Global hedge funds and private equity firms are turning their attention to Japan, aiming to capitalise on an estimated JPY25 trillion ($165 billion) in undervalued real estate assets. These assets, recorded at historical cost minus depreciation due to local accounting practices, often reflect values far below their current market worth. This discrepancy is drawing interest from prominent investors like Elliott Investment Management, Palliser Capital, and Singapore-based 3D Investment Partners.
The surge in Tokyo’s property prices and other metropolitan areas has further spotlighted these unrealised gains, leading to a wave of activist campaigns and private equity transactions.
Elliott Investment Management recently revealed a 5.03% stake in Tokyo Gas, whose iconic Shinjuku Park Tower and other real estate holdings are listed at JPY58.9 billion on paper. Elliott estimates these properties to have a market value exceeding JPY180 billion, nearly three times their book value and almost matching Tokyo Gas’s market capitalisation.
Similarly, 3D Investment Partners has influenced significant changes, including pressuring IT firm Fuji Soft to consider going private. The company’s real estate, valued at JPY84.5 billion on its books, could sell for as much as JPY195 billion, according to the investor. Fuji Soft has since attracted interest from KKR and Bain Capital.
Brewer Sapporo Holdings also stands out, with its real estate arm generating as much operating income in 2023 as its core beer business. Palliser Capital has targeted Tokyo Tatemono, asserting that the developer’s value could double if it optimised its property portfolio.
Real estate holdings of train operators like Keisei Electric Railway and Keikyu Corp have also attracted activist interest. Their properties near key transit hubs are seen as significant underappreciated assets.
Private equity firms are taking similar approaches. KKR acquired Hitachi Transport System in 2023 for JPY670 billion, later selling warehouses for over JPY200 billion. Bain Capital executed a comparable strategy with Showa Aircraft Industry, divesting a golf course for approximately JPY130 billion.
The underreporting of real estate values in corporate Japan has unveiled significant opportunities for hedge funds and private equity players. As interest in unlocking these hidden assets grows, the trend is likely to reshape Japan’s corporate landscape and elevate investor returns.
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By Proptechbuzz
By Ravi Kumar
