The Performance and Diversification Potential of Non-Listed Value-Add Real Estate Funds in Japan

Abstract

In the aftermath of the COVID-19 pandemic, non-core investments are gaining traction amongst institutional investors due to the shifting preference towards investment vehicles that position higher on the risk–return curve. Non-listed value-add real estate funds in Japan are one such vehicle. This research develops a comprehensive bespoke benchmark total return index using the ANREV database to reflect the performance of Japan-focussed non-listed value-add real estate funds. We compare the performance of such funds with that of other asset classes and perform portfolio and regression analyses. We conclude that there are several advantages to investing in those funds, including: (1) strong absolute total return performance, (2) competitive risk-adjusted performance, and (3) significant portfolio diversification potential in a mixed-asset portfolio context. The strategic implications for real estate investors are also assessed.

The impact of the COVID-19 crisis on global real estate capital flows

“…A recent focus in non-listed real estate funds management research has been the role of investment style in the investment vehicle chosen by the institutional investor to achieve this real estate exposure; particularly the effectiveness of core vs value-add vs opportunity real estate (e.g. : Bollinger and Pagliari, 2019; Fisher and Hartzell, 2016; Gang et al , 2020; Hoesli et al , 2022; Newell et al , 2023; Pagliari, 2020; Shilling and Wurtzebach, 2012). The real estate fund style is particularly important as it has implications for the real estate funds' expected returns, risks, liquidity and holding periods.…”

The performance of non-listed opportunity real estate funds in China

“…The only papers that have considered NREFs in Asia were Cho (2018), Gupta et al . (2018, 2020), Gupta and Newell (2021), Hoesli et al . (2022) and Mansley et al .…”

“…Gupta and Newell (2021) developed a portfolio risk management assessment framework for real estate funds in India. Hoesli et al . (2022) examined the performance and diversification benefits of value-add real estate funds in Japan, and Mansley et al .…”

“…The only papers that have considered NREFs in Asia were Cho (2018), Gupta et al (2018Gupta et al ( , 2020, Gupta and Newell (2021), Hoesli et al (2022) and Mansley et al (2020). Using data for India, Gupta et al (2018) identified the risk factors of the NREF life cycle and Gupta et al (2020) examined the determinants of real estate fund flows in India.…”

“…Target returns are 15%+, where these returns are back-ended via final asset sale or completion of the development. Development assets and distressed assets feature prominently in opportunity real estate funds (Hoesli et al ., 2022). Major real estate investment managers in the opportunity real estate fund space in Asia include CapitaLand, GLP, Brookfield, ESR, IGIS, Hines, Ivanhoe Cambridge, LaSalle, Morgan Stanley and Oaktree (IP&E, 2022).…”