From rights conversion to the medium-term plan

Mandate

Rebuild the medium-term plan around household decline and the cost of capital, deciding where Mikurane should stop investing as well as where it should grow.

Outcomes

• Exited ten suburban estates: 1,650 lots sold for ¥16.3bn after an ¥8.6bn impairment, with ¥64bn moved into three station districts holding 1,180 homes.
• Put four-year framework agreements in place with three general contractors; unawarded tenders fell from nine in the year to March 2024 to one in the year to March 2026.
• Raised return on equity from 6.1 per cent (year to March 2022) to 8.9 per cent (year to March 2026); price-to-book ratio rose from 0.68 to 0.94.
• Reduced cross-shareholdings from 14 per cent of net assets to 6 per cent.
• Grew the managed rental fund from ¥96bn to ¥238bn and raised the stake in Pellridge Homes from 35 to 45 per cent.

Decisions in context

I became Mikurane's first chief strategy officer in April 2021, reporting to our president, with a mandate to rebuild the medium-term plan around two facts the previous plan had treated as background: fewer households in most regions where we built, and a share price below the book value of our assets. My division of 46 people covers strategy, investment planning, fund business planning and overseas partnerships. It prepares the capital-allocation plan of about ¥210 billion a year and the papers for every investment above ¥5 billion. The first year produced our exit from ten suburban estates. The second produced our first published analysis of return on equity by business against the cost of capital. The third produced the contractor frameworks and a smaller land budget. I became a managing executive officer in April 2024. I am not a director of Mikurane, but I present to its board several times a year and report twice a year to its Audit and Supervisory Committee.

Reason for the move

Current role. Not seeking an executive move; considering one outside directorship with the consent of Mikurane's board.

Mandate

Find sources of growth and return that did not depend on selling more new homes in Japan.

Outcomes

• Recommended and negotiated a 35 per cent stake in Pellridge Homes for US$105m (December 2017).
• Launched the Mikurane Rental Residence Fund in October 2019 with a life insurer and a corporate pension fund; first tranche of 2,400 homes for ¥96bn.
• Replaced a proposal for five hotels in Kyoto and Osaka with two serviced-apartment buildings whose occupancy held at 88 per cent through 2020.
• Added a household-projection test to every land proposal outside the three metropolitan areas.

Decisions in context

I moved from the reconstruction business to lead corporate planning in April 2016, reporting to the senior managing executive officer responsible for planning, with a team of 22. Mikurane then earned almost all its profit from selling new homes in Japan, and the board asked for growth that did not depend on doing more of that. Three proposals came out of those five years. The first was a minority stake in Pellridge Homes, a Dallas builder, in December 2017, instead of the full acquisition our president initially preferred. The second was the Mikurane Rental Residence Fund, launched in October 2019 with two institutional co-investors and our new asset-management subsidiary as manager. The third was a smaller one that mattered in 2020: two serviced-apartment buildings in Osaka in place of five hotels, which kept residents when visitors disappeared. I also wrote household projections into every regional land proposal, which prepared the ground for the estate exits that followed.

Reason for the move

Appointed executive officer and the company's first chief strategy officer.

Mandate

Build a business that rebuilds or renews ageing condominiums together with their owners.

Outcomes

• Secured an 89 per cent reconstruction resolution at Sasamegaoka Heights (312 homes) in October 2015.
• Won three further reconstruction mandates in Tokyo and Yokohama by 2016.
• Started a repair-planning service for management associations, advising 41 of them by March 2016.

Decisions in context

I proposed this department in 2011 and was asked to build it in April 2012, reporting to the head of our condominium business, with nine people and a budget of about ¥1.2 billion a year. Japan had a large stock of condominiums from the 1960s and 1970s that were ageing alongside their owners, and no developer of our size had a team devoted to them. Our first project, Sasamegaoka Heights in western Tokyo, absorbed most of the department's effort for three years: 46 owner meetings, home visits to every absent household and a debate with our own investment committee over whether a 6.5 per cent projected margin was acceptable. The resolution passed in October 2015 with 89 per cent support. By the time I left the department had 31 people, three more reconstruction mandates and a repair-planning service advising 41 associations, which became the basis of today's renewal business.

