47)At least three years but less than four years
At least five years but less than six years* Multiple answers to questionnaires were allowed in this survey item.
The figures represent the ratios of answers against the total number of answers.

By property type, the share of “Office” fell slightly, while “Retail” and “Industrial” slightly increased in theJanuary 2012 survey. The share of each type has not changed significantly since the December 2007 survey.
By investment area, the highest response rate was“23 Wards of Tokyo” at 27%, followed by “Kinki area”, and“Tokyo Metropolitan area”.The ratio of “Tokyo 23 wards” remained almost unchanged from that of the January 20114NEWS RELEASE

April 9thsurvey. Meanwhile, the positions of “Tokyo metropolitan area” and the “Kinki area”exchanged ranking, as the “Tokyo
metropolitan area” declined slightly while the “Kinki area” increased. An increase in the ratio of the “Kinki area” isbelieved to reflect the effects of the Great East Japan Earthquake and the problems at the nuclear power plants. As aresult, certain investors sought a diversification of investments to correct a concentration in Tokyo, and certain
managers started once again to pay attention to investments in high-grade projects in local areas that offer higher
yields than those in Tokyo.
Fig.10 Target Property Types
100%

7%
9%

90%

9%

19%

17%

12%

18%

19%

80%

20%

70%

Fig.11 Target Areas

1%
9%

7%

10%

12%
22%

23%

1%
9%
13%
20%

60%
50%

36%

43%

34%

36%

40%

25%

26%

25%

3%
12%

1%
11%

100%

12%

15%

80%

18%

20%

2%

90%

26%

24%

60%

30%

33%

29%

29%

34%

30%

31%

25%

25%

16%

30%

28%

22%

48%

49%

10%

32%

14%

0%

Residential

RetailIndustrial

Hotel

27%

03/12
(n=42)

Others* In 04/12 through to 06/12, Industrial and Hotel types were
included in “Other types”

2%
17%

1%

4%

20%

18%

12%

11%

14%

15%

16%

19%
24%

20%

03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01(n=44) (n=69) (n=81) (n=77) (n=164) (n=111) (n=122) (n=151) (n=123)

17%
17%

40%

0%

Office

28%

50%
30%

10%

31%
16%

70%

30%
20%

3%
18%

04/12
(n=91)

05/12(n=99)

20%

2%
15%
14%

16%

22%

27%

22%

20%

25%

26%

27%

37%
24%

31%

8%
06/12
(n=83)

07/12 09/01 10/01 11/01 12/01(n=231) (n=155) (n=189) (n=169) (n=157)

23 wards of Tokyo

Tokyo Metropolitan area Kinki area

Nagoya area

Local area

Others* 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.

3)Circumstances of Debt FinanceRegarding debt financing, respondents answered by choosing from 1 (most severe) to 5 (least severe). The answerof “4” accounted for 60%, followed by “3” at 29%. Responding to a question on how debt finance circumstanceschanged between the July-December 2011 period and the January-June 2011 period, 44% of respondents answered“Unchanged”, increasing from the 30% in the July 2011 survey. Meanwhile, answers for “Slightly improved” and“Improved” accounted for 51% in total. This indicates a continuous improvement in debt financing. Regarding
specific improvement, of the respondents who answered “Slightly improved” and “Improved”, 34% of themspecified “Contraction of interest spread”, followed by “Rise of LTV” accounting for 21%, and “Increase of lenders
considering new lending” which accounted for 18%.
There were also responses in writing reporting that “competition for fund lending among lenders for high grade
projects took place” and “the spread declined sufficiently and the level was nearing a bottom.”Fig.12 Circumstances of Debt Financing（Respondents 62)

5

37

3

Improved
28%

Unchanged
30%

18

2

【Jan 2012 Survey】（Respondents 67）

4

4

Improved18%

3

1
severe【Jul 2011 Survey】

0
0

10

20

30

Slightly
Improved
42%

40(quantity of responses)

5

Slightly
Improved
33%

Moresevere5%（Respondents 61）

Unchanged
44%NEWS RELEASE

April 9th4) Circumstances of Equity Raisinga. Appetite of Equity Investors

Fig.13 Appetite of Equity Investors
100%

With respect to the appetite of equity investors,
compared to the July 2011 survey, 64% of80%

respondents answered “Unchanged”, while

40%“Rising” increased from 20% to 26%, and20%“Declining” decreased from 20% to 10%.
It became apparent in the July 2011 survey that

