JAPAN - AXA Real Estate and a subsidiary of Sumitomo Mitsui Trust Bank have raised JPY10bn (€100m) at the first close of closed-end funds targeting mid-sized Tokyo office and a 10% return.

It has taken AXA two years to raise capital for the five-year, core/core+ Tokyo Office Property (TOP) fund, partly because fundraising was interrupted by the Fukushima disaster in March.

Most of the fund's investors are insurance firms.

SuMi Trust's Tokyo Office Real Estate Investment fund (TOREIF), which will manage the fund's assets, has an option to co-invest capital raised from Japanese institutional investors on an asset-by-asset basis.

By email, Frank Khoo, global head of Asia at AXA Real Estate, said: "By creating two separate funds, you enjoy the benefits of the liquidity of two funds, but, by co-investing together, we can create a larger overall fund size, which allows us to purchase more assets, providing great diversification."

The AUM €42bn fund manager will target what Khoo described as a pronounced pricing correction in mid-sized office caused by weak investor demand, despite the subsector's relatively resilient income streams."The pension funds have focused on purchasing larger offices, and high net worth individuals have largely invested into smaller offices," said Khoo.

J-REITs - the typical buyers for this kind of asset - are now in many cases trading below NAV.

Khoo said: "They lack purchasing power, which leaves us a gap in the market to make acquisitions without being faced with high levels of competition."

AXA will cap leverage on the TOP fund at 50% - at least 10% higher than pension funds and insurers would usually expect.

"Typically in Japan, leverage on commercial real estate tends to be much higher than we now see in Europe - in some cases up to 80% or 85%," said Khoo.

"Investors are inherently comfortable with 50% leverage, which provides a solid basis for good risk-adjusted returns."

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