Reason for the move

Asked to lead corporate planning.

Mandate

Rebuild the investment case for land purchases after the 2008 collapse in condominium sales.

Outcomes

• Supported the ¥21bn inventory write-down in the year to March 2009 with project-by-project recoverability tests.
• Built an absorption screen using ten years of district sales by household type; it stopped six purchases in its first year.
• Helped reduce completed unsold condominiums from 1,240 homes in March 2009 to 310 in March 2011.

Decisions in context

I joined Mikurane in April 2008 from the trust bank, wanting to make development decisions rather than finance them. Within six months the global financial crisis had emptied our sales galleries, and my first serious task was testing, project by project, how much of our condominium inventory could be sold at what price. The company wrote down ¥21 billion in the year to March 2009. With a team of seven I then rebuilt how we judged land: a screen based on ten years of sales in each district, broken down by household type, which every acquisition had to pass before reaching the investment committee. It stopped six purchases in its first year and made me unpopular in the land department for a while. By March 2011 completed unsold homes had fallen from 1,240 to 310. Studying district sales also showed me how many older condominiums nobody was planning for, which led to my proposal for a reconstruction business.

Reason for the move

Asked to found the reconstruction business I had proposed.

Mandate

Structure and monitor finance for rental-housing and office portfolios sold by developers to investors.

Outcomes

• Structured finance for 14 rental-housing portfolios sold by developers, totalling about ¥95bn.
• Introduced quarterly re-underwriting of rent rolls, which flagged two weakening portfolios in 2006 before their covenants were breached.
• Trained eleven graduate analysts in property cash-flow modelling.

Decisions in context

I moved to Tokyo in October 2000 to join the real estate finance division of Kurotaki Trust and Banking, first as an analyst and from 2004 as a manager with a team that reached four. We structured non-recourse loans and trust arrangements for rental-housing and office portfolios that developers were selling to investors, at a time when Japanese property was beginning to be owned through funds rather than only by companies and families. By 2007 the book I helped monitor was about ¥180 billion. I introduced quarterly re-underwriting of rent rolls, which flagged two weakening portfolios before their covenants were breached. I completed a part-time master's degree in real estate finance in 2006. Above all I watched developers learn that they could build more if they did not keep everything they built, a lesson I used thirteen years later in setting up Mikurane's fund. I left because I wanted to be accountable for the decisions I had been financing.

Reason for the move

Wanted to make development decisions rather than finance them.

Mandate

Prepare and negotiate the rights-conversion plan for a station-front block of 64 landholders.

Outcomes

• Agreed rights-conversion terms with 61 of 64 landholders; the other three were bought out by agreement.
• Building completed in 1999 with 120 homes, a market hall and a floor of municipal services.
• Prepared the second scheme, suspended in 2000 when its anchor department store withdrew from the city.

Decisions in context

My first employer was a small third-sector redevelopment company in Morioka, owned by local public bodies and private shareholders, which I joined as a planning officer straight from university. Its first scheme replaced a block of 64 small shops and houses in front of the station with one building, using rights conversion: each owner gave up a plot in exchange for floor space of equivalent value in the new building. With two assistants I prepared the valuations and spent five years explaining them at kitchen tables. Sixty-one owners agreed terms and three sold by agreement. The building opened in 1999 with 120 homes, a market hall and a floor of municipal services. I then prepared the company's second scheme, which was suspended in 2000 when its anchor department store withdrew. That taught me that a plan depends on whoever must pay rent in it, and sent me to Tokyo to learn how projects are financed.

Reason for the move

Wanted to understand how finance decides which projects go ahead.