Toranomon Hills construction Tokyo

Investors are rushing to buy up Tokyo apartment developments (Getty Images)

US private equity giant KKR is strengthening its presence in the Japanese real estate scene with the purchase of a portfolio of newly built apartments in Tokyo, adding to a recent flurry of deals in the country’s rental residential market.

The NYSE-listed firm announced that one of its closed-end funds, KKR Real Estate Select Trust Inc. (KREST), has acquired 39 multi-family properties located in 15 popular residential submarkets across Tokyo. The properties were delivered by a “premier Japanese developer” in 2022, KKR added, without disclosing the identity of the seller or the transaction price.

The deal comes after KKR made a splash in the country’s REIT market by acquiring a Japanese real estate asset manager held jointly by Mitsubishi Corp. and UBS Asset Management for $2 billion this past March. KKR manages some $64 billion in global real estate assets.

“Tokyo’s residential sector is prized by investors for its exceptional strength and stability, which makes this multi-family portfolio a suitable fit for KREST’s focus on stabilised income-producing real estate with long-term asset appreciation potential,” Kensuke Kudo, a director on KKR’s Japan real estate team, said Friday in a release.

KREST anticipates stable cash flow as the portfolio is master-leased to a top Japanese residential property manager, with a contractual 100 percent occupancy rate. The properties have modern designs and are situated nearby local train stations, the statement notes.

US Firm Expands

KKR set up a local team to invest in Japanese assets in 2006 but only recently developed an appetite for the country’s real estate. The Manhattan-based firm acquired a Japanese recruitment services business in 2010 and the following year partnered with Japan-based companies on energy deals in the US.

John Pattar, Partner and Head of Real Estate, Asia, KKR

John Pattar, Partner and Head of APAC Real Estate at KKR

In January 2021, KKR announced the final closing of its first pan-Asia-Pacific real estate fund after raising $1.7 billion from investors. Around 20 to 30 percent of the new fund was expected to target properties in Japan, according to a report at the time by Nikkei, citing Daisuke Hiramoto, the company’s director for real estate in Tokyo.

The company’s acquisition of Mitsubishi Corp-UBS Realty earlier this year — a deal that closed in April — marked KKR’s first publicly disclosed real estate deal in Japan. Through the transaction, KRR brought on board 170 professionals who manage two large REITs, Japan Metropolitan Fund Investment Corporation (JMF) and Industrial & Infrastructure Fund Investment Corporation (IIF).

KKR signalled its intention to hold the REIT manager, since renamed KJR Management, over the long term by acquiring the business on its own balance sheet, rather than using one of its funds.

Japanese Apartments Heat Up

Investors have scored a string of deals in Japan’s rental housing market in the second half of 2022, lured by the sector’s appealing returns and stable rental income as well as the country’s continuing ultra-low interest rates.

KKR’s announcement comes in the same month that US developer Hines revealed it had bought up an 11-property multi-family portfolio on behalf of the firm’s flagship pan-Asian property fund. The portfolio spans more than 400 units in Tokyo, Nagoya and Fukuoka.

Last month, German asset manager Patrizia launched a $1 billion Japan-focused fund to pick up core and value-add rental residential assets across the nation’s top cities. The vehicle was seeded with four apartment buildings with a total of JPY 7.5 billion (€52 million).

Singapore’s TE Capital Partners agreed to pay $100 million to buy a collection of 16 residential properties in Tokyo on behalf of a family office client in October. In September, French fund manager AXA IM Alts disclosed that it had purchased 29 multi-family residential properties and four student housing assets in two deals totalling €423 million ($418 million).


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