Mitsubishi Estate Sells Stakes in Tokyo Commercial Buildings to REIT for $239M

Mitsubishi Estate is selling stakes in an office building and a WeWork-occupied mixed-use tower in Tokyo for a total of JPY 32 billion ($239 million), transferring the assets to a listed REIT sponsored by the Japanese real estate giant.

Under the deal, announced 16 February, Tokyo Stock Exchange-listed Japan Real Estate has agreed to purchase a half-stake in the Argyle Aoyama, a 20-storey office, hotel, and retail tower in Tokyo’s Minato ward with a gross floor area of 22,010 square metres (236,909 square feet).

The 50 percent stake in the newly constructed property, which houses a WeWork location across four floors, will change hands for JPY 23.9 billion ($178.4 million), representing a unit price of around JPY 2.2 million per square metre of gross floor area.

In the same announcement, the REIT said it will acquire a 9 percent interest in Toyosu Foresia, a 16-storey office building spanning 98,176 square metres in Koto ward. The transaction price of JPY 8.1 billion amounts to about JPY 916,719 per square metre for the building, which was completed in 2014.

The seller in each case is an entity of Mitsubishi Estate, which will lease the spaces to be acquired by the REIT and then sublease them to third parties. The transfer of ownership is scheduled for 27 February.

Fashionable Area

Japan Real Estate, which invests in office assets, had amassed a portfolio of 73 properties with a total appraisal value of JPY 1.3 trillion as of 30 September, with more than two-thirds of the portfolio by acquisition price located in Tokyo’s five central wards.

Regarding its latest acquisitions, the REIT noted that “both properties are situated in favorable locations in central Tokyo and have high basic specifications and functionality. Therefore, JRE decided the acquisitions determining it will enhance its medium- to long-term competitiveness and expand its asset size.”

Completed in 2020, the ARGYLE aoyama is located at the corner of the major thoroughfares of Gaien Nishi-dori Avenue and Aoyama-dori Avenue in Minato ward’s upscale Aoyama neighbourhood, a hub for fashion brands and boutiques. The address is within walking distance of the Gaiemmae and Omote-sando metro stations.

Mitsubishi acquired the former property on the site, the Aoyama Bell Commons building, in 2015 and demolished the building in the following year. The new 90-metre-tall tower features the 42-key Aoyama Grand Hotel operated by Tokyo hospitality firm Plan Do See on floors 3-4 and 16-20, as well as office and coworking space on floors 5-15.

The building also contains restaurants and retail on the first and second floors, with tenants including Teapond and Paul Stuart, according to Japan Property Central. The entire property has 12 tenants, while the fully occupied leased area of 7,478 square metres – calculated based on Japan Real Estate’s stake – generates more than JPY 1 billion in rents per year.

According to Japan Real Estate, the area enjoys high office demand from sectors including apparel, design and IT. The REIT is also bullish on the Toyosu area, a manmade island in eastern Tokyo’s Koto ward, where it is buying a stake in the “highly competitive” Toyosu Foresia building.

Located at 3 Chome-2-24, the building sits near Toyosu Station, which serves two metro lines, and faces Urban Dock LaLaport Toyosu Annex, a three-storey shopping complex. The property features large floor plates of around 4,500 square metres and 31 tenants.

Japan Real Estate is buying a 9 percent stake that represents 6,032 square metres of net rentable area, which is 97.9 percent occupied, creating JPY 440 million in rental revenue per year.

“In the nearby redevelopment area, development of complexes consisting mainly of offices is also underway,” the REIT said in the announcement. “Moreover, the subway line at Toyosu station is scheduled to be extended, so the value of the area is expected to further improve.”

REIT Reshuffling

The Toyosu area was the site of another office REIT deal last month, when Mitsui Fudosan Co. transferred a piece of the Toyosu Bayside Cross Tower to its listed trust, Nippon Building Fund.

Through the deal, NBF paid JPY 21.6 billion to purchase four floors totalling 13,229 square metres in the property, just a short walk south of Mitsubishi Estate’s Toyosu Foresia building. As part of the same agreement, NBF also acquired an additional portion of the Iidabashi Grand Bloom office tower in Chiyoda ward.

In a similar transaction in January, Ichigo Office REIT Investment Corporation agreed to buy two mid-size office buildings from property and infrastructure company Ichigo Inc. for a total of JPY 6.25 billion. The properties span a total leasable area of 6,546 square metres in Fukuoka, the capital of Fukuoka Prefecture.

Mitsubishi Estate, which made a splash in the US by taking control of Manhattan’s Rockefeller Center in 1989, had $55.3 billion in assets as of 2022, according to Forbes. The company has one of the largest property portfolios in Japan, which includes the Yokohama Landmark Tower, the country’s second-tallest building.

Junichi Yoshida is taking over as the company’s chairman of the board, replacing Hirotaka Sugiyama effective April 1, Mitsubishi Estate announced 16 February. Atsushi Nakajima will succeed Junichi Yoshida as president and chief executive officer.