Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.14C h a i r m a n ’ s

8/ 30/ 2022

C o l u m n

The Real Estate Market in theSecond Half of 2022
News can be spotted of foreign companies actively
purchasing Japanese real estate, now viewed as more of adiscount. The big reasons are the “weakening yen” andthe “yield gap” which is substantially higher than othercountries. I think the weak yen in particular is having asignificant affect.
As an example, the head of our ASA Singapore officerecently visited Japan. As you are familiar, the Singapore
currency is the Singapore dollar, which trends similarly tothe U.S. dollar. It’s gone from 80 yen per Singapore dollar
to 100 yen in short time, a 25% depreciation for the yen.
As a result, visitors view the price of Japanese things tobe quite low here. The same can be said for foreign
tourists. Unfortunately, with Covid delaying the matter, afull recovery back to a booming tourism industry may beways ahead. It’s certainly testing the patience foreveryone.

Meanwhile, the “yield gap” is one measure of investment
return that is favorable, since the Japanese government issticking to their policy of low interest rates, amidst othernations raising by 0.5 or 0.75%. By comparison, Japanesereal estate is still an investment product with substantialmargins. It is said that real estate stock prices have a highcorrelation to interest rates. While global REIT prices have
dropped by 19% in the past 6 months, Japan still retains
low interest rates and subsequently no significant drop-off
has been seen.
As Hulic’s Chairman Mr. Nishiura notes, “Office rents in thecity are falling, however strong bids by foreign investors
are keeping real estate prices stable. The weak yen is onefactor, but it does remind me a bit of the bubble economy”(source: The Nikkei, August 12 morning edition). I believe
this is the industry sentiment right now. For such foreign
investors continuing to bid on properties in Japan, we havea diverse range of services to provide. Please feel free toreach out to us at any time.
- Kazuhiro Matsuzawa, Chairman

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Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.14

J a p a n

8/ 30/ 2022

R E I T

REIT market activity
With recent economic changes like the weakened yen andrising interest rates, the relative purchasing power of REITs
is said to be falling. We are hearing news of foreign funds
outbidding domestic REITs on existing and new build
properties sold by sponsors.

For REITs, the sponsor is relied upon for sourcing, while forthe sponsor, the REIT is just one potential buyer.
Additionally, the sponsors have a responsibility tomaximize returns for their investors, which may notnecessarily mean the sale goes to the REIT.
For large conglomerates that develop and operate S-classoffice buildings for instance, the real estate arm generally
does not sell the property to outside investors but often
sells to a related REIT as a means of maintaining control
and finance. Meanwhile for “rotating” developers ofapartments and logistics warehouses, the focus is on

profits made on the sale of the new build. In that case,the property tends to sell to the buyer offering the highest
price regardless of whether the party is a related REIT oroutside buyer.
Additionally, a REIT will purchase property based on
appraised value, which is the market value that factors in
the “cruising speed” of the property. In a rising market,
the actual sale prices may exceed the market value andthus the “buy” price may be harder to determine.
Alternatively, if a REIT were to acquire property like aprivate fund using IRR that factors in future appreciation, if
portfolio returns fall short, REIT stock prices may drop,
which then may affect future fundraising through themarket.
For REITs, the current conditions are tough to navigate,
and perhaps it is up to the asset management firms toshow their savvy.
- Shigeru Hirai, Client Relations GroupCopyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.14B u i l d i n g

8/ 30/ 2022

A u t o m a t i o n

Smart Buildings – Are they secure?
When new technologies emerge, we often see thevulnerabilities in a more connected cyberspace typicallylater on after adoption. Smart buildings are no exception.
The increasing number of cyberattacks on IoT and building
management systems is making it apparent that security
has been an afterthought for office IoT devices andsoftware.
In many modern-day buildings, a multitude of sensors andcontrollers optimize HVAC systems, lighting, and security.
Individual IoTs are often integrated and controlled under abuilding automation/management system (BAS or BMS).
In a 2020 report prepared for the U.S. Department ofEnergy, a growing number of building owners and tenants
are reliant on IoT devices and BMS that are controlled,
regulated, and monitored over the internet. While
integrating various devices, sensors, controllers, andsoftware is great for energy efficiency and workplace
convenience, the downside is that such centralized
systems can potentially be infiltrated through a single
point of entry.
A hacker may potentially be able to control the security
system of an entire floor or building or breach weak points
to access confidential data.
According to the report, nearly half of commercial
buildings use devices connected to the internet, but 95%
of sites do not have disaster recovery plans. An
investigation uncovered that 40% of BMS servers weretargeted with malware, phishing scams, or ransomware.
The report states the following when in considering
cybersecurity requirements:
There is no “one-size-fits-all” cybersecurity solution forbuildings. The cybersecurity requirements vary frombuilding to building and system to system, as well as fromowner to occupant to tenant. For example, temperatures inlarger buildings change relatively slowly, so a building’s
HVAC system could hypothetically be offline for a period oftime without significant impact to the building occupants
and tenants (depending on the function of the building).

