Savills IM, TE Capital Pick Up $278M in Japanese Apartments as Multi-Family Deals Rise

Japan remains a hotspot for investors snapping up multi-family assets, as London’s Savills Investment Management and Singapore’s TE Capital each announced deals Wednesday that together total $278 million in Japanese apartment acquisitions.

Savills IM completed $210 million in rental housing acquisitions in June on behalf of its Savills IM Japan Residential Fund II, the affiliate of the London-based property services firm said in a Wednesday press release. The 10 assets acquired are in popular submarkets of central and outer Tokyo, central Osaka and central Nagoya.

The fund previously acquired four Tokyo assets, located in the highly sought-after districts of Yoyogi-Uehara, Ikebukuro and Ikejiriohashi, in April and May, Savills IM said.

“JRFII will selectively invest outside Tokyo, but we will continue to focus on the capital, where we can acquire the best assets at compelling yields,” said Tom Silecchia, co-head of Savills IM Japan. “We have a strong pipeline of high-quality acquisitions and the capacity to considerably increase the size of the fund without compromising quality.”

Fresh Capital Injection

With this latest set of acquisitions, Savills IM has now acquired or committed to purchase 27 properties for its first open-ended core residential fund in Asia, with 24 of those assets in Greater Tokyo. In total, the portfolio consists of more than 1,500 units and 47,000 square metres (505,904 square feet) of net rentable area.

Savills IM announced a first closing of $200 million for the JRFII vehicle in October last year, and the fund manager recently received an additional $40 million from its cornerstone investor, an unnamed global multi-manager, the company said.

Savills IM said it acquired the portfolio at an entry yield of 4 percent, despite a weighting towards pricier Tokyo assets, and with 92 percent occupancy. The deal pipeline includes $125 million worth of immediately actionable stock, with potential to bring the gross asset value to more than $645 million.

Second Go-Round

Also on Wednesday, Singapore’s TE Capital Partners revealed its acquisition of a set of multi-family residential assets in central Tokyo for $60 million.

Purchased on behalf of the TE Japan Income Partners series of funds, the 175-unit collection comprises one asset in Shinjuku ward, one in Koto ward and one in Kita ward, bringing the group’s multi-family portfolio to 266 units across Tokyo’s 23 inner wards.

“This investment echoes the firm’s strategy of growing exposure to multi-family assets in Japan, a sought-after asset class offering long-term stabilised yields underpinned by strong urbanisation trends and historically high occupancy levels ranging above 90 percent,” said Terence Teo, managing director of TE Capital Partners, a private equity arm of developer Tong Eng Group.

The latest transaction follows TE Capital’s first foray into the multi-family asset class last December, when the firm acquired a $50 million portfolio consisting of two assets in Minato ward and one in Setagaya ward on behalf of the TE Japan Income Partners I fund.

The firm’s success in leasing out the assets in its initial portfolio has given TE Capital confidence to expand its Japan holdings.

“When we exchanged contracts for the first portfolio, the occupancy was around 70 to 80 percent, and now it is up to above 90 percent,” said Stanley Shen, a director with the private equity firm.

Now the company is looking for ways to expand its footprint in Japan, to more easily execute deals in the country. News reports have also indicated that TE Capital is in due diligence for the purchase of the PIL Building on Cecil Street in Singapore, though company executives declined to comment on the potential transaction.

Beating a Path

The purchases by Savills IM and TE Capital follow a strategy that has grown popular with global fund managers as Japan’s mature multi-family market makes it a top target for acquisitions.

In May, France’s AXA IM Alts acquired a pair of apartment towers in Sendai for $38.6 million. That same month, London-based M&G Real Estate purchased two residential buildings in Osaka for $50 million.

Also in May, Europe’s Allianz Real Estate launched a $1 billion multi-family investment vehicle targeting real estate opportunities in Japan, in a development first announced on MTD TV by APAC chief executive Rushabh Desai.

After international institutional investors poured record amounts of capital into Japan’s multi-family sector in 2020, the strategy has become a “high conviction theme” for Allianz, Desai said.