Asia-based Avatar Capital Partners has closed on the purchase of a 70-unit luxury residential development in the Japanese capital, with the inaugural deal coming just three months after the founding of the multi-family focused real estate fund manager.
Located an 8-minute drive from the Imperial Palace in central Tokyo, the project was acquired at a 30 percent discount to the asset’s appraised value. Financial details of the transaction were not disclosed.
“Cap rates have compressed since the Lehman crisis, but now is the first time I’ve seen inflation in Japan in the last three decades,” said Avatar Capital founding partner Ryuta Ueda. “We can expect some rental growth going forward, which will be key to hitting our expected returns.”
Avatar Capital is also understood to have reached a first close on a discretionary fund this month, with the investment manager having declined to comment on the fundraising.
Central Tokyo Focus
Occupying a site measuring more than 20,000 square feet, Avatar acquired the project from a local developer in an off-market transaction which was closed on a forward commitment basis on 12 June. The fund manager expects to lease up and stabilise the property over the next 12 to 15 months.
Founded in March by Macquarie Asset Management veterans Li and Ueda, Avatar Capital is targeting returns of at least 20 percent through opportunistic multi-family investments, with a 90 percent allocation to central Tokyo. The fund manager adopts a strategy of collaborating with smaller local developers to source deals.
“(Japan multi-family) is one of the hottest markets,” as Li shared. “Our strategy is slightly differentiated – we work with local developers, many of which are relatively unknown and undercovered by the big investors, to create alpha.”
The fund manager now has another three to four deals in the pipeline, all of which are located in central Tokyo and involve both forward commitment purchases and development projects with local builders.
In addition to Avatar Capital’s real estate strategies, which also includes distressed and special situations, the fund manager is working with local partners to invest in renewable energy projects including battery and energy storage facilities and biomass initiatives.
Prior to founding Avatar Capital, Li served as head of Asia real estate and a member of the investment committee for Sydney-based Macquarie’s global real estate fund, while Ueda held the role of head of Japan real estate. The partners had earlier originated and managed real estate investments across Asia Pacific and Japan at CLSA Real Estate.
