Matein Khalid
Real estate occasionally provides prescient investors the ability to make serious capital gains with minimal or even zero risk. Take the Empire of the Rising Sun and the sinking yen, also known as Japan. The ruling LDP has shed its Komeito coalition partner and is all set to embrace Sanae Takaichi as Lady Shogun or Dai Nippon’s first elected woman Prime Minister. This means higher inflation and sharper rise in property prices in the seven celestial islands of Japan formed from the tears drops of the Sun Goddess in the morning of creation. Rising land prices and massive development mean that the top 300 companies in Japan are sitting on unrealized real estate profits of 30 trillion yen or $200 billion. All any investor in Dubai or wherever has to claim a piece of this property jackpot is to ask Manjusan for a guided tour with Sensei Matt in the netherworld of the Nikkei Dow. The idea is to find companies whose property holdings exceed their market cap, i.e. free money.
The strategy is to anticipate which company will be prodded by an activist shareholder or a hostile takeover bid to sell its real estate asset in order to bid up its share price and boost its market cap. Free money with zero risk or as they say in Japan “flee money” LOL! President Trump should really not talk to the new Lady Japanese PM about his election lest she misunderstand his intentions and order a Pearl Harbor scale kamikaze attack on Mar-a-Lago.
Enough silly jokes and back to the serious business of making money in Japanese real estate via drilling for paydirt in Marunouchi. Let me illustrate this strategy with a specific idea, not necessarily the one I would choose given my obsession with asymmetric risk calculus for at least a 20% gain with near zero risk other than the yen hedge. I am looking at Japanese railway companies, retailers, textile mills, property developers and warehouse owners for property golden geese just waiting to be plucked by the right activist shareholder or a corporate raider. Why on earth would the $75 billion AUM activist hedge fund Elliott waste its time accumulating the shares of a zombie utility like Kansai Electric Power Company (KEPCO)?
The new Japanese PM also promises faster inflation and rising property prices, a compelling prospect for me to buy the shares of Sumitomo Realty and Mitsui Fudosan. Anybody who bothers to analyze the balance sheet of 8801 Tokyo knows that Amaterasu’s sacred teardrops will bless the share price of this blue chip Japanese developer due to the sheer scale of its unrealized profits on its landbank.
The new PM/Lady Shogun has made it clear that she will pivot to Shinzo Abe’s fabled second arrow monetary stimulus. This is a license to print money in Japanese commercial real estate and thus the strategy I have outlined in this admittedly convoluted post.
Larry Ellison of Oracle believes that he is the reincarnation of a Samurai warrior from the Tokugawa shogunate but I would like to come back as a reincarnation of a Japanese asset stripper in 2026 because they are poised to unlock a tsunami of cash from their property rich but governance poor targets. It’s raining yen, hallelujah! I would caution Manju that asset strippers are not the fun kind to be found in the neon-lit watering holes of Shinjuku but very boring suited-booted sararimen who do not even wear Kimonos or wave around the dai katana, traditional samurai swords whose blade must draw human blood if they are ever unsheathed.
The Bank of Japan will not raise rates enough to compensate for rising inflation and negative yen interest rates are the high octane fuel for property speculation in Japan Inc. Mitsubishi Real Estate is another Nipponese sweetie pie (ok, wagashi!) since its price to book value is a mere 0.7 and not 1.7 once its hidden cash and unrealized property holdings are netted out. Where else in the world can an investor make free money from property developers rather than be mercilessly misled, price gouged and exploited by them, an experience investors in the Gulf know all too well? So arigato gozaimasu guys. Tenno heika Banzai!
Also published on Medium.
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