Daiwa Office REIT Buying Blackstone-Linked Tokyo Office Block as Part of $167M Deal

Daiwa Office Investment Corporation has agreed to buy two central Tokyo properties for a combined JPY 26.6 billion ($167.3 million), while offloading an older asset as the REIT reshapes its portfolio.

The Tokyo-listed trust sponsored by Daiwa Securities will pay JPY 19.4 billion for the Prime Sendagaya Building and JPY 7.2 billion for Hamamatsucho Prex, according to a Tuesday stock filing. The larger property, Prime Sendagaya in Shibuya ward, is an eight-storey office and retail block with a leasable floor area of 6,178 square metres (66,500 square feet).

Completed in 2009, the asset sits between Shinjuku and Shibuya near the Harajuku and Omotesando districts, positioning it to capture demand from fashion and creative tenants clustered in Tokyo’s core commercial corridors. The seller is undisclosed, but the property is listed in Blackstone-backed JapanCor’s portfolio. 

“There is strong demand from apparel manufacturers and fashion wholesalers and retailers, who focus on image and access to commercial areas, but the office stock in the area mostly consists of relatively compact small and mid-size buildings,” the trust’s manager said.

Room for Upside

Daiwa Office REIT is acquiring Prime Sendagaya at JPY 3.1 million per square metre of leasable space, implying an appraisal net operating income yield of 3.6 percent. Market sources identified Prime Sendagaya as part of a set of commercial and residential properties which Blackstone acquired from PAG in a JPY 110 billion acquisition in 2020, with PAG having purchased much of that portfolio from GE Capital in 2015. 

The property is 90.6 percent occupied and generates monthly rent of JPY 61 million from six tenants, leaving room for leasing upside, the manager said.

The REIT’s second purchase, Hamamatsucho Prex in Minato ward, is an 11-storey office building with 2,309 square metres of leasable area. Completed in 2023, the fully occupied asset features raised floors, zoned air-conditioning and a rooftop terrace, catering to newer workplace formats.

The trust is paying JPY 3.1 million per square metre of leasable area for the property, in line with the Sendagaya deal, with an appraisal NOI yield also at 3.6 percent. The building produces monthly rent of JPY 20 million from eight tenants and sits near Hamamatsucho station, offering access to Tokyo’s main rail lines and Haneda Airport.

The seller of Hamamatsucho Prex is an undisclosed domestic company with no capital or business ties to the REIT or its asset manager, according to the filing. The office tower was developed by Sumitomo Corporation as part of its Prex series of mid-sized build-to-sell office buildings before being acquired by an unnamed investor.

Azabudai Disposal

Alongside the acquisitions, the REIT will divest Daiwa Azabudai, a 1984-vintage mixed-use building in Minato ward, for JPY 2.2 billion, booking an estimated capital gain of JPY 752 million over book value.

The sale to a domestic company reflects the REIT’s strategy of recycling capital out of ageing assets requiring significant future capital expenditure, with the Azabudai property approaching 40 years of age.

Following completion of the transactions this month, the REIT’s portfolio will comprise 58 properties with a total acquisition value of JPY 487.7 billion ($3 billion).

The trust is funding the acquisitions through cash on hand and borrowings, with the moves expected to boost earnings and support distributions, the manager said.