M&G Real Estate Buys Tokyo Apartment Tower From LaSalle for $204M

Japanese rental apartments maintain their most-favoured-sector status with global investors this week, with M&G Real Estate announcing on Wednesday that it has acquired a multi-family residential tower in Tokyo’s Shinjuku area for JPY 30 billion ($204 million).

The property division of UK asset manager M&G bought Frontier Shinjuku Tower, a 298-unit complex in central Tokyo, from LaSalle Investment Management, according to market sources who spoke with Mingtiandi, with the buyer explaining the acquisition as aligning with a global living sector strategy.

‘’We are keenly focused on sectors such as residential – including student housing and co-living – along with logistics and hospitality across the Asia Pacific, the United Kingdom and Europe,” said Martin Seol, head of targeted strategy at M&G Real Estate Asia. “Leveraging our expert asset management capabilities, we aim to enhance the intrinsic value of our investments, ensuring they not only yield economic benefits but also uphold ESG standards.’’

The acquisition of the six-year-old asset is M&G’s third major purchase of Japanese rental residential assets in recent years, following a 2022 deal with Blackstone, and a 2021 buy in Osaka.

Upgrades on the Way

Occupying a 3,062 square metre (32,959 square foot) freehold plot in Nishi-Shinjuku, Frontier Shinjuku Tower spans 14,877 square metres of net lettable area, putting the purchase at around JPY 9.8 million per square metre.

In addition to its apartments, the Sekisui House-constructed tower has retail and office units on the lower floors of the 24-storey structure. The project is located within 650 metres (710 yards) of the Hatsudai train station on a corner of Juniso Dori Avenue near Koshu Kaido Avenue

Industry sources indicated to Mingtiandi that the transaction was concluded in an off-market deal at a cap rate in the low 3 percent range, with M&G indicating that it, “plans to invest additional capital to further position Frontier Shinjuku Tower as a high-end multi-family property, and to restructure the commercial components to generate stable income.”

The company added that it expects to achieve a CASBEE S rating for the property under Japan’s sustainable building regime, with the tower already holding a 4 star mark under the DBJ Green system.

“Amidst the evolving landscape post-pandemic and adjustments in the interest rate environment, we are strategically expanding our direct value-add investments to cultivate higher returns for our investors,” M&G’s Seol said. “The acquisition of Frontier Shinjuku Tower exemplifies our commitment to this strategy.”

Completed in December 2017, LaSalle acquired what was then the TSI Shinjuku Tower in 2021 for JPY 22.6 billion, according to a report by Savills at the time. LaSalle representatives had not yet responded to inquiries from Mingtiandi at the time of publication.

Riding Rental Housing Demand

M&G explained the acquisition as aligning with a transformation of housing markets in Asia Pacific where problems of affordability are driving more professionals working in major cities to look for alternatives to home ownership.

“Asia Pacific’s growing urbanisation and immigration continues to drive demand for rented residential property in key cities, particularly as home price growth has substantially outpaced incomes,” M&G said in the statement. “With residential rents having kept pace or even outperformed inflation, and lower volatility seen in occupancy rates in residential assets during cyclical downturns, this sector presents a long-term and scalable opportunity for investors.”

In 2022, M&G acquired a portfolio of 30 residential properties in Tokyo, Osaka and Nagoya from Blackstone for JPY 49.2 billion. That purchase of 1,575 apartments on behalf of M&G Asia Property Fund brought that strategy’s assets under management in Japan’s multifamily sector to JPY 109.3 billion at the time.

Less than a year earlier, the company had purchased a pair of residential buildings in Osaka under the same strategy for $50 million, according to a statement at the time.

In addition to its multi-family investments in Japan, the company has also been active in the logistics sector, where it last year committed up to $350 million in fresh capital to a development partnership with ESR.

In October, M&G acquired the Minato Mirai Center, a Grade A office tower in Yokohama, for more than JPY 100 billion ($700 million), with the buy also made under its M&G Asia Property Fund.