AXA IM Spends $38.6M to Add to Japanese Multi-Family Portfolio

French financial services giant AXA is moving farther afield in search of yield in Japan’s rental residential sector, with the company announcing this week that it has acquired a pair of apartment towers in the city of Sendai.

AXA IM Alts, the alternative asset division of the French insurer’s investment management business, is paying JPY 4.2 billion ($38.6 million) for 282 rental units in northern Japan’s second-largest city as its 15th investment in the country’s residential market on behalf of clients, the company said in a statement.

The deal in the Miyagi prefecture city of 1.6 million people underlines AXA IM’s willingness to move beyond Japan’s largest cities as competition increases for prime assets in Tokyo and Osaka, and investment yields continue to compress in the face of growing competition for assets.

Buying From a J-REIT

Completed in 2006, the 191-room S-Fort Katahira is the newer of AXA IM’s latest acquisitions, with the 91-room S-Fort Miyamachi having been finished in 2001. The French firm is buying both properties from Osaka-based KK Core Estate for the equivalent of JPY 420,000 per square metre. The Japanese investment firm had purchased the two assets in November of last year as part of a six property portfolio from Tokyo-listed real estate investment trust Samty Residential Investment Corporation.

Located 370 kilometres (230 miles) north of Tokyo on the east coast of Japan’s main island of Honshu, Sendai’s status as a hub for the Tohoku region has made it home to a number of well-known educational institutions. AXA said the two towers “have been designed to appeal to young single occupants, including students, and dual income couples due to their affordable rents and proximity to both the city centre and nearby Tohoku University”.

Both properties are also within walking distance of Sendai’s Ichibancho commercial district and are close to the city’s train station, offering the opportunity for a less than two-hour trip to Tokyo via the Shinkansen bullet train.

Heading North

With this latest acquisition, AXA IM has grown its Japanese residential assets under management to nearly $656 million, making it one of the largest investors in the country’s multi-family sector.

Along with its counterparts at investment firms such as Allianz Real Estate, Nuveen and Blackstone, AXA in recent months has seen capitalisation rates for prime apartment assets compress to levels usually associated with core office deals.

Speaking at a Mingtiandi event on Japan’s multi-family investment market earlier this month, Ken Sakuramoto, head of equity advisory for Japan at JLL, said that investors hoping to acquire rental residential assets in Japan’s four largest cities of Tokyo, Osaka, Nagoya and Fukuoka can expect investment yields in the range of 3 to 4 percent, with opportunities in the capital towards the lower end of that range or at 3 percent in some cases.

While investors such as Allianz, which last week announced a $1 billion fund dedicated to Japanese multi-family, have focused their energies on Tokyo and Osaka while taking on some leasing risk, AXA IM has been moving beyond Japan’s largest hubs.

In early July last year, the Paris-based company spent JPY 20 billion acquiring a residential tower in Nagoya, Japan’s fourth-largest city, and followed up a few weeks later with another purchase in the capital of Aichi prefecture.

In December 2020, the firm spent JPY 70 billion to acquire a Tokyo apartment portfolio.

Note: this story has been updated to show that AXA IM purchased the properties from KK Core Estate. An earlier version indicated that the vendor as Samty Residential. Mingtiandi regrets the error.