2%
20%

34%

41%

60%

1%

7%

16%

18%

54%

62%

83%

59%

45%

64%
61%

74%

45%
46%
54%
24%

0%

10%

9%
06/12
(n=34)

07/12(n=37)

13%
08/07(n=54)

partly because of the effects of the earthquake

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

Rising

20%

44%

31%

20%

26%

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

Declining

and the problems with the nuclear power plants, the investment appetitite that had been improving in the aftermath of
the global financial crisis began to deteriorate. However, it showed a slight improvement in the January 2012 survey.
b. Increases and Decreases in Investment Volume by Investor Category
Of all the investor categories, those surveyed said
that they expected “Foreign Institutional Investors”(37 votes) would increase their investment volume,
followed by “Foreign Pension Funds” (30 votes),and “Domestic Pension Funds” (26 votes). The top
two categories were overseas investors. However,
the ratios of domestic investors and overseas
investors across all categories were closely
balanced at 49% and 51%, respectively.

Fig.14 Expectation for Volume Change By Investor
OthersFund of funds
Sovereign funds
Foreign high net worth
Foreign institutional
Foreign pension funds
Domestic high net worth
Domestic corporations
Domestic other institutional banks
Domestic regional banks
Domestic major banks
Domestic union financial
Domestic pension funds

0

On the other hand, “Domestic Regional Banks”

Increase n=217（Respondents 60）

10

20

30

40

Decrease n=92（Respondents 42）

and “Domestic Major Banks” were expected todecrease their investment volume. These received
22 and 21 votes, respectively. There were many managers who consider that due to the BIS Capital Adequacy
Requirements, the investment volume by domestic banks was likely to decline, while the investment volume of pension
funds, institutional investors, and high net worth individuals, regardless of whether they are domestic or foreign, wasexpected to grow in the future.
c. Investment Attitude of Equity Investors ( by investor category)
For the Domestic Pension Funds category, 29% of managers chose the answer of “Began investing as the core
long-term investment”, this was a 19% increase from the July 2011 survey. Many managers think domestic investors
intend to invest in commercial real estate as a core long-term investment. As for the Foreign High Net Worth category,
a combined total of 51% of the managers chose the answers of “Began investing / Considering investment as a good
opportunity to earn capital gains”, 28% and 23% respectively. In the Foreign Pension Funds, 36% of managers
responded that their investment attitude was core long-term investment, and as many as 22% of managers responded
that their attitude was to achieve capital gains, which was a response that no domestic pension funds made.
In the July 2011 survey, among the Foreign Pension Funds, an investment attitude of “Investments have beensuspended since the Great East Japan Earthquake” accounted for 27%. However, in the January 2012 survey, just 5%of managers chose the answer of “Investments have been suspended, due to concerns over the radioactive
contamination from the nuclear power plant accidents” among the Foreign Pension Funds .

6

April 9th

NEWS RELEASE

Fig.15 Investment Attitude of Equity Investors
100%
90%
80%

2%

3%

10%
16%
6%
3%

4%

70%

10%

60%

3%
7%

10%

21%

2%
5%
2%
8%

Others5%

Investments have been suspended, due to concerns over theradioactive contamination from the nuclear power plant accidents
Will not invest in the future due to BIS regulations

7%
7%
2%
7%

8%

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

8%
3%
7%

Will not invest in the immediate future, given bad performance in thepast
Cannot embark on investment given uncertainty over the unstablefinancial market
Unwilling to invest because of lack of growth potential in GDP,
consumption, and population
Cannot embark on investment given uncertainty over the rental market

14%
7%

50%
40%

26%

26%

23%

23%

30%

There are signs of recovery in the rental market, and there areinvestment opportunities
Waiting for real estate prices to cease to fall, though willing to invest

10%

20%

15%

29%

15%

28%

Considering investment as the core long‐term investment

10%
11%
0%
Domestic
pensionfunds(n=68)

Domestic
corporations(n=62)

Began investing as the core long‐term investment

7%
Foreignpensionfunds(n=61)

Foreignhigh net
worth(n=43)

