Morgan Stanley Hits $900M Final Closing of Japan Real Estate Fund

The real estate investment arm of banking giant Morgan Stanley has reached the final closing of a JPY 131 billion ($900 million) fund with a focus on properties in Japan’s residential, office and industrial sectors.

The yen-denominated vehicle, dubbed North Haven Real Estate Japan Strategy Fund I, seeks to invest in assets benefiting from structural tailwinds in Asia’s second-largest economy, including domestic urbanisation and international migration, high return-to-office rates and strong e-commerce activity, Morgan Stanley Real Estate Investing said Monday in a release.

JSF well exceeded its original target size of JPY 75 billion and completed its first acquisition in March, with 8 percent of the fund having been committed to date across several residential investments, according to MSREI. The fund’s limited partners are mostly Japanese pension funds and financial institutions, as well as foreign sovereign wealth funds.

“We are extremely pleased with the strong investor support for JSF both from existing and new investors who recognise and value MSREI’s long history and deep expertise in Japan, having deployed more than $10 billion of equity capital in the country since 1998,” said Toru Bando, head of Asia and chief investment officer at MSREI.

Play on Positive Outlook

The closed-end JSF will focus on properties in Tokyo, Osaka and other key markets across Japan with the objective of producing attractive risk-adjusted returns using prudent leverage, according to MSREI. The firm said the strategy would draw on Japan’s positive outlook driven by inflation and wage growth, regulatory changes shifting corporate behaviour towards efficiency and attractive yield spreads with favourable financing terms.

“Against this backdrop, real estate fundamentals continue to improve, particularly for sectors supported by long-term structural tailwinds,” said Yu Kawamata, head of Japan and co-head of Asia investments at MSREI. “With 25-plus years of investing experience in Japan, we believe MSREI is well positioned to leverage its in-depth local market knowledge and strong access to opportunities through long-standing relationships to successfully invest JSF on behalf of investors.”

Reuters first reported in April that MSREI expected to raise at least JPY 100 billion for its Japan-focused fund, with a source telling the news agency that investment would centre on offices and multi-family buildings in major cities, as well as logistics and hotels.

As of June, MSREI managed $54 billion of gross real estate assets worldwide on behalf of clients. The firm has continued to up its Asia Pacific property bets, including earlier this year with the launch of a 50:50 joint venture with Frasers Property to invest in an Australia industrial portfolio developed by the Singapore-based firm and valued at A$600 million ($380 million).

MSREI’s acquisition of the half-stake in the eight-asset portfolio marked Frasers Property’s first capital partnership in Australia’s industrial segment, according to the SGX-listed firm controlled by Thai billionaire Charoen Sirivadhanabhakdi.

Seeing and Raising

The last few months have seen an uptick in fundraising for Japan real estate vehicles, with Osaka-based Samty Holdings in July announcing a closing of JPY 58 billion ($391 million) for its first dedicated hotel fund.

Eastgate-Samty Hospitality Fund I holds 10 hotels in major cities of western Japan, including Tokyo, Nagoya, Kyoto, Fukuoka and Hiroshima, with the vehicle targeting high-occupancy assets amid sustained tourism growth.

Also in July, Japan’s second-largest life insurer, Dai-ichi Life Holdings, joined with Tokyo-based conglomerate Marubeni to launch a JPY 400 billion ($2.8 billion) real estate investment fund, tapping rising interest in property strategies among domestic institutions.

Reuters reported last week on a plan by Mitsubishi UFJ Real Estate Asset Management to launch a JPY 100 billion ($680 million) fund to invest in Japanese real estate. The vehicle will focus on mid-sized offices, residential properties and hotels in Tokyo, Osaka and Nagoya, an executive told the news agency.