Crowdfunded Real Estate Loans in Japan: Will it Work?

Japan Investment Properties

Tokyo’s Crowdfunded Condos Suggest Higher Yield

10 Sept, 2015 –

Tokyo’s crowdfunded condominiums are luring individuals with the promise of a 5 percent yield in a land of benchmark interest rates near zero out to five years. Tatsushi Iwano, a former fund manager at Goldman Sachs Group Inc. in Tokyo and Rockpoint Group LLC, is aiming to finance 10 billion yen ($83 million) of office and residential projects with cash raised on the Internet in 2017. His company, Loadstar Capital K.K., made its first such loan last month, extending 20 million yen to a borrower with a four-story condominium in western Tokyo as collateral, Iwano said.

Individual investors aren’t satisfied with low yields in the market, but they don’t have many options, especially in real estate,” Iwano, 42, said in an interview. “There aren’t that many individuals that can invest 200 million yen, but it’s not that hard to get a million yen each from 200 people.” Japanese investors are seeking a piece of a property market in the capital where new condo prices have climbed to the highest since at least 2000 and office vacancy rates have fallen to a six-year low. Investors in Iwano’s crowdfunding loan earn interest of about 5 percent, he said, compared with the 0.05 percent coupon they can get on five-year Japan sovereign notes.

New York’s first real estate project financed significantly though crowdfunding is set to open this week, a step forward for a nascent investing model that has yet to prove itself in commercial property. Real estate crowdfunding has struggled to establish its bona fides in a market where there’s no shortage of institutional capital. Most of the 152 U.S. crowdfunding websites listed by trade publication Times Realty News are jockeying to finance modest buildings in smaller cities and towns. In Japan, such financing may be further constrained by individuals’ lack of experience in making venture investments and companies’ reliance on banks for loans, according to Yusuke Ueda, a credit analyst at Bank of America Corp. in Tokyo. Crowdfunding real estate loans “is advantageous for investors in that the amounts can be small and it’s not that much trouble,” said Mutsumi Watanabe, a consultant at Mitsubishi UFJ Research & Consulting Co. “It’s not as widely known as in the U.S. though.”

Property Boom

Prime Minister Shinzo Abe’s economic stimulus policies have already sparked a real estate market boom in Japan. About 5 trillion yen in property transactions have been conducted in the year to the end of June, among the highest levels since 2007, according to a Deutsche Securities Inc. report. Lending to the domestic sector jumped to a record 3.82 trillion yen in the first quarter, according to Bank of Japan data. The vacancy rate for office space in Tokyo dropped to 4.89 percent in July, the lowest since December 2008, according to real estate services firm Miki Shoji Co. Condominium prices in the capital averaged 59.4 million yen in July, the most on record since at least 2000, according to the Real Estate Economic Institute Co. in Tokyo.

“Japanese banks offer low interest rates if they decide to lend, but they often won’t even lend one yen,” said Iwano of Loadstar Capital. “There’s room for a middle-risk, middle-return loan market, and if investments aren’t that costly, that could help the real estate market grow.”

From Goldman

Iwano started his company in 2012 with two former Goldman Sachs employees in Tokyo. Renren Inc., the owner of a Chinese social networking website similar to that of Facebook Inc., took a 49.8 percent stake in the company, he said. Loadstar has used crowdfunding to raise cash for its own investments, mainly office  buildings in Tokyo to rent, Iwano said. It has secured about 180 million yen so far from around 460 people, mostly investors in their 30s and 40s, he said. “At a time when share prices are so volatile, investments like these look relatively more attractive,” said Rie Nishihara, an analyst at Mizuho Securities Co. in Tokyo. “They’re an option when sovereign bond yields are stuck near zero percent.”

The Nikkei 225 Stock Average jumped 7.7 percent to 18,770.51 on Wednesday, after dropping 2.4 percent a day earlier. Japan’s benchmark 10-year debt yield was at 0.365 percent, after falling to a record low of 0.195 percent in January. “Japan is too dependent on banks now,” Iwano said. “It’s hard to say how much of an impact crowdfunding will have, but if it can reduce that reliance, it’s meaningful for society.”

(Source – “BloombergBusiness” Pic – Tokyo Office Buildings / “Ziv Nakajima-Magen“)

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