GIC sinks US$1.7b into Tokyo space

Singapore

SINGAPORE sovereign wealth fund GIC is sinking what some have estimated to be in the region of US$1.7 billion (S$2.2 billion) into one of Tokyo's most prime office spaces.

The investment firm said it is taking up the entire office component of Pacific Century Place Marunouchi, located next to Tokyo Station and a stone's throw from the Ginza shopping district.

The office portion consists of the 8th to 31st floors of the building, and has a gross floor area of 38,840 sqm of net lettable area. The lower floors - not part of the transaction - are taken up by Four Seasons Hotel Tokyo and retail space.

GIC did not reveal how much it paid for the office block; but Reuters reported on Aug 25 that Secured Capital Investment Management Co, which GIC said it bought the property from, was putting it up for sale at more than US$1.7 billion.

Secured Capital - part of Asian private equity firm PAG - bought the property in 2009 for about 144 billion yen (US$1.4 billion). Reuters quoted unnamed sources close to the deal saying that Secured Capital was seeking more than 180 billion yen (US$1.7 billion) in its sale of the property.

At that price, Reuters' sources said, the expected annual return for GIC from the Grade A office space would be about 3 per cent.

"As a long-term value investor, GIC believes Pacific Century Place Marunouchi gives us a combination of stable income and the potential for capital appreciation over the long term," said Lee Kok Sun, co-head of Asia, GIC Real Estate.

Pacific Century Place Marunouchi is located in Tokyo's Chiyoda ward, which has some of the country's highest rents and lowest vacancy rates. Most of the other properties in the area are owned by Mitsubishi Estate Co, Japan's leading developer.

Property analysts have a positive view of the Tokyo office market in the near term.

JLL (Jones Lang Lasalle) said in its second quarter 2014 Asia Pacific Property Digest that it expects rents in Tokyo "to rise gradually over the remainder of (2014)". It also said that strong interest from investors and expectations for further rental increases should drive capital values higher. Meanwhile, CBRE Research said in its Q2 2104 global office rent cycle report that rents in Tokyo are on an uptrend.

Mr Lee added: "The attractions of the property are its prime location, superior building quality, and quality tenants. This investment demonstrates our confidence in Japan and, specifically, the Tokyo office market over the long run."

Pacific Century Place Marunouchi counts among its tenants Shell Japan, BHP Billiton Japan, Deloitte Touche Tohmatsu and Verizon Japan.

The Business Times understands that the current vacancy rate for the building is in the low single-digit range. JLL's report said that the overall vacancy rate for Tokyo's office space was "stable at 3.7 per cent" in Q2 2014.

Pacific Century Place Marunouchi was built by Hong Kong tycoon Richard Li's Pacific Century Group and completed in 2001. The group then sold it for 200 billion yen in 2006 to KK daVinci Holdings, a Japan-based company primarily engaged in the property investment advisory business. KK daVinci then sold it to Secured Capital.

Reuters had also reported in August that Goldman Sachs Asset Management was a final bidder for Pacific Century Place Marunouchi, with a possible offer of some 165 billion yen, competing against at least two other unnamed investors.

GIC's first investment in Japan dates back to 1997. Earlier this year, it was looking to buy Meguro Gajoen, a complex of office properties and retail facilities in Tokyo, but backed off from the deal due to a legal dispute.