Japan’s Property Developer Mitsui Fudosan to invest $6.2 Billion in US

Japanese property developer Mitsui Fudosan is set to invest 700 billion yen ($6.2 billion) overseas within three years, among its largest such spending plans yet, to broaden its real estate portfolio in growing markets as office rentals in its home country slump. Much of this expansion will be in the U.S., where the company anticipates continued strong demand for conveniently located housing. Mitsui plans to build 19 rental apartment buildings with a total of 4,700 units across 10 cities, including Boston and San Francisco, by 2025 in partnership with local developers. It completed 1,000 apartments this year in Washington, Los Angeles and three other cities. The aggressive overseas investment is part of a long-term growth strategy that aims to "evolve" Mitsui into a "global company." The plan, which runs until 2025, targets annual group operating profit of 350 billion yen, up 72% from the fiscal 2020 figure. It aims to have about 30% of this come from markets outside Japan, compared with just 12.6% last fiscal year. Work on 50 Hudson Yards, a $3.5 billion supertall office building in New York City being developed by Mitsui Fudosan, is set to finish next year. The company plans to invest an additional $1.2 billion-plus by 2024 in three laboratory and office complexes, an area it sees as a new growth driver. In Asia, Mitsui has residences and retail facilities in the works, including LaLaport malls. Compatriot Mitsubishi Estate is taking a similar approach, with plans to pour between 200 billion yen and 250 billion yen per year into overseas investments. "We'll invest in properties with consistent yields in Europe and the U.S., as well as capitalize on growth in Southeast Asia," President Junichi Yoshida says. The developer looks to build rental housing and office buildings worldwide, along with logistics facilities and data centers in the U.S. Japanese real estate companies still generate much of their overall profit at home, but the market's growth prospects are dim. Office leasing, a major business for these builders, is suffering from a decline in rents driven by the coronavirus pandemic and looks unlikely to return to its past growth. Property sales to investors have shored up profits, but the market is prone to fluctuations, and the rising cost of buying land is a drag as well. Major Japanese developers are "lacking in both the growth potential and the shareholder returns that investors want to see," said Keita Kubota, head of the Japanese equities team at Neuberger Berman. With share prices languishing, players in this mature industry are looking abroad for growth, despite the political and interest-rate risks that may entail.