Behind the plans for Japan's newest hotel REIT

Tokyo

Thanks to record-breaking international visitor numbers and occupancy rates, a unit of Japan’s biggest trading company is planning its first real estate fund that invests in domestic hotel debt

Mitsubishi’s Diamond Realty Management is looking to start the fund of more than $185 million this year, said Akira Nozu, the GM of the structured finance department at the Tokyo-based company. “As demand for hotel development and sales increases, there’s also more demand for finance,” Nozu said in an interview. “We’re getting more inquiries from investors on finance for hotels in the Tokyo and Kansai areas and big regional cities like Fukuoka.”

The Development Bank of Japan Inc., Star Asia Investment Corp. and LaSalle Logiport REIT are among companies tapping investor demand for higher returns in the property market at a time when unprecedented central bank easing has lowered sovereign bond yields to below zero. 

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Occupancy rates for large-scale city hotels topped 80 percent not only in Tokyo, Kyoto and Osaka but also in Fukuoka and Okinawa in western Japan, according to the Japan Tourism Agency. Sales of hotels rose 5.7 percent from a year earlier to a record 111 cases in 2015, according to information from Jones Lang LaSalle.

“Investment demand for hotels is rising as visitors to Japan increase and negative interest rates push funds into the real estate market,” Yasokazu Terada, an executive vice president in Tokyo at JLL, said. 

Source: Bloomberg

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The company has taken “substantial steps” to preserve liquidity and mitigate the impact of the current extremely low levels of demand.