CLSA Sells Trophy Building in Tokyo’s Ginza to Notch 43% Mark Up in 9 Months

Hong Kong-based fund manager CLSA Real Estate has sold off a retail property in one of Tokyo’s most expensive shopping strips at a 43 percent markup, defying a dealmaking slowdown that has gripped the global markets.

The property investment platform of CLSA Capital Partners – which is controlled by China’s CITIC Group – sold the building in central Ginza for $86 million, after acquiring it for around $60 million nine months ago.

Mingtiandi understands that the fund manager completed the sale two days ago on behalf of a pair of Singapore real estate companies, with a Japanese investor purchasing the property at a cap rate of between 1.2 and 1.3 percent.

While the name of the building has not been revealed, the six-storey property is located on Chuo-dori Street, not far from Tokyo’s oldest department store, Mitsukoshi Ginza, and the luxury shopping centre Ginza Six.

Selling Ginza Glitz

With a net leasable area of 600 square metres (6,458 square feet), the Japanese investor paid $215,000 per square metre for the property on the glitzy Ginza strip.

All six floors of the building are currently tenanted by a Spanish company at a rent of JPY 68,000 per tsubo per month, which is equivalent to a monthly rent of $200 per square metre.

CLSA Real Estate expects that, once the current lease expires in 2022, a new tenant will take over the property at an increased JPY 175,000 per tsubo per month – matching current rental standards in the area.

Buying Low, Selling High

A spokesperson from CLSA’s Fudo team, which manages the company’s platform of pan-Asian real estate funds, informed Mingtiandi that the sale came close to doubling the account holders’ equity investment in the property.

Having purchased the asset last July at a ten percent discount to its valuation, CLSA had initially intended to hold the property for a period of around two years. But investor interest in ginza retail properties, which are prized by some Japanese investors as trophy assets, presented an opportunity to exit the investment sooner than planned.

“Demand is strong for retail properties like this one, which are located along Ginza’s busiest shopping street,” the CLSA Real Estate spokesperson said, while adding that investors often target such retail properties with the mindset of a collector, rather than focusing on investment yield.

Seeking High Returns in Tokyo

The fundamentals of the property market in Tokyo, which drove CLSA’s original investment in the Ginza property, continue to be strong, according to the fund manager.

“We are positive on the Tokyo market,” a CLSA Real Estate spokesperson said, while noting Japan’s low borrowing costs, high transaction volumes, and high liquidity as facilitating profitable acquisitions and rapid divestments.

With real estate in the Japanese capital continuing to promise high returns, CLSA said that it is seeing more institutional investors and Asia-based family offices looking to make investments in Japan.

Looking Long Term Amid the Pandemic

In terms of the general outlook for the market given the impact of the COVID-19 pandemic, which has already caused some buyers to back out of deals, the Hong Kong-based fund manager remains positive.

“Transaction volume will be lower in the immediate term, given the technical difficulties of carrying out due diligence as a result of restrictions on travel, but commercial activity is expected to pick up once the virus is brought under control,” a CLSA Real Estate spokesperson said.

The CLSA representative noted that for investors who have cash in hand, in addition to holding power, the current situation may throw up some interesting opportunities in the region.