LEAN, MEAN AND READY TO RUMBLE
With Japanese land prices finally picking up after decades of stagnation, Ardepro is ideally positioned to ride the upswing.
Once upon a time, back in the days of Japan’s bubble economy, the grounds of the Imperial Palace in Tokyo were reckoned to be worth more than all the real estate in California. That, however, was a quarter of a century ago now. Since peaking in 1990, Japanese land prices have fallen almost every year thereafter. Meanwhile, it is elsewhere in Asia that markets show all the signs of overheating. In Hong Kong, Taiwan and Malaysia, property prices are soaring, driving rental yields down to a miserly 2 percent. Paradoxically, Japan’s subdued asset values—with the flipside of generous rental yields of about 5 percent—are now attracting the interest of Asian high net worth individuals.
Further boosting the bull case for Japanese real estate is the aggressive reflationary policy of Prime Minister Shinzo Abe. Statistics released this March by the Ministry of Land, Infrastructure, Transport and Tourism show that for 2013—Abe’s first full year in office—commercial land prices in the three major cities of Tokyo, Osaka and Nagoya rose an average 1.6 percent, with residential land rising 0.5 percent, marking the first uptick since 2008.
As inflation takes hold, land prices should continue their ascent. The recent designation of the Tokyo and Osaka regions as lightly regulated Special Economic Zones (SEZs), a building boom in the run up to the 2020 Tokyo Olympics and the possible legalization of giant casinos are all providing a long-term tailwind.
We have the perfect business model and growth strategy to take advantage of this improving environment.
A man with a plan
One company that stands poised to benefit from this confluence of positive factors is Ardepro, a Tokyo-based firm specializing in sourcing, renovating and selling income-yielding condominiums to REITs and Asian high-net-worth individuals.
“We have the perfect business model and growth strategy to take advantage of this improving environment,” explains CEO Reishi Kubo, who unveiled Ardepro’s new medium-term management plan at the end of April. “Firstly, we have high yielding assets in central Tokyo where the land price is already rising. Secondly, we have a clear exit in the form of REITs or Asian high-networth individuals to sell those assets to. Thirdly, we move exceptionally fast: the time between our acquiring assets and selling them on is a matter of a few months.”
Like Japan’s Prime Minister with his clear targets for things like inflation (2%) or women in leadership positions (30% by 2020), the goals of Kubo’s mediumterm plan are clearly spelled out: the tripling of sales from ¥10 billion this year to ¥30 billion in July 2017, with profits rising by the same multiple from ¥1.5 billion now to ¥4.5 billion then.
The projections are bold, but Ardepro has had its share of ups and downs over its three decades in business. Founded in 1988, Ardepro was originally a small company focused on property management, specifically of condominiums, for its first fifteen years in business. Over time, it began acquiring units from their owners for renovation and resale. By the early 2000s, when Japanese companies started offloading property assets to pay off non-performing loans, Ardepro had the necessary expertise in place to buy up company-owned staff dormitories and apartment buildings, redecorate them, and sell off the individual units.
“Naturally, we hoped things would continue in this vein, but it was not to be,” Kubo says. With the problems in American subprime and the failure of Lehman Brothers in September 2008, Japan’s property market collapsed. Ardepro’s sales tumbled for the next six years, falling to around ¥3 billion in FY2013.
In fact, things got so bad that the company became insolvent and embarked on alternative dispute resolution (ADR) in 2010. This three-year process—essentially sorting out the company’s debts without the need to resort to litigation—finally enabled Ardepro to reach an accommodation with its bank creditors in mid-2013.