Mitsubishi Estate Selling Stake in Tokyo Office Building to REIT for $132M

Mitsubishi Estate is selling a stake in a Tokyo office building to a TSE-listed REIT sponsored by the Japanese property giant for JPY 19.8 billion ($132 million).

Japan Real Estate Investment Corporation informed the Tokyo bourse on Tuesday that it is buying an additional 22 percent stake in Toyosu Foresia, in a deal which will boost its stake in the commercial tower to 31 percent once the transaction is completed on Wednesday.

“The property is (a) high‐specification building with great functionality, situated in a favourable location in central Tokyo, which JRE determined will contribute to enhancing its medium‐ to long‐term competitiveness and expanding its asset size,” said the trust’s manager.

The trust is expanding its ownership in the Koto ward asset after having acquired a 9 percent stake in the property from Mitsubishi Estate in February of last year for JPY 8.1 billion.

Connected to Central Tokyo

With a single storey of retail below its office floors, Toyosu Foresia is a 16-storey building located around 15 minutes’ drive from the Tokyo Tower. With its proximity to Toyosu station, the 98,176 square metre (1 million square foot) tower benefits from its location in an area currently benefiting from efforts by local authorities and top developers.

“The property is located in the Toyosu area where diverse urban functions, including business, commercial, and residential areas, are particularly concentrated within the Tokyo Bay area,” the trust’s manager said.

The Toyosu neighbourhood is currently the target of a government-sponsored development initiative, which has also attracted investment from Mitsui Fudosan and Daiwa House. Mitsubishi Estate began participating in the initiative through its Toyosu Foresia development in 2014.

With 31 tenants in the commercial building, JRE’s managers forecast that the property will be 99.1 percent occupied on the scheduled acquisition date, up from 97.1 percent in September.

The trust’s stake acquisition represents a discount from the asset’s value of JPY 19.9 billion in an appraisal dated at the start of the month. JRE’s managers estimate the asset yields JPY 713 million in net operating income annually, putting the cap rate for the transaction at 3.6 percent.

Following completion of the acquisition, the deal specifies that Mitsubishi Estate will lease the building from JRE, and then sublease the office and retail facilities to third parties on behalf of the trust.

JRE’s manager will fund the deal using cash and JPY 20 billion worth of loans that it plans to procure on the same day of the acquisition.

Following the acquisition, JRE’s portfolio will comprise 77 office assets across Japan’s major cities including Tokyo, Nagoya and Osaka which it acquired for a total of JPY 1.1 trillion.

Off-Season Deals

JRE is picking up its Koto tower after trades of Japanese office assets fell to JPY 1.1 trillion in 2023, according to CBRE, which was down 43 percent from a year earlier and marked the lowest annual total since 2012.

Despite the 2023 decline, major investors have committed to a series of deskspace deals in recent weeks, with Tokyu Land announcing last week that it is selling a partial stake in a set of office floors in its newly-built Shibuya Sakura Stage complex for JPY 100 billion.

In January, Goldman Sachs agreed to buy four floors in the GranTokyo South Tower in Chiyoda ward from Nippon Building Fund for around 8.8 percent above the office asset’s book value as of June of last year.

That deal in the Marunouchi area came after Sekisui House REIT in December announced its acquisition of an office building in Tokyo’s Shinjuku area for JPY 5 billion.