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Goldman to flip apartments in Japan with Sojitz, spending $400m a year

Partners look to unlock value in older properties for institutional investors

Tokyo was named the most attractive city in the Asia-Pacific region for a third straight year in a 2021 investor survey by CBRE. (Photo by Mizuho Miyazaki)

TOKYO -- Goldman Sachs will partner with trading house Sojitz to buy and renovate older apartments that may otherwise go under the radar for property investors.

They will form a joint venture by summer, targeting rental housing in major Japanese cities. Improved properties will be sold in batches to financial institutions and investment funds. The partners look to invest 40 billion to 50 billion yen ($323 million to $405 million) a year in the business.

Rental properties in central Tokyo provide an average yield of 4% -- a relatively high return at a time interest rates remain low. The Japanese capital was named the most attractive city in the Asia-Pacific region for a third straight year in a 2021 investor survey by CBRE, with Osaka coming in 10th.

But individual apartment buildings of lesser value generally are not considered a target for institutional investors. Many of these buildings are aging as well.

Goldman and Sojitz will package such buildings into groups for institutional buyers. Renovation, rather than reconstruction, minimizes burden on the environment as well.

Sojitz seeks a revival of its real estate business with the Goldman tie-up. Before the trading house's 2004 creation through the merger of Nichimen and Nissho Iwai, both predecessors were leading real estate developers focused on condominiums. But Sojitz scaled back its presence in the property market after the bursting of Japan's asset-price bubble and the global financial crisis.

Capital from Goldman is expected to be invested through its global real estate funds where Japan is a focus. The U.S. firm will own 75% of the venture, with the Japanese trading house holding the rest.

Real estate deals in Japan reached roughly 4.5 trillion yen last year, with overseas buyers accounting for more than 20% of the transactions, according to real estate services provider JLL.

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