Keynote Address: Insights into the growth potential and limitations of high-yield investing within the cyclical Japanese property market.
Thank you.
It’s very good to be back here in Tokyo after so many years.
The city is vibrant.
And complexes like this one, Mid Town, contribute to its staying at the top of world cities.
Our company invests in Class A and Class S properties primarily in the United States, and I anticipate as the deflationary environment abates over the next few years we will look to invest in Tokyo and Japan as well.
What's the reason for my optimism about Japan:
Its resilience and determination.
Japan stands to benefit as its collective strengths including a highly developed industrial base, innovative manufacturing and consumer sectors, its transport sector and its intellectual base become a resurgent force.
While Japan's overall economic and real estate have experienced decades of slow growth, and even sometimes deflationary periods, this will end as inflationary pressures grow globally. A key investment assumption.
Capital flows will ultimately seek out opportunity here in Japan.
As investors, we plan to invest in your economy and in your real estate as well.
We believe in the fundamental economic and societal strength of Japan, Japanese companies and
the Japanese market.
So Japan is, and will continue to be, one of the world's major economic forces, in spite of intense
competition on all fronts.
Polarization of the world increasingly around:
- China and Chinese economic interests.
- Emerging markets and resource rich nations.
- And the developed world –
the West and free Asia.
In this environment I anticipate closer ties and partnerships with the US.
Conflicts are very widespread:
- Currency, economic and trade.
- Cultural and religious.
- Terrorism and rogue nations.
- Territorial conflict.
In Europe general and industry strikes abound - remarkably in the middle of a deep recession.
Responsible calls for austerity bring protest, strikes and violence.
Violence threatens where there is political and nation conflict.
I don't say this to be pessimistic, just realistic.
Let's hope sanity prevails.
Investment capital and investors in this environment are understandably worried and much capital remains on the sideline.
However it’s missing opportunities in today's market while waiting for re-assurance of safety in tomorrow’s.
Fear is their enemy.
Looking to the future the world is much more dynamic and will be different in ways I know and ways I don't know.
Let me show you the real estate world I think we face together (with the caveat that world political conflict can overtake any market).
Japan's market and the rest of the world's intersect after this economic crisis.
So the key to high yields will be much more like we have seen in the US.
And the risks will be too.
Inflation and commodities and core inflation impact will lift,
and sometimes threaten,
commercial Real Estate markets globally.
Inflation
Inflation will be due to:
- Fiscal inflation
- Consumption increase
- Scarce resource will drive commodity prices up.
- Globally, indexed rents will prevail.
- As will rent inflation and replacement cost inflation
- Inflation and debt costs will rise globally.
- Hedging those risks will be important.
High yields will require more discipline, and attention to risk.
Market Timing,
awareness of capital flows not just RE market conditions, operational competitiveness of tenant and tenant stability and what unusual for our
Industry - customer focus
And a stable tenant base - which means much more attention to basics and awareness of competition and repositioning opportunities.
In this environment new Fund products need to focus on current yield and upside with preservation of capital foremost.
We are the top duration investment manager in the US over the last 16 years.
Our new Funds, Real Estate, Commodities, Health Care and Media & Entertainment in this environment are focused on annual cash distribution, and risk adjusted returns.
Risk mitigation is key though.
As an example I will cite my company's experience in our cyclical markets which I believe will be much like what Japan will face.
Let's look closer at these issues.....
High yields will require more discipline, market timing, awareness of capital flows not just real estate market flows, operational competitiveness of tenant and tenant stability and what unusual for our industry – customer focus And a stable tenant base – which means much more attention to basics and awareness of competition and repositioning opportunities.
Buy low, Sale high, managed well in between, indexed to inflation equal high yield.
For those who believe they are smarter than the market, only more 2008’s lie ahead.
However in a world full of risk and volatility opportunities abound.
But only for those who act prudently, understand risk and timing and respect the market.
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