Therefore, the availability requirements for the HVAC
system may be moderate. On the other hand, if criticaltemperature and humidity requirements exist for buildings,
such as for hospitals, their HVAC cybersecurity risk profileand requirements are substantially higher.
What are some measures that building owners and tenants
can take?
• Having complex passwords that are not reused on otherdevices and controllers• Applying patches to IoT devices and software on atimely basis• IP address restrictions on BMS• Segregating networks for OT (operational technology)
and IT• Having trained or competent security staff in-house oron contract
For more guidance on best practices that may suit yoursmart building, resources like the Real Estate Cyber
Consortium may be helpful.
- Yuichi Totani, Client Relations Group

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.14
J a p a nTa x8/ 30/ 2022

U p d a t e

What separates Buildings fromStructures?
When acquiring property, it may be difficult to categorize
whether the object is a building or structure. A building isdefined under the Ordinance for Real Property Registration
Article 111 as “A building shall have roof and wall or similar
thereto, shall be a building structure affixed to the landand shall be in a condition available for the use of its
purpose”.
As an example, the home field for professional baseballteam Saitama Seibu Lions is Belluna Dome. The dome does
not have walls and the asset was recorded as a structure
based on the definition that no “wall or similar thereto”
exists. It was later reported that the city of Tokorozawa
claimed that Belluna Dome was in fact a building and asubsequent revision was made.

Additionally, since buildings require registration, Tokyo
Disneyland obtained registration certificates for theirattractions. The registration certificate for Splash
Mountain was found, however the rocky mountains of Big
Thunder Mountain were missing from the registry.
Apparently, there was no comment from Oriental Land,the operator of Tokyo Disneyland. It is assumed that theytreated the attraction as not having “a wall or similar
thereto”.
Also at my previous workplace, we discussed whether aprotective roof and wall placed around a chemical factory
tank constituted a building. I can’t make a conclusive
explanation since there are no official perspectives on thatparticular asset. Adding to the difficulty is thatmunicipalities vary in their determination of buildings andstructures.
- Masafumi Kuwabara, Tax Group

Left: Airy windows of the Belluna Dome
Right: Rocky mountains of the famous Disneyland
attraction

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.14N E W

8/ 30/ 2022

S e r v i c e s

ASA Reporting Professional to offer
PM support services
ASA Reporting Professional was initially established in April
2021 to support real estate funds with financial report
preparation. We are amazed that it has already been overa year.
Our initial scope of reports were financial statements andfund-specific business reports, however at the request of
our clients, we are currently assisting with PM report
preparation as well.
Using this experience, we are looking to expand anddiversify our support services for property managers andwill reach out to our clients soon.
Our firm proposes the following support services to PMs:
• PM report preparation(Using software like @property, our client’s proprietary
software, or Excel)• Other supplementary report preparation(non-PM reports requested by lenders and accountingfirms)
Depending on the fund, necessary information will vary,and report formats will differ as well. This may cause
concern as to whether our firm can handle thesedifferences, however we can customize the serviceaccording to each type of property. For example, limiting
support to just one area of a series of investments or to a
specific property designated by the property manager.
In any case, we are eager to hear your opinions andrequests on how we can help.
Hirokazu Ando, ASA Reporting Professional
https://www.aoyama.ac/asarp/
Contact: Click hereNews
ASA Advisory COO, Jun Yoshioka’s article waspublished in the August 2022 edition ofTax Accounting News.
Feature I: Effectiveness in inheritance planning,
Small-lot real estate products, System and tax risks
Part 1: Real estate securitization structure andcharacteristics of small-lot real estate products(Author: Jun Yoshioka)
Link: Tax Accounting News

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.