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Property

Mitsui completes first of two New York towers worth $5bn

Move highlights Japanese realtors' hunger for overseas investment

The Hudson Yards redevelopment site on Manhattan's west side. The high-rise that Mitsui Fudosan just completed is at the far left. (Photo by Shuji Nakayama)
The Hudson Yards redevelopment site on Manhattan's west side. The high-rise that Mitsui Fudosan just completed is at the far left. (Photo by Shuji Nakayama)

TOKYO -- Mitsui Fudosan has built a 51-story office building in New York, demonstrating Japanese developers' strong appetite for overseas investment as their home market shrinks.

The company announced Friday that it has completed 55 Hudson Yards in the heart of Manhattan. Next door, construction continues on another 58-story office development at 50 Hudson Yards.

Mitsui has poured 550 billion yen ($4.89 billion) into the project, a key first step in its shift overseas. It is considered the largest foreign development by any Japanese real estate company. President and CEO Masanobu Komoda has said that 90% of the offices have been booked for lease, and that "rents are about 10% higher than originally planned."

The project is just one of a flurry of overseas investments by Japanese developers, fueled by firm global real estate demand. Mitsubishi Estate, Tokyu Land, Nomura Real Estate Development and Tokyo Tatemono have all been seeking opportunities away from home. 

Mitsui's two towers were developed with local groups such as Related Companies that are leading the Hudson Yards redevelopment effort on the island's west side. The 11-hectare site, built on top of an old rail yard, will contain several high-rise offices, roughly 4,000 apartments, a hotel, retail space and other amenities.

Mitsui has earmarked 3 trillion yen for investment over the next seven years, with half of that amount to be spent overseas. The developer aims to generate 30% of its consolidated operating profit abroad around fiscal 2025, from 7% in fiscal 2017. Assets outside Japan will make up as much as 30% of the total, compared with just 16% in fiscal 2017. Mitsui is also part of a roughly 400 billion yen redevelopment project in London.

Tokyu Land is participating in the redevelopment of a mixed-use building in Manhattan, while Mitsubishi Estate is involved in a mixed-use development in Singapore that includes retail and office space.

Nomura Real Estate Development is working with partners like Isetan Mitsukoshi Holdings to build a commercial facility with residential units in the Philippines. Tokyo Tatemono is developing several office and residential sites in the Indonesian capital of Jakarta.

Mitsubishi Estate made headlines when it purchased Rockefeller Center in New York in 1989, but it had to let go of most of the buildings there as the real estate market slumped. Mitsubishi Estate made headlines when it purchased Rockefeller Center in New York in 1989, but it had to let go of most of the buildings there as the real estate market slumped.   © Reuters

Easy money has flowed into the real estate industry, raising rents in the world's major cities. Global investment in offices and other property in the first half of 2018 climbed 13% on the year, said JLL, a U.S. provider of real estate services.

But the environment is changing as rents begin to decline in New York. Rents there had soared 38% by the end of 2017 after bottoming out in late June 2010, but had fallen back as of March.

The rise of shared office spaces cannot be ignored in that trend. New York-based WeWork allows for flexible monthly contracts in accordance with renters' needs. WeWork has strengthened its presence in an office market where leases exceeding 10 years are the norm.

Japanese real estate companies also have a history of failure overseas. Mitsubishi Estate purchased Rockefeller Center in New York in 1989 during Japan's economic bubble but had to part with most of the buildings due to a U.S. real estate recession, ultimately booking extraordinary losses of 150 billion yen.

Overseas projects also run the risk of construction delays. These various factors have made stock market investors wary of projects abroad. "It is important to choose strong local partners and work with them closely," said Yoshihiro Hashimoto, an analyst at Mizuho Securities.

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