Considering investment as a good opportunity to earn capital gains
Began investing as a good opportunity to earn capital gains

d. Sources of Foreign Funds by Country or Region
The highest response rate was 27% (based on number of respondents) for investors from “North America” ,followed by “Europe” at 24%. The ratio for “Asia excluding China and Middle East”, which was the highest
response rate in the January 2011 survey, decreased to 17% from 27%. The share of responses for “North America”
had been on a downward trend since the July 2008 survey, however, it slightly increased in this survey. The share of“China including Hong Kong” accounted for 12% and has been on an increasing trend since the January 2010
survey.
Fig.16 Sources of Foreign Funds by Country or Region
100%

3%

90%
80%

33%

30%

70%
60%
50%

8%
25%

40%

10%

28%

11%

6%

7%

7%

2%
8%

24%

25%

27%

17%

6%
8%

7%
6%

25%

31%

24%

27%
24%

30%
20%

Australia

10%

Asia (excl. China / M.East)

9%
10%

Others12%

China including Hong Kong
24%

Asia including Australia
Middle East

35%

33%

10%

30%

31%

27%

23%

27%

EuropeNorth America

0%
08/07
(n=52)

09/01(n=40)

09/07 10/01 10/07 11/01 12/01(n=61) （n=49） （n=67） （n=70） （n=59）* 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 totalof institutional and individual investors.

e. Expectation of Cash Inflow from Investors by Region
Managers’ expectations of a cash inflow from foreign investors by region did not change noticeably in each region
from the levels in the July 2011 survey. Excluding North America and Europe, there was no response of “Decrease.”
In particular, there was not even a response of “Slightly decrease” in China and the rest of Asia. These responses
showed that many managers expected that inflows from investors in Asia would increase slightly.
Meanwhile, with respect to investments from investors in Europe, the share of “Decrease” rose to 14%, up from
3% in the July 2011 survey. This reflects the view that investments from European investors would fall in the wake of
the European debt crisis.

7

NEWS RELEASE

April 9th

Fig.17 Expectation of Cash Inflow from Foreign Investors By Region【Jul 2011 Survey】
North America(n=34)【Jan 2012 Survey】

26%

Europe(n=34)

38%

21%

Middle East
(n=30)

38%

23%

China
(n=33)

Asia excl. China(n=35)

0%
Increase

27%
63%

6%

19%

57%
20%
Slightly increase40%
Unchanged

North America(n=32)

3%

Europe(n=29)

28%

Middle East
(n=25) 4%

20%

7% 7%

61%

15%

3%

38%
63%

6%

Australia(n=27)

32%

29%
60%

80%

Slightly decrease

3% 3%

China
(n=27)

4%

Australia(n=26)

9%
100%

Increase

12%
41%
19%

65%

15%
8%

27%

65%
20%

40%

Slightly increase

3%
14%

64%
52%

0%

Decrease

31%

28%

7%

Asia excl. China(n=26)

25%

50%

22%

60%

Unchanged

80%

100%

Slightly decrease

Decrease～ Reasons for Foreign Investors Moving into / Not Investing in the Japanese Real Estate Market～

As for the reasons for investors moving into the Japanese real estate market, the most comon response (28respondents) was “Allocation as part of the global portfolio”, followed by “The size of the real estate market is large.”
with 24 respondesnts, “Relatively attractive due to the yield gap” with 21 respondesnts. The top three reasons were
the same as those in the July 2011 survey.
As for the reasons for investors not investing in Japan, the most common response (28 respondents) was “Lack ofgrowth potential in GDP, consumption, population, etc.”, followed by “Lack of attractive investment opportunities”
and “Few opportunities in the market to invest in suitable properties” with 20 respondents each. The most frequentanswer in the July 2011 survey was the same as this survey, “Lack of growth potential in GDP, consumption,
population, etc.” with 31 respondents, followed by “Inability to promptly end nuclear power plant problems” with 24
respondents. In the January 2012 survey, the number of respondents who answered “Concerns over radioactive
contamination from accidents in the nuclear power plant ” was limited to 11, apparently indicating an alleviation of
the impact of the earthquake and the nuclear power plant accidents on the mindset of foreign investors.
Fig.18 Reasons for foreign investors investing in Japan
n=162（Respondents 38）
Allocation as part of the global portfolio

