Hong Kong-based fund manager Look’s Asset Management has made its first close for a hybrid Japan residential real estate fund.
The company is targeting properties providing short-stay accommodation for tourists for the fund, known as Look’s Real Estate Opportunity Fund.
So far, $50m (€44m) has been raised, with hopes to triple the amount by its third close next year.
With a gearing ratio of 50-70%, Timothy Shen, chairman of Look’s Asset Management, said the fund would have the capacity to assemble a sizeable pool of apartments in central Tokyo and Osaka, with a total asset value of $600m.
Shen said his company had memorandums of understanding for 10 apartment blocks, with an average value of JPY1bn (€9m) each.
“With every $100m raised, we will be able to add between 300 and 400 apartments to our portfolio,” he told IPE Real Estate.
Although it is a closed-end fund, it will be scalable, he said, when interviewed at Real Estate Investment World Asia 2016, held in Singapore.
While Japanese residential property has long attracted large institutional investors, including Blackstone, Shen has chosen to differentiate his offering.
“We are using the Airbnb approach to lease the apartments for short-term stay,” he said. “We won’t be providing service, but they will be maintained.”
The company has retained providers like JP Housing, a Japanese residential agency to act as its on-ground property manager.
Shen believes conditions in Japan are optimal for the launch of a fund because non-recourse finance is available at historically low interest rates.
The key driver, however, is the boom in tourist arrivals.
The government originally forecast the arrival of 20m tourists by 2020 (when the country plays host to the Olympics), but arrivals surpassed that number last year.
The government has now revised its tourist arrival target to 35m by 2020.
Shen, however, says private sector forecasts put the figures closer to 45m-50m.
He says 50% of tourists come from Greater China, while 80% of tourists to Japan are within four hours’ flight time of their destination.
“As such, Japan will have many repeat visitors,” he said.
Arrivals from China will be further boosted, he believes, if, as mooted, the Japan government moves to waive visa requirements for Chinese tourists.
Hotel rooms, and especially reasonably priced accommodation, are in extremely short supply in Japan and unable to cope with the boom in tourism.
A 150 sq ft (14sqm) room in Ginza, the prime district in Tokyo, costs JPY25,000-35,000 (€201-290) a night, he said.
“Tokyo hotels have an average occupancy of close to 90% throughout the year and during peak season – often it is not possible to book a room,” Shen said.
Given the experience of other cities that have hosted the Olympics in the past, Shen expects property prices in Tokyo to peak in the two quarters before the event in 2020.
He expects to offload the fund’s residential portfolio to institutional investors in the summer of 2019, hoping to maximise capital gain.
He forecasts a cash return of 20% for investors.
Look’s Asset Management, set up in 1996, manages around $1bn in assets.
Its primary vehicle is an M&A fund that invests mostly in Hong Kong-listed companies.
Shen believes he will be able to use his Japan fund as a template to establish other country-specific entities to own short-stay residential properties.