Hong Kong: The property investment arm of British insurer, Aviva Plc plans to ask investors to join a venture in Japan to buy $2 billion (Rs8211 crore) worth of buildings, an executive said today.
Morley Fund Management Ltd., one of Europe’s biggest property fund managers, has invested $500 million into a joint venture with Japan’s Mitsubishi UFJ Trust and Banking Corp.
That will be supplemented by a “core-plus” fund, to buy and revamp offices and retail premises, probably with a life span of five or seven years, according to Morley’s Asia fund manager, Andrew Peacock.
“That’s a few months down the line. Once the Mitsubishi joint venture is embedded, we’ll create a vehicle to attract third-party funds,” Singapore-based Peacock told Reuters in a telephone interview.
“Anything with sufficient diversity across Japan would potentially be around $2 billion of gross assets.”
Peacock said the fund would aim for an internal rate of return of around 9%, which could be lifted to 12 to 13% for foreign investors because of expected strengthening of the yen currency.
With Japanese real estate investment trusts (REITs) and private funds vying for assets, capitalisation rates for prime buildings in Tokyo have dropped to as low as 3% from around 5% a couple of years ago.
However, analysts expect rents to rise another 60% to a peak around 2010.
Morley announced the Japanese joint venture late last month, when it also said it would pump some $10 billion of investment into Asian property over the next four years.
The firm is looking to diversify into the region, having more than trebled its property assets under management in Europe to over 30 billion pounds over the last seven years.
“There’s still a lot of capital searching for the right funds,” Peacock said of demand for Asian property.
“In the past a lot of emphasis was on the private equity model, highly leveraged and short-term in outlook,” he said.
“Now funds are taking it to the next level, with a longer-term investment horizon -- lower returns but more stable.”
Morley is also looking for a partner in China, and Peacock said he was interested in shopping centres in a country where retail sales are growing at a rate of 13 to 14% a year.
The firm is also looking to invest in India and South Korea, and also wants to launch a fund of funds. In Asia, Morley has already invested in a retail property fund run by Macquarie Bank in China and an Indian development fund, Yatra Capital Ltd., listed on Euronext’s Amsterdam Exchange.
“It’s a product we’ve got in the UK and once we’re up and running properly in Singapore, we’ll offer that,” Peacock said of a fund of funds.