28

The size of the real estate market is large

24

Relatively attractive due to the yield gap

21

Highly stable income

18

Undervalued real estate prices offer investment opportunities

16

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

15

Politically and economically stable

12

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

9

The effects of the European debt crisis are relatively limited

8

Highly transparent real estate market

5

The nuclear power plant problems have been addressed to a certain extent

3

Income with growth potential

2

Others

1
0

8

5

10

15

20

25

30

April 9th

NEWS RELEASE

Fig.19 Reasons for foreign investors not investing in Japann=120（Respondents 37）
Lack of growth potential in GDP, consumption, population, etc

28

Lack of attractive investment opportunities

20

Few opportunities in the market to invest in suitable properties

20

Low growth potential in income

18

Cannot embark on investment given uncertainty on the rental market outlook

12

Concerns over radioactive contamination from accidents in the nuclear power plant

11

No end of the decline in real estate prices in sight7

Declining investment value due to a contraction in the yield gap

1

Low transparency in the real estate market

1

Others

2
0

5

10

15

20

25

30

5)Circumstances for Acquisition and Sale of Properties
With respect to the acquisition of properties the most common response (42% of respondents) was “Sought
acquisition opportunities but did not agree on prices”, followed by 33% for “Acquired”. In the July 2011 survey, eachof them was 40% and 37% respectively, the situation remained mostly unchanged. Though circumstances foracquisition remained difficult because of the gap between expected acquisition and sales prices, a third of respondents
acquired properties after the earthquake.
With respect to the disposition of properties, 47% of respondents answered “Slightly Improved”, which increased
from 33% in the July 2011 survey. Meanwhile, “Unchanged” decreased to 39% from 48%, and “Improved
significantly” accounted for 5%, suggesting that they see signs of improvement.
Fig.20 Circumstances for Acquisition

Fig.21 Circumstances for Sale
（Respondents 57)（Respondents 61）

3%

20%

2%
5%

Had no plan to acquire

33%
2%

7%
Slightly Improved47%

No opportunity was available

Unchanged
Improved significantly

Sought acquisition opportunities
but did not agree on prices

39%

AcquiredMore severe
OthersOthers42%6) Exit Strategies
With respect to the exit options available over the next one year, the largest share of 25% (unchanged from the July
2011 survey) chose “Extension of investment period with refinance”, which follows the general downward trend since
the January 2010 survey. The second largest share (23% of respondents) was “Sale to the third party other than REITs
or private funds”, falling from 27% in the July 2011 survey. These results showed that, in light of an ongoing
improvement in the appetite of funds and REITs for acquiring properties, the exit strategies of funds appear to havebeen gradually shifting from the extension of the investment period with refinance and the sale to general businesscompanies to sale to third-party REITs and sale to third-party private funds.

9NEWS RELEASE

April 9th

Fig.22 Exit Options Available Over the Next One Year
100%

4%
11%

80%

60%

40%

12%

4%
8%
5%

4%
7%
4%
10%

14%

4%
5%
4%
6%
11%

26%

3%
3%
5%

1%
4%
6%

2%
2%
5%

1%
3%
6%

11%

13%

15%

19%

19%

21%

17%

19%

30%

21%

27%

26%

30%

15%

33%

Sale to the affiliate private funds

40%

36%

22%

Sale to affiliate REITs
Sale to the third party REITs

27%

28%

27%

23%

25%

25%

20%
20%

Others

14%

16%

17%

4%
2%
5%

27%

30%

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

12%
0%
07/12
08/07
09/01
09/07
10/01
10/07
11/01
11/07
12/01
（ｎ=108） （n=122) （n=114) （n=113) （n=113） （n=150） （n=127） （n=165） （n=154）

2. Outlook for the Market and Management
Fig. 23: The Bottoming out of Rents

1）The Bottoming out of Rents
A large number of managers believed that the timing of
the bottoming out of office rents would be in 2012, with 24
managers

expecting

it

to

be

the

periodfrom“July-December 2012” and 14 managers expecting it to be
the period from “January-June 2012”. In the January 2011
survey the most frequent answer was “July-December
2011” with 26 respondents and in the July 2011 survey

