Interview with Japanese Asset Manager

27 Aug, 2019 –

Japan Investment Properties

Japan Property Market

Below is the transcript of an interview we conducted on our PodCast (iPhone/iPad users click here) with Mr Akira Katsuno of “La Nation” – a Japanese residential/commercial and parking lot asset manager,

(To listen to the original episode click here)

(Transcript follows) –

Z: “With us today is Akira Katsuno, senior managing director of “La Nation co”, a building and asset management firm in Fukuoka city, Japan, where our offices are also located.

Akira, aside from being a very nice, and quite funny guy, and also being fluent in both English and French – which is quite rare for Japanese professionals – is also very knowledgeable in all things to do with servicing apartment and commercial buildings, both large and small. For those of you who have already bought, or are looking at buying, entire buildings here in Japan, this should be quite an interesting listen, so stay tuned.

Akira san, thank you for joining us today, we’re happy to have you with us.”

A: “Thank you, I’m glad to be here”

Z: “So first, could you maybe explain to us, what exactly is a building management company, what does your company actually do? “

A: Management of a building is any work which is supposed to improve the asset value of a building – while also managing the facilities and environmental hygiene of the building. If the total floor space of the building is 3,000 square meters or more, it is called “a specific building”, and if it’s less than that it’s called “smaller buildings”.

For specific buildings, the larger ones, the law stipulates that it is necessary for one representative to register as a building environmental sanitation management technician. That person has the authority to provide their recommendations to the building’s owners and tenants, and they are obliged by law to act on these recommendations.

So, in reality, these representatives carry out the duties of de facto supervisors for specific buildings. Their main tasks are to have broad knowledge of the building’s structure, facilities, indoor environment and hygiene, such as lighting and noise environment, water supply and drainage, cleaning, pest and rodent control, waste, etc – these are all required duties.

The larger the building, the more people will be responsible for the above work under the direction of the Building Management Engineer. Also, as the age of the building goes up, the renovation work of course increases too, so there has to be a detailed plan such as to when construction will be renewed and at what timing.”

Z: “I see. Now, you mention that as the building gets older, more work is required – and I know there are some government and tax depreciation guidelines as to just how old a building should get – but in reality, there are actually much older buildings still around, and still being used and renovated, right?”

A: Yes, that’s right. Officially, the useful life of a building is summarized as follows –

Wooden and synthetic resin structures have an official live span of 24 years – for timber and mortar constructions it’s 22 years – steel Reinforced Concrete or Reinforced Concrete is 50 Years – Brick, masonry, block building 41 years – and Metal construction is 38 years.

Of course, these life spans are just general recommendations from the government – in reality, there are many buildings that are much older than this recommendation – especially bigger buildings, with many units and tenants, can be regularly renovated and maintained without a problem, so that their life span becomes longer.”

Z: “Yes, that’s been our experience as well – we have several clients who own units in reinforced concrete buildings, especially those that have more than 100 or 150 units, and are well over 40 years old – but they are very well maintained and renovated, and it seems like they can definitely continue to be liveable much longer than that, which is really the case in other countries as well, isn’t it?

Now, another question for you – from a building management perspective – what are the differences between a building which has just one owner, or owned by a few single individuals – and a co-owned building, where each unit is owned by different owner? How is your job different in both cases? “

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A: “Well, firstly, it’s important to understand that the management company and the management association are two separate entities. The management company is a company that manages buildings. A management association, or union, is generally an aggregate of room owners – it’s an organization that consults and decides on matters that need to be addressed within buildings.

If there are individual unit owners, they will usually join the building management association, and negotiate any resolutions related to the building – with regard to their positions within the union. There are two kinds of resolutions: ordinary resolutions and special resolutions. An ordinary resolution is one that requires a simple majority of votes – 51%. The special resolutions require that the total number of votes be more than three quarters of the members, and in some cases more than 80% of the total members. Those that require more voting rights are more important resolutions – for example, if the management association wants to consider selling the building to a development company.

Also, it’s important to note that if there are two owners for one unit, only one of them will be the representative owner and have voting rights. So, each unit only has one voting right.”

