Singapore’s CDL Buys 25 Tokyo Apartment Buildings From BGO for $230M

City Developments Ltd (CDL) has acquired a portfolio of 25 Tokyo apartment buildings from North American fund manager BentallGreenOak for JPY 35 billion ($230 million), marking the largest purchase to date by the Singapore property heavyweight in Asia’s most mature rental residential market.

CDL said in a bourse filing on Thursday that it purchased a 100 percent interest in an apartment portfolio with 832 residential units and four retail stores spread across Tokyo’s 23 wards from affiliates of BentallGreenOak. Marking its first foray into Tokyo’s rental housing market, the move furthers the Singapore-listed firms strategy of building a global presence in the multi-famiiy residential sector.

“Japan’s favourable interest rate environment presents a timely and strategic opportunity for the group to expand our residential rental portfolio through a rare off-market transaction for well-performing assets,” Sherman Kwek, CDL’s group chief executive officer, said in the statement. “[This investment enables] us to further scale up in this asset class while leveraging on the sector’s strong growth potential.”

The deal makes CDL the latest overseas investor to bet on Japan’s rental accommodation sector this year, coming shortly after UBS Asset Management kicked off a $230-million multi-family development project last month, with Mubadala Investment Company in June announcing that it had formed a joint venture with Canada’s Manulife and Proprium Capital Partners of the US to assemble a multi-family portfolio worth JPY 80 billion.

Nearing Full Occupancy

CDL said assets in the portfolio are less than two years old on average and have an average committed occupancy rate of 97 percent while generating stable rental income. All of the apartments are located within a 10-minute walk of a train station, while three of the properties are in prime residential areas of central Tokyo.

Among the choicest properties is the Qualitas Akihabara apartment in Chiyoda ward, where rents for units ranging from 25 to 43 square metres (270 to 460 square feet) range as high as JPY 219,000 ($1,465), according to the website of Qualitas, a local rental housing brand that operates the assets.

Rents at Qualitas Nihonbashi-Hamacho in the Nihonbashi area of the city centre’s Chuo ward can reach as high as JPY 280,000 per month for units ranging from 25 to 56 square metres.

The Tokyo acquisition adds to CDL’s existing residential properties in Osaka and Yokohama to give the company a Japanese portfolio of over 2,100 units worth JPY 70 billion across 38 properties.

The company said having a larger portfolio positions it to better capture growing demand for rental accommodation in the country, which it sees as buoyed by a recovering economy, rising wages and migration into the capital city.

Kwek said CDL’s existing residential portfolio in the country has remained resilient and continues to register stable rental growth and 95 percent occupancy, despite challenging economic conditions globally.

“Amidst the current global uncertainty, Japan has become an attractive destination for global institutional investors, securing the portfolio’s potential to benefit from both steady rental growth and sustainable capital appreciation,” the statement read.

BentallGreenOak did not issue a statement on the disposal. During the second and third quarters of 2022 the company was reported by Japan’s Nikkei to have purchased 17 rental residential properties in Tokyo for an undisclosed amount.

Among the most active of the major North American real estate investors in Japan, BentallGreenOak in January of this year agreed to buy the 1,039-room Rihga Royal Hotel Osaka for a price believed to be not less than JPY 50 billion.

Tokyo Shopping Spree

CDL’s announcement came the same day that Hong Kong rental accommodation provider Weave Living revealed its entry into the Japan market with the purchase of nine Tokyo multi-family assets for an undisclosed sum.

The Warburg Pincus-backed firm will be operating the 352-unit portfolio under its own brands, and plans to open the properties in the fourth quarter.

In June this year Hong Kong-based Arch Capital Management made its debut in the country with the purchase of 25 Tokyo multi-family properties and during that same month, Singapore’s Q Investment Partners acquired a 42-unit residential property in central Tokyo on behalf of its $50-million Japan multi-family housing fund.

Foreign buyers accounted for nearly half of all sales of multi-family assets in Japan during the second quarter, according to Knight Frank.

“Although interest rates are showing signs of stabilising in the region, caution prevails, affecting investor sentiment. Japan stands out as the most appealing investment destination, benefiting from a weak yen and low interest rates, closely followed by Australia and Singapore,” said Neil Brookes, global head of capital markets at the property agency.