7

Already hit the peak
January to June 2012

7

24

July to December 2012

5

January to June 2013

7
5
6

July to December 2013

4
1

Since July to December 2013

“January-June 2012” had 24 respondents. This indicates

36
14

2

0
Office (n=59)

10

20

30

40

Residential (n=59)

that due to the effects of the Great East Japan Earthquake,
European debt problems and other factors, the expected timing for the bottoming-out of office rents has been put
forward by six months in each survey.
Regarding the bottoming-out of rents in the residential sector, 36 respondents, expected that “rents had alreadybegun bottoming out in 2011,” These results suggested that a majority of managers believed that rents had alreadybottomed out in 2011.
2)Environment and Forecast for Real Estate Transactions
Responding to a question on how the transaction environemnt in the July to December 2011 period changed
compared with the January to June 2011 period, the largest share of 47% chose “Remain Unchanged”. Meanwhile,“Slightly Increase” accounted for 37%, suggesting that the transaction environment is on the road to recovery.
For transactions by J-REITs, compared to the July 2011 survey, the share of those who answered that transactions
would “Remain Unchanged” increased to 19% from 9%, while those who chose “Starting to increase” declined to
19% from 29%. As for the transactions by privately placed funds, compared to the July 2011 survey, the share ofthose who answered that transactions would “Remain Unchanged” decreased to 22% from 35%, while those whochose “Slightly increase” went up to 36% from 28%, and those of “Continues to increase” went up to 13% from 7%.
From the last two surveys it is apparent that many managers expected that investment transactions by J-REITs would
pick up first, and investment transactions by private funds would rise from 2012.

10

April 9th

NEWS RELEASE

Fig.24 Transactions by privately placed funds

Fig.25 Transactions by privately placed funds and J-REITs＜Privately Placed Funds＞（Respondents 62）

2% 2%

100%

10%

13%
Increase significantly

37%

13%

60%
7%

Remain unchanged

Remain unchanged

36%

20%

Decrease significantly

23%

Continues to increase28%

Slightly decrease

Decline

32%

36%

40%

19%

26%

35%

47%

3%

22%

80%

Slightly increase＜J-REITs＞

4%
9%

6%

29%

23%

20%

Slightly increase
Starting to increase

19%0%2011/07 2012/01（n=69) （n=64)3）Investment Strategies of Managers

2011/07（n=69)

2012/01（n=64)* Multiple answers to questionnaires were allowed in this survey item.
The figures represent the ratios of answers against the total number of answers.

～Target Sectors and Areas～

With respect to the target property types, compared to the July 2011 survey, the share of “Office” remains
unchanged, while those of “Residential ”decreased, and those of “Retail” increased. The share of “Retail” hascontinuously increased since the January 2011 survey, and has exceeded those of “Residential” in this survey.
In terms of target area, since the July 2011 survey, the share of the “Tokyo central 5 wards” has remained almost
unchanged at 43%. Meanwhile, the share of “Tokyo 23 wards” has increased, and the combined total of “Tokyo
central 5 wards” and “Tokyo 23 wards” exceeds 70% in this survey.
As a result of the earthquake, the managers reduced their focus on the Tokyo wards (excluding the central fivewards). This was due to the recognition of the risk of concentrating investments in the central Tokyo area. However,this trend appears to have eased and the concentration in Tokyo has almost returned to the pre-earthquake level.
Fig.26 Target Property Types
100%
90%
80%

