Orix REIT Buying Tokyo Apartment Trio for $85M, Offloading Office Tower for $60M

Orix REIT will buy three Tokyo residential projects for a combined JPY 12.6 billion ($85 million) and sell an office building in the city for JPY 8.8 billion, the TSE-listed trust announced late last week.

The most expensive purchase in the three-asset haul is the Cross Residence Takadanobaba, an apartment in Tokyo’s Shinjuku ward which the trust sponsored by financial services group Orix will acquire for JPY 8.4 billion, according to a stock filing. The seller of the residential portfolio is an unrelated domestic company.

In the other side of the trade, Orix REIT will sell the MG Shirokanedai Building office tower in Tokyo’s Minato ward to the same counterpart. According to an appraisal report at the start of the year, the asset yielded JPY 359 million in annual net operating income, representing an 11 percent drop from the figure recorded in 2013 when the trust acquired the building.

“At present, we are conducting asset replacement focused on improving portfolio quality,” the trust’s manager said. “Under this policy, despite (a) challenging acquisition environment, OJR decided on this exchange with a third party where we can further utilise our strengths and anticipate stable demand in the middle to long term.”

The latest set of transactions comes as Orix REIT saw its net income decline to JPY 7.9 billion in the March to August period last year, with that result down 33 percent from the same period a year earlier.

Reshuffling Assets

Located near Waseda University’s main campus, the 14-storey Cross Residence Takadanobaba offers 6,065 square metres (65,283 square feet) of living space in the Shinjuku commercial hub. Scheduled to be completed within January, the apartment is a five-minute walk from the Nishi-waseda station on Tokyo Metro’s Fukutoshin Line.

Orix REIT’s manager, which estimates that the asset will generate net operating income of JPY 315 million a year, will purchase the 187-key apartment at a discount from its appraised value of JPY 9.7 billion, putting the acquisition at JPY 45 million per room.

The other two assets in the residential portfolio are in Tokyo’s Chiyoda and Toshima wards and will add 86 residential units to Orix REIT’s holdings.

Located on the southeastern fringe of Minato ward, the MG Shirokanedai Building has a total rentable area of 4,985 square metres. The 7-storey office building, which generated JPY 36 million a month as of November last year, has been fully occupied each of the last four years, according to the company’s annual reports over the relevant period.

The trust’s manager, which acquired the office property in 2013 for JPY 8.5 billion, are selling the property at its appraisal value of JPY 8.8 billion per a valuation at the start of this year.

The REIT’s managers said that the 1998-vintage building may incur additional repair costs and that the office has limited potential for further growth.

After this round of deals is completed by the end of May, Orix REIT’s portfolio will comprise 113 assets across office, hotel, retail, residential and logistics sectors, amounting to a total acquisition price of JPY 699 billion.

Japanese Apartments in Fashion

Orix REIT’s latest acquisition comes within a week of M&G Real Estate announcing that it had purchased a 298-unit apartment tower in Tokyo’s Shinjuku ward. The Frontier Shinjuku Tower changed hands for JPY 30 billion.

Earlier this month, Tokaido REIT, a trust sponsored by real estate services firm and developer Yoshicon, agreed to purchase nine residential properties across Greater Nagoya for JPY 6.1 billion.

In December, Sekisui House REIT agreed to purchase three Tokyo rental residential assets in Tokyo for JPY 6.1 billion to add 167 units to the trust’s portfolio. The same month saw Alyssa Partners purchasing 12 properties across Tokyo, Osaka, Nagoya, and Kobe on behalf of Dai-ichi Life insurance, with market sources indicating the price of the transaction at JPY 20 billion.

Hong Kong’s Weave Living entered Japan last September by purchasing nine multi-family properties in Tokyo for an undisclosed amount.

Across Asia Pacific, apartments were the only sector to see an uptick in transaction volume last year, as investors acquired $8.7 billion worth of rental residential assets across the region in the first nine months of 2023, up 1 percent from the same period a year earlier.