Commercial real estate debt security market in Japan : a comparative study with the U.S. CMBS market

Abstract

After the economic bubble burst, the Japanese economy has been inactive over the past ten years. Land price has dropped drastically and Japanese commercial banks have a huge amount of NPLs. Many borrowers have over-borrowed and some of them have declared bankruptcy. Banks cannot make loans actively and many companies suffer from lack of capital. In this situation, many people strongly hope for the development of the Japanese Commercial Real Estate Debt Security market, where companies and banks can get capital directly from the capital market. The value of Japanese real estate is huge, US$23 trillion, and whether the real estate market will become active again or not strongly affects whether the Japanese economy will begin to expand again. The unique finance and real estate systems in Japan have created the specialized Japanese Commercial Real Estate Security market. This thesis analyzes this emerging market especially for the purpose of helping investors who are familiar with the U.S. Commercial Real Estate Debt Securities to invest in the Japanese Commercial Real Estate Debt Securities. This thesis consists of three main parts. First, we explain the current conditions of the U.S. and Japanese real estate finance fields. Second, we analyze the Japanese Commercial Real Estate Debt Security market compared to the U.S. market. In order to better understand the market, we also analyze the unique Japanese financial and real estate systems. Finally, we show several case studies, where we try to verify the arguments of the first two parts by analyzing three Japanese deals and comparing each to their matching US deals. We also try to explain reasons for features of the Japanese market and mention issues for this market to further develop. This study would not have been possible without the support of players who work on the front lines and many of our colleagues. The players not only provided us with data and knowledge but also shared thought provoking insights. Many colleagues provided important leads to information and materials. We thank them and greatly appreciate their efforts. Finally, we owe great thanks to Professor Timothy Riddiough who patiently advised and helped us immensely.