4%
4%
17%

70%

1%
13%
10%
20%

60%
50%

11%
7%
10%
20%

41%

15%
22%

1%
4%
8%

8%

16%

30%

1%
4%
11%
21%

Fig.27 Target Areas
1%
4%
9%
15%

20%

6%
10%

1%
8%
13%

17%

1%
1%
4%

100%

9%

90%

10%

80%
70%

18%
23%
29%

31%
27%

26%

40%

14%

2%
5%
11%

60%

28%
27%

13%

10%

19%

40%

33%

30%

33%

36%

40%

36%

41%

38%

33%

20%

33%

10%

RetailLogistics

Hotel

Senior residential homes

Healthcare facilities

24%

11%

2%
2%
5%
14%

3%
2%
6%
17%

7%
5%
10%

3%
3%
9%
14%

14%
29%

28%

29%

30%
32%

23%

28%

23%

25%

21%

46%

48%

50%

47%

40%

33%

14%
8%

41%

43%

11%
4%

Central 5 wards of Tokyo
Kinki area
Nationwide

Others

23 wards of Tokyo
Nagoya area
OthersTokyo metropolitan area
Local cities

Fig.28 Managers’ involvement with Open-ended Funds

80%

launch open-ended funds. The next largest share of 25%

60%

answered that they “Will not launch”. The share of “Have40%

launched” and “Have a plan to launch” was 7% and 15%
and

15%

5%

that they “Have no plan, but may consider in the future” tofrom 3%

11%

1%
4%
3%
13%

25%

100%

increased

4%
3%
7%

12%

32%

The largest share, with 36% of respondents, answered

which

11%

2%
7%
6%
10%

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

4）Managers’ Involvement with Open-ended Funds

respectively,

9%

18%

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

4%

25%

13%

30%
44%

0%

Office

21%

18%

50%

30%
20%

2%
8%

8%

25%

Will not launch

15%

Don't know

36%

Have no plan, but may consider
in the future

38%

0%

11

23%

20%

10%

respectively in the January 2011 survey. An increasing

26%

10%
3%
2011/01（n=61）Have a plan to launch
15%
7%2012 /01（n=58）Have launchedNEWS RELEASE

April 9th

number of managers have shown interest in open-ended funds, and the number of managers who have actually
launched open-ended finds has started to rise.
5）Important Factors Necessary for Improvement
With respect to important factors necessary for the recovery of the privately placed funds market, the largest share,
44 respondents, answered “Recovery of the real estate rental market”, this was followed by “Inflow of global
investment money” with 38 respondents, and “Recovery of the J-REITs market” with 34 respondents. In the July 2011
survey, the answer, “Ending of the nuclear power plant problems to a certain extent” was the second-most common
answer. In the January 2012 survey, an insignificant number of managers picked the answer of “Eliminating concernsof investors over the nuclear power plant problems”. This showed that concerns over the nuclear power plant
problems have eased considerably.
Fig.29 Important Factors Necessary for Improvement
n=269 （Respondents 64）

Recovery of the real estate rental market

44

Inflow of global investment money

38

Recovery of the J‐REIT market

34

Sale of distressed properties on the market

33

Increase in the volume of real estate transactions

29

Relaxation of regulations by the government

25

Ending of the European debt problems to a certain extent

25

Eliminating concerns of investors over the nuclear power plant problems

16

Development of new products such as open‐ended funds

10

Development of investment indexes

8

Improvement in the debt financing environment

7

Others00106)The Negative Impact of the EU Debt Crisis
Responding to a questionnaire about the extent of the

20

40

50

Fig.30 The Negative Impact of the EU Debt Crisison the Privately Placed Fund Business（Respondents 64）

6% 2%

negative impact of the prolonged and deepened European debt
problems on the private fund business in the future, 61% of30

61%
Negative Impact was limited

31%

managers answered that the “Negative Impact was limited,”Will have a serious negative
impactand 31% answered “Will have a serious negative impact.”

Don't know
No negative impact*Please note the figures described in the following paragraph ( figure
31 and 32) represent the ratios of answers against the respondents.

As for the reasons for answering “Will have a serious
negative impact”, 75% of respondents chose “A decline in global investment money”, while 60% of respondents
chose “A deterioration in the lending attitude of financial institutions” and “A negative impact on the rental market
from the stagnant domestic economy”. Meanwhile, as the reasons for “Negative impact was limited” and “Nonegative impact”, 62.5% of respondents chose “The lending attitude of domestic financial institutions will not change
significantly”, and 57.5% of respondents chose “Global investment inflows into Japan can be expected given its relative
stability compared with Western countries, which face an uncertain economic situation, and other cities in Asia which are
at risk of a fall in prices in the future”.
When these questionnaires were answered (at the end of January 2012), the agreement among European nations had

12NEWS RELEASE

April 9th

not been concluded for the second support package for Greece. Even so, the number of managers who believed thenegative impact would be limited was significantly larger than those who believed it would be severe.
Many investment managers think that the impact of the current turmoil is not entirely negative due to the favourable debt
financing in Japan and the relative stability of the Japanese real estate market.
Fig.31 Reasons for “Have a serious negative impact”（Respondents 20）

A decline in investments by global investment money

75.0%

A deterioration in the lending attitude of financial institutions

60.0%

A negative impact on the rental market from the stagnant
domestic economy

60.0%

A negative impact on the transaction market from the stagnant
domestic economy

35.0%

Restrained investments in Japan by overseas investors, due to theappreciation of the yen
Others

