Angelo Gordon Selling Yokohama Office Tower to Orix JREIT for $142M

An Angelo Gordon fund is selling an 18-storey office tower in Japan’s Yokohama city for JPY 20 billion ($142 million) to Orix JREIT.

The TSE-listed trust announced on Monday that it will acquire Shinyokohama Square Building, 36 kilometres (22 miles) south of central Tokyo in Kanagawa prefecture for around 5 percent below its appraisal value, with market sources familiar with the transaction identifying the seller as a fund managed by the US private equity firm, which was acquired by TPG in November.

In the same document Orix JREIT revealed that it has agreed to sell a pair of central Tokyo office properties for a total of JPY 17.8 billion, as the company expressed doubts about the Tokyo market.

“At present, we are conducting asset replacement focused on improving portfolio quality. Under this policy, despite challenging acquisition environment, OJR decided on this exchange with third parties where we can further utilise our strengths and anticipate stable demand in the middle to long term,” said the trust’s manager.

Bought, Fixed and Sold

Shinyokohama Square is located a 2-minute walk from the Yokohama Municipal Subway Blue Line. With 18 floors above ground and one below ground, the 1995-vintage building has a total floor area of 24,597 square metres, which includes workspace and retail facilities.

In October, the office had an occupancy rate of 94.6 percent, which was down by 2.1 percentage points from the same time last year. The previous owner, Japanese transport firm Seibu Holdings, had sold the building as part of a three-asset deal in November 2021 without naming the buyer or specifying the transfer price.

Angelo Gordon and its partners in the Yokohama project undertook value-add initiative for the office tower in October last year, with the aim of achieving an environmental certification for the property and improving its efficiency, according to a statement last year from Mizuho Real Estate Investment Management.

Mizuho, along with a unit of Seibu Holdings, worked together with Angelo Gordon in managing and enhancing the asset, according to market sources and statements by the local companies. Angelo Gordon representatives had not yet responded to inquiries from Mingtiandi by the time of publication.

Tale of Two Sub-Markets

In the same announcement revealing the acquisition from Angelo Gordon, Orix JREIT said it was selling its pair of Tokyo office assets as market conditions deteriorate in the face of new supply of high-end buildings.

The trust has agreed to sell Seafort Square Center in Tokyo’s Shinagawa ward for JPY 13 billion, which is 19 percent less than its book value of JPY 15.4 billion, with the trust’s manager expressing pessimism regarding the property’s location and its profit potential.

“In Tokyo Bay area including Tennozu area where the property is located, there have been significant vacancies in recent years and the asking rent within the area is on a declining trend. In addition, considering the large supply of offices in central Tokyo, the area is uncompetitive office location,” the trust’s manager said.

“When filling in large space vacancy of this property, the decline of asking rent and prolonged vacant period are assumed, and the rent level of the property is unlikely to improve in the future,” it added.

Occupancy in the commercial block 15-minutes’ drive from the Tokyo Tower plummeted 17.9 percentage points to 76.9 percent in August compared to the same interval last year.

Orix JREIT is selling Round-Cross Shiba Daimon, a 9-storey building in Tokyo’s Minato ward, for JPY 4.8 billion, more than twice the property’s book value of JPY 2.3 billion.

The trust’s manager said that it is selling the pair of towers since they are expected to see prolonged periods of higher vacancy and declining rent in the near future due a growing glut of office supply in central Tokyo, including the redevelopment of the 19-storey Tamachi Station, which is set to be completed in May 2025.

Office rents in Tokyo’s five central wards declined in November for the 40th straight month, with leasing rates averaging JPY 5,978 per square metre, according to data from office brokerage Miki Shoji. That figure represents a 14 percent decrease from the market peak in July 2020.