TOKYO -- Japanese property developer Mitsui Fudosan is doubling down on New York City as the metropolis undergoes a 21st-century makeover of unprecedented scale.
The company unveiled plans Wednesday to build a 51-story office tower in Manhattan, sinking as much as 150 billion yen ($1.25 billion) into the project. It is the largest-ever overseas undertaking by a Japanese real estate company.
The move could put Mitsui Fudosan on the map in the world's premier real estate market in much the same way as the $1.95 billion purchase of the Waldorf Astoria hotel -- a New York landmark -- brought Chinese insurer Anbang Insurance Group to center stage.
Hudson Yards is a major urban renewal project covering an 11-hectare area on the Hudson River side of Manhattan.
The Japanese developer will set up a special-purpose company with partners, including New York-based Related Companies, with Mitsui Fudosn contributing 90% of the capital.
Mitsui Fudosan has done homework for the investment, undertaking, for example, a redevelopment project in Tokyo's Nihonbashi district, where Takatoshi Mitsui opened a kimono store in the 17th century. The company has evolved over the centuries into the Mitsui group, a vast association of loosely affiliated companies that includes Mitsui Fudosan.
The Nihonbashi renewal project is aimed at turning the historic area into an environmentally friendly smart city, going way beyond the construction-focused redevelopment model of the last century. U.S. partner Related apparently gave high marks to Mitsui Fudosan's ability to attract tenants.
Google and other information technology companies have set up shop in the area near Hudson Yards. Given that demand for office space is robust, Mitsui Fudosan plans to set rents 10% higher than average market values for the neighborhood.
Besides business smarts, Mitsui Fudosan has the wherewithal to make bold investments. It raised roughly 330 billion yen in a share offering last year. President Masanobu Komoda is orchestrating a shift to aggressive management. "Abenomics' positive impact on the office and housing markets is far greater than expected," he said. "Now is the time to move forward aggressively."
The company has the financial strength to invest 700 billion to 800 billion yen, including borrowing, according to Executive Managing Officer Masatoshi Sato. Mitsui Fudosan is expected to post an operating profit of 183 billion yen in the current year ending March 31, its first record in seven years.
With the new Manhattan project, Mitsui Fudosan is taking a giant step toward building structures from the ground up in the U.S. market. Its mainstay business there has so far focused on acquiring large buildings.
The property market in New York is hot, suggesting that investment returns amount to 4-5%, 30-50 basis points higher than in Tokyo. But investment risk is a factor that needs to be considered. The New York market "fluctuates in line with economic sentiment, which tends to create wide swings in the risk profile," according to Takashi Ishizawa, a real estate analyst at Mizuho Securities.