15.0%
0.0%
0%

20%

40%

60%

80%

Fig.32 Reasons for “Negative Impact was limited” and “No negative impact”（Respondents 40）

The lending attitude of domestic financial institutions will not change significantly

62.5%

Global investment inflows into Japan can be expected given its relative stability
compared with Western countries, which face an uncertain economic situation, andother cities in Asia which are at risk of a fall in prices in the future

57.5%

The impact on the rental market is limited

25.0%

There are investors whose investment activities are not discouraged by the strong yen

17.5%

The disposition of investable properties are expected by foreign investors due to the
EU debt crisis

17.5%

Others

2.5%
0%

20%

40%

60%

80%

7) 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 , 42%of managers said that they had “No plans now or in the future”, which decreased from 61% in the July 2011 survey.
On the other hand, the share for “Currently considering” increased to 34% from 24%, and those for “Have alreadylaunched” increased to 19% from 12%. These results showed that the number of managers who were consideringdeveloping an overseas real estate management business had increased over the preceeding six months.
As for targeted countries, the highest response rate of 54.8% (the ratio of answers against respondents) wasfor“China” , followed by “Singapore” and ”The United States” with 38.7% each, and “The United Kingdom” with25.8%. The share for “The United States” increased to 38.7% from the 33.3% in the July 2011 survey.
”China” and “Singapore” were also ranked as the first and second favorite countries respectively in the July 2011
survey. This reflects managers’ strong interest in the Asian region, where the economy is likely to continue to grow.

13NEWS RELEASE

April 9th

Fig.33 Fund Managers’ Involvement in the Overseas
Real Estate Management Business【Jul 2011 Survey】

Fig.34 Target countries（Respondents 31）【Jan 2012 Survey】

China（Respondents 64）（Respondents 66）

12%

5%

3%

54.8%

Singapore

38.7%
38.7%

United States
United Kingdom

42%

19%

25.8%
16.1%
16.1%

Other Asian

61%

Germany

24%

Australia

16.1%
16.1%
12.9%

Korea

34%

FranceHong Kong

No plans now or in the future
Currently considering
Have already launchedWill launch

12.9%
6.5%
3.2%

Other European

No plans now or in the future
Currently considering
Have already launchedWill launch

Others

0%

20%

40%

60%

8) 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 theirbusinesses was “Improving property-acquisition abilities”, followed by “Enhancement of AM capabilities” and“Enhancement of equity raising capabilities”. The six most common answers were the same as those reported in theJuly 2011 survey. Although both investors’appetite and the transaction situation showed a slight improvement in theJanuary 2012 survey, compared with the levels in the July 2011 survey, the results showed that there were still
difficulties in acquiring investable properties and raising equity. Meanwhile, the answer of “Enhancement of researchcapabilities,” was chosen by ten managers, which was an increase from the previous survey, although still low.
However, this increase indicates that an increasing number of managers are more conscious of the importance of
research activities such as collecting and analyzing pertinent information.
Fig.35 Requirements for Sustainability and Growth of Managers
36

Improving property‐acquisition abilities

33

Enhancement of AM capabilities

30

Enhancement of equity raising capabilities

26

Management strategy and its accountability

16

Enhancement of relations with investors

12

Enhancing the ability to handle foreign investors
Reinforcement of compliance structure

10Competence in special expertise

10

Enhancement of research capabilities

10
8Enhancement of corporate strength

7

Enhancement of debt financing capabilities

7

Development of new products such as open‐ended funds

6

Reinforcement of information disclosure

3

Expansion of foreign real estate fund that targets businesses

1

Building a bad debt investment system

0Others0
Jan 12（n=215 Respondents 64）

5

10

15

July 11（n=229 Respondents 69）

14

20

25

30

35

Jan 11（n=196 Respondents 63）

40

45

NEWS RELEASE

April 9th

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 both categorized 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 thelaunch of the fund, leaving additional investments after the launch usually at the discretion ofmanager 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 thefund, 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 valueof 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 withimprovement 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 andcapital 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.

15

NEWS RELEASE

April 9th

Contact:

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

Disclaimer:
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addition, as this document was prepared based on the information available at the time of preparation or
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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
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However, such calculations are for the necessity of implementing advisory services, and calculated values are
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16