The Asia-focused private equity firm PAG will invest up to 840 billion yen ($8 billion) in Japanese real estate over the next four years, Nikkei has learned.
The investment specialist expects companies to sell off properties, along with financial institutions eager to shed bad debts, due to the coronavirus pandemic. PAG will look for desirable assets among these.
Compared with Europe and North America, the pandemic has dealt a lighter blow to the Japanese real estate market. Many foreign investors expect relatively higher returns from investments in Japan as a result.
While the global real estate market has been sluggish due to the pandemic, the Japanese market has been brisk due to purchases by foreign investors. According to real estate services company JLL, Tokyo ranked first in the world in terms of the value of real estate transactions in the first six months of the year, buoyed by foreign investors.
PAG, based in Hong Kong, has raised $2.75 billion from investors, such as foreign pension funds, to set up a new fund, which has $8 billion in cash to spend, including loans. PAG will also buy real estate in the Asia-Pacific region, but it is mainly focused on the Japanese market.
It is possible the company will spend all its cash in Japan. If it does, that would make PAGs real estate fund the world’s largest focused on Japan.
The fund will both buy existing buildings and develop new ones. In the past, PAG has transformed a large factory into a logistics center with the latest equipment. The company is also looking to invest in real estate companies, and to buy bad debts backed by real estate.
Despite the recent trend toward working from home, PAG will buy office buildings. Japanese houses and apartments are typically small and their information technology infrastructure is often poor, so PAG does not expect demand for office buildings to fall sharply.
If prices prove attractive, the company also hopes to invest in commercial properties and hotels, which have been hit hard by the pandemic. Overall, the economic impact of the coronavirus has been relatively mild in Asia.
Japan, especially as the world’s third-largest economy, presents many opportunities for real estate deals, making it a desirable market for PAG. It merged with the Japanese equity firm Secured Capital Japan in 2011.
This article was first published on Nikkei Asian Review.