Z: “Gotcha. And, in case of a single owner, how much money should they keep for maintenance and renovations each year, to be safe? “

A: “For average buildings, with a total floor area of around 3,300 square meters, somewhere between 250 yen to 300 yen per square meter, per year. For high-class office buildings, over 9900 square meters, about 360 yen to 600 yen per square meter. For smaller buildings, say around 1,700 square meters, about 150 yen per square meter is the typical market price. These costs also depend on the structure of the building, the equipment and facilities, its age, frequency of cleaning and inspections, whether or not the manager is onsite daily, and the average response time.”

Z: “Ok, now, you’ve mentioned a case of an 80% vote to sell a building – if that building IS co-owned – what happens when it becomes too old and isn’t worth renovating anymore? Do you recommend to sell it? Do you help to find a buyer? How much does it cost to demolish a building and dispose of the remains?”

A: “Well, if some owners vote that a renovation is required, and others say it isn’t, there is often a case of dispute. In these cases, you may want to try and sell the parts owned by owners who don’t want to renovate. Rather than looking for other purchasers, it is more likely that the management association will continue discussions with those who want to renovate and find buyers for owners who want to sell. Basically, when there are multiple owners of buildings or land, negotiations become necessary for most big decisions.

As for demolishing and removal, steel-frame reinforced concrete buildings normally cost about 15,000 yen per square meter.”

Z: “That’s great, thank you, very helpful information. Now, let’s talk a bit about your other specialty – setting up and managing parking lot businesses. Japanese cities are notoriously short on parking spaces, and there are many investors who are buying and profiting from parking lot businesses – now, we’re not talking about a simple land plot used to rent out space on a monthly basis to people in the neighbourhood, which is pretty straight-forward – our clients and listeners are usually more interested in central city hourly parking lots, where profit can be much higher. What would it cost to setup one of these operations?”

A: “Well, depending on the size of the lot – generally speaking, each car space requires 12.5 meters of space – so something like 100 square meters of land can be used for maximum 8 spots. In these cases, a car lock flap mechanism is installed in each space, and an electronic payment machine is installed somewhere on the grounds, so that owners can punch in their lot number, pay the parking fee, and release the car. These cost somewhere between 1,400 to 2,300 US dollars per spot – the more spots there are, the cheaper the total becomes.

If you’ve got a larger space, or a small building with 2-3 parking floors, it becomes cheaper to install a boom gate mechanism, and card issuing payment machine – this kind of setup costs somewhere between 1-3 million yen – so anywhere from 9,000 to 27,000 US dollars, depending on the layout and number of spots.”

Z: “And how much could an investor potentially make on these types of operations?”

A: “Well, it really depends on location – very central areas usually enjoy about 50% occupancy at all times on average, and can charge as much as 200-300 yen per half hour of parking on average – so even a small car park can generate as much as 1 mil JPY per month – about 8,000 US dollars. If it’s a bigger lot, or has a multi-story building with more spots on it, it can go significantly higher. But, of course, large land plots in central city locations cost a lot more to buy, too.”

Z: “So, is it worth building a 2 or 3 floor car parking facility? How much does that construction cost? “

A: “Again, it depends on the location and how much you can generate without construction. You should evaluate the price of the land and the construction separately. If you’re bought very expensive land, say, near a major train station in a major city, just 2-3 floors would not generate enough profit.

Construction cost, anyway, is about 65,000 yen per square meter, so almost 600 US dollars per meter.”

Z: “And what kind of service does your company, or the parking management company provide?”

A: “Parking management will help organise construction, do the cash collection and deposits to the owners, and also provide machine and customer troubleshooting, and of course cleaning work.”

Z: “Excellent – and your company can help with all of that as well?”

A: “Yes, that’s right, we’re happy to help.”

Z: “Super, very good stuff, Akira san, thank you very much for your time today!”

A: “Anytime, it’s been a pleasure”.

Are you interested in Japan’s real-estate property investment market? Maybe you have been watching developments in this arena for some time, but aren’t sure how to make your first move? Perhaps you’re concerned about language and cultural barriers? We here at Nippon Tradings International are always happy to talk shop, and will gladly answer all questions, free of any charge or commitment. We can also provide you with affordable, accessible one-stop-shop services for all your Japan real-estate property investment needs. Contact us today to learn more!

 

(Source – Ziv Nakajima-Magen, Nippon Tradings International”, Pic – NipponTradingsInternational)

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