Orix JREIT Buying Central Tokyo Residential Project From Daiwa House Unit for $17M 

Orix JREIT has agreed to buy an under-construction Tokyo residential project for JPY 2.2 billion ($17 million) and sell an ageing apartment building for JPY 2.9 billion in an exchange with a unit of development giant Daiwa House.

The $5.2 billion trust sponsored by financial group Orix Corporation will acquire Cross Residence Nihonbashi Honcho in the central Chuo ward after the project is completed in November, according to a stock filing. The REIT in turn will dispose of Cross Residence Mishuku, a 2007-vintage property in the southwestern Setagaya ward bordering Kanagawa prefecture.

The counterparty in both transactions is Cosmos Initia, a property firm majority-owned by Daiwa House Industry Co. The swap will take place as part of Orix JREIT’s asset replacement programme focused on improving portfolio quality.

“Under this policy, despite challenging acquisition environment, OJR decided on this exchange with a third party where we can further utilise our strengths and anticipate stable demand in the middle to long term,” the trust’s manager said.

Portfolio Refreshment

The 15-storey Cross Residence Nihonbashi Honcho will provide 42 apartments across 1,618 square metres (17,416 square feet) of rentable space. The site is a two-minute walk from the Tokyo Metro’s Kodemmacho station and a three-minute walk from Shin-Nihombashi station of the JR Sobu commuter rail line.

“The vicinity offers high lifestyle convenience with supermarkets, grocery stores, drug stores, restaurants and other facilities,” the REIT’s manager said. “Additionally, the property is very close by to Nihonbashi where large retail facilities and offices are located.”

The price for the development pencils out to more than JPY 1.3 million ($9,900) per square metre of rentable area, with Orix JREIT estimating a 3.8 percent net operating income yield under stabilised occupancy.

The five-storey Cross Residence Mishuku, meanwhile, carries “a risk of prolonged vacancy” with its location a 14-minute walk from the nearest mass transit station and its large proportion of special room layouts, the manager said. Further deterioration of competitiveness is seen as a concern as the building ages.

Universal Hotel Highlight

Orix JREIT’s portfolio comprises 111 properties across the residential, office, retail, logistics and hospitality sectors with an average age of 19.5 years.

The trust’s biggest acquisition to date is the Hotel Universal Port in Osaka, with the REIT having purchased the 15-storey property in 2018 for JPY 34 billion. The asset is one of five official hotels serving the nearby Universal Studios Japan theme park.

The portfolio’s key office properties include the 53,043 square metre ARK Hills South Tower and the 14,233 square metre Orix Akasaka 2-chome Building, while the trust’s premier residential holding is the 81,760 square metre Shibaura Island Air Tower. All three assets are in Tokyo’s central Minato ward.