The high point of Japans commercial real estate market was about two decades ago.
The low point of Japans financial system came a decade later, as the unwinding of the countrys bubble economy ravaged financial institutions. After that nadir, Japan staged a broad-based and convincing recovery, during which the commercial property market has shone as one of the countrys brightest stars, and nowhere more so than in central Tokyo, home to a large proportion of the nations real estate wealth.
There is little doubt that the brilliance of the Japanese commercial property market has dimmed since the peak, near-perfect conditions in the physical property market and financial markets from 2005 to late 2007.
But many argue that the current risk-reward ratio has seldom, if ever, been more appealing for non-recourse property lenders and investors in Japanese commercial mortgage backed securities, even as the dark clouds over the global financial markets cast their shadows into almost every nook and cranny worldwide.
Optimists maintain that although the latest Japanese commercial property market data has weakened, as shown by the performance of Grade A central Tokyo office buildings, the downturn is negligible and the picture is almost as positive as at any time in the past two decades.
In the physical property market, the troubles in the US and Europe, as well as the more restrictive and more costly financing conditions in Japan, have combined to force the virtual withdrawal of many opportunistic, arbitrage-driven, leveraged buyers, many of them sponsored by the worlds leading banks and investment banks.
But in their place are plenty of long term, largely international buyers, most of which need modest or no leverage, and many of which will hold these assets for many years to come.
Although at the margins, such as in economically sensitive assets and certain provincial locations, some are suffering from reduced liquidity, domestic and international property market experts and core investors believe that the outlook for Japans commercial property market is very encouraging, especially in Tokyo.For non-recourse lenders and CMBS investors prepared to invest the time and resources to fully understand the assets and the markets, the message from Japans property finance market professionals is, quite simply, seize the day.