Japanese Real Estate Investment Trusts -- J-REIT
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J-REIT is the acronym for Japanese Real Estate Investment Trusts.
J-REITs were created by the Japanese government in November 2000. They are corporations traded on the Tokyo Stock Exchange and are regulated according to the Law - Investment Trust and Investment Company. They are considered an investment company under LITIC.
On September 10, 2001, Nippon Building Fund Inc and Japan Real Estate Investment Corporation became the first Japanese REITs to be listed. There are currently a total of 35.
J-REITs are Important in a Small but Wealthy Country
Japan is a small, crowded country, so real estate is important to its people and economy. During the late 1980s when Japan was booming, the extremely high cost of real estate was used as an indicator of its irrationality. Just a small area of downtown Toyko had a market price higher than the entire state of California USA. Its economy and stock market did crash in 1990.
Japanese REITs were hit hard by the 2007-2009 financial crisis, because property values were again driven down.
Just recently, the Bank of Japan announced it was buying up assets, and this would include buying up 60 billion yen of JREITs.
Japanese Real Estate Investment Trusts May Help the Real Estate Sector
However, the creation of the JREIT may have helped contribute to an improvement in Japanese real estate values since they peaked in the early 1990s. That's because they opened the real estate sector up to new sources of financing.
Japanese J-REITs can sell bonds, and recently have been more successful at this, though during the prior two years of the financial crisis they could not sell many bonds.
In May 2008 Japanese law was changed to allow JREITs to buy property outside Japan, but so far they haven't done so.
The J-REIT is Subject to Legal Requirements
The Investment and Trust Law created two different legal systems for a REIT in Japan: Investment Corporation System and Investment Trust System.
Right now, all JREITs listed are under the Investment Corporation System. They are required to pay out at least 90% of income to shareholders.
They may own commercial properties. Office buildings are common, then shopping centers and other commercial real estate forms such as hotels and logistics. Surprisingly, few REITs specialize in retail properties, especially shopping centers, even though Japan is no doubt the trendiest country in Asia.
The most widely held form of asset by JREITs is residential. This includes all kinds of apartments, plus student and senior housing. I guess this makes sense in that the Japanese have had to cut back on shopping, but must still live somewhere. And buying an house in an urban area is extremely expensive. So most Japanese must rent.
They are structured as a special purpose investment vehicle. Such functions as property management and administration are outsourced. Asset management firms handle their property portfolios. So they all have an Asset Manager.
They may engage only in the real estate business. At least 50% of their assets must be stable, cash-generating properties, and at least 70% of their assets must be real estate. Including real estate certificates, at least 95% of their assets must be in real estate. They may not develop properties.
J-REITs in Japan Have different Rules Than U.S. REITs
They must have total capital of at least 5 billion yen, and at least 1 billion of net equity.
J-REITs are not allowed to have subsidiaries. They may not own more than 50% of another company. They may not borrow money from anyone except a qualified institutional investor.
They are required to withhold 20% for taxes from distributions made to shareholders.
J-REITs currently are:
- Starts Proceed Investment Corporation -- many rental properties.
- Advance Residence Investment Corporation -- large J-REIT focused on residential properties.
- Industrial & Infrastructure Fund Investment Corporation -- warehouses and industrial properties in Japan.
- Nomura Real Estate Residential Fund, Inc --
- MORI HILLS REIT INVESTMENT CORPORATION -- residential and office properties part of urban development programs.
- Nippon Commercial Investment Corporation --
- MID REIT, Inc -- concentrates on owning office buildings in downtown Osaka, Japan.
- Nippon Accommodations Fund Inc -- large variety of residential properties.
- Invincible Investment Corporation -- wide variety of commercial real estate properties.
- Japan Excellent, Inc -- office buildings in Tokyo and other cities.
- Japan Rental Housing Investments Inc -- owns rental housing in urban areas throughout Japan.
- Nippon Hotel Fund Investment Corporatio -- hotel properties only.
- BLife Investment Corporation -- "lifestyle and home" residential and convenience retail properties.
- Ichigo Real Estate Investment Corporation -- bought out by FC Residential Investment.
- Top REIT, Inc -- office buildings, shopping centers and apartments.
- Japan Hotel and Resort -- owns 5 hotels.
- Hankyu REIT, Inc -- properties in urban areas of Japan.
- Daiwa Office Investment Corporation -- owns office buildings.
- FC Residential Investment Corporation -- residential properties.
- Sekisui House SI Investment Corporation -- residential properties and shopping centers.
- Kenedix Realty Investment Corporation -- mid-sized office buildings.
- Fukuoka REIT Corporation -- focusing on the Kyushu region of the Fukuoka, Yamaguchi and Okinawa prefectures.
- Japan Logistics Fund, Inc -- logistics, warehouses throughout Japan.
- HEIWA REAL ESTATE REIT,Inc -- many properties in the 23 wards of Tokyo.
- Frontier Real Estate Investment Corporation -- concentrating on retail properties.
- MORI TRUST Sogo Reit, Inc -- office buildings in six business districts of Tokyo, and other properties all over Tokyo.
- United Urban Investment Corporation -- well diversified both by type of properties and geography.
- Nomura Real Estate Office Fund, Inc -- owns and manages office buildings.
- Global One Real Estate Investment Corporation -- Class A office buildings in Class A markets.
- TOKYU REIT, Inc -- mix of urban office buildings and residences.
- Premier Investment Company -- offices and residences in Tokyo Economic Block.
- Japan Prime Realty Investment Corporation -- office and retail real estate located in Central Business Districts.
- ORIX JREIT Inc -- first diversified J-REIT.
- Japan Retail Fund Investment Corporation -- only J-REIT investing exclusively in retail properties.
- >Japan Real Estate Investment Corporation -- office buildings in urban Japan.
- Nippon Building Fund Inc -- the first J-REIT listed by Tokyo Stock Exchange.
Therefore, J-REITs are Real Estate Investment Trusts in Japan and are a terrific way to profit from economic activity in that country.
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