Japanese billionaire Akira Mori plans to buy as much as 100 billion yen (HK$9.4 billion) in properties in Tokyo, New York and London, his company's first investment of this scale since 2008, as local real estate values recover and the yen strengthens.
The owner of Mori Trust, the nation's most profitable closely held developer, wants to buy assets such as office towers and may focus on developing so-called smart buildings that are energy efficient and have disaster-prevention systems in place, he said.
Mori is taking advantage of the yen's strength to explore overseas opportunities for the first time as part of the company's most significant investment since the 76-year-old declared the end of Japan's real estate boom in 2008. Mori Trust, which has refrained from purchasing to focus on strengthening its finances, has boosted its capital ratio to 26.3 per cent as of March from 17.5 per cent in March 2008, the year when global financing evaporated as Lehman Brothers collapsed.
"This is the perfect timing to invest," the chief executive officer and president of the company said in an interview in Tokyo. "We have continued to construct new buildings, but for the acquisition of buildings, our plan would be the first since Lehman went bankrupt."
The Japanese currency has strengthened 35 per cent against the dollar in the past five years and traded at 81.90 yen per dollar today in Tokyo.
Mori Trust manages 67 buildings in Japan, including the Tokyo Shiodome Building in a commercial district near Tokyo Bay, and operated about 30 hotels as of October 1, according to the company's website. The company made 16 billion yen of profit for the year ended March 31, almost double the net income generated by Mori Building, which was run by his older brother, Minoru Mori, who died on March 8 from heart failure.
The office vacancy rate, a measurement of unoccupied office space, has dropped for four straight months in Tokyo to 8.7 per cent in October, after rising to a record high in June, as excess supply decreased, according to Miki Shoji, an office brokerage company.
"Rent decline has slowed," Mori said. "The return from a building is higher than the cost of borrowing. With interest rates being very low, that makes it easy to buy."
Mori Trust, which has an occupancy rate of 95 per cent for its buildings, plans to raise rents next year, Mori said.
The Tokyo-based company will also be looking to buy residential developers as it anticipates rising demand for serviced apartments and homes for the elderly, he said. A quarter of Japan's 127 million population will be older than 65 years in 2014, compared with 14 per cent in the US, according to data compiled by Bloomberg.
Acquisitions overseas will focus on properties whose values can withstand market downturns, Mori said. The company may consider working with other investors in big cities such as New York and London, he said.
"Property in a desirable location is good because it tends to be the last to drop in value when the market is bad," Mori said, referring to properties in New York. "Cheap properties tend to be the first to decline and last to recover."
The capitalisation rate, a measure of investment yield, for office buildings in New York declined to 6.9 per cent in the third quarter from a record high of 7.1 per cent in the last quarter of 2010, according to REIS, a New York-based real estate data provider. A drop in the cap rate, which is a property's net income divided by the purchase price, usually signals an increase in real estate prices.
Mori is investing his own money beyond the property market.
MA Platform, a Tokyo-based company set up by Mori, became the largest shareholder this year in closely held Tsingda eEdu, which offers English lessons over the Internet in China. Beijing-based Tsingda eEdu formed a tie with Princeton, New Jersey-based Berlitz to offer online classes to children and provide overseas study programmes for elementary and junior high school students, according to the companies.
Tsingda may seek to sell shares to the public in two years after it doubles profit to about US$40 million in 2014 from an estimate of about US$20 million this year.