$18b investor Mitsubishi Estate looks to housing

And 80 per cent of its $3 billion equity invested is in housing. Australia’s chronic housing undersupply – estimated at between 200,000 and 1.9 million homes depending on definition – offers the greatest opportunity, said Yosuke Matsunaga, Mitsubishi Estate’s Australian head said in an interview.

“Our main focus area is the living sector,” Matsunaga said. “It’s another build-to-rent development opportunity, or a land lease community is also one target. Also, build to sell or a master planned community or land subdivision.”

Japanese investment in Australian real estate last year totalled $2.4 billion, making it the second-largest source of capital after South Korea – a newer entrant – which invested $3.9 billion, MSCI figures show.

Australia is proving a strong draw for Asian institutional investment. Last year, Asia-Pacific investors accounted for more than 60 per cent of the country’s above-average $19.7 billion-worth of overseas investment, the data providers figures show.

And housing is a key attraction for them.

“Since 2019, overseas investors have deployed $18.5 billion into commercial living assets, nearly double the level of domestic investment over the same timeframe,” MSCI said.

Last year Mitsubishi Estate partnered with Lendlease to acquire a 175 Liverpool Street office tower overlooking Hyde Park in central Sydney for conversion into a $2.5 billion luxury apartment complex for an undisclosed sum.

The depth of the company’s investment was laid bare last week in the earnings announcements of listed developers Stockland and Mirvac.

Stockland said Mitsubishi Estate was selling its half stake in a $450-million six-village land lease portfolio of housing for downsizing Baby Boomers that the two companies formed four years ago.

The Japanese company – which since 2023 has also invested in Stockland’s master-planned communities – was exiting the land lease joint venture as five of the communities were generating predictable earnings, but it was likely to reinvest, Stockland chief executive Tarun Gupta said.

“Mitsubishi is a long-term customer of ours, so you shouldn’t be surprised, in future years, if we do something else with them,” Gupta told The Australian Financial Review. “It could be land lease, it could be right across our pipeline.”

Stockland last week said it had struck a new two-asset lend lease partnership with an existing investor, but Matsunaga said it was not his company.

In December, Mitsubishi Estate near-halved its original 90 per cent stake in Sydney developer Perifa’s $800 million, 227-apartment Rozelle Village project on the former site of the Balmain Leagues Club in Sydney’s inner west to a group of smaller Japanese investors, retaining a stake.

That same month, Mitsubishi Estate sold its 48.5 per cent stake in Mirvac’s $1.7 billion LIV build-to-rent portfolio to super fund giant Australian Retirement Trust.

“They are very focused on development style returns, and then once things stabilise and the development profile changes, and the return profile starts to go lower – because it’s largely derisked – they have tended in the past to redeploy that capital again into other things,” Mirvac chief executive Campbell Hanan told the Financial Review last week.

Matsunaga said the company aimed for a “normally levered” investment rate of return in the high teens.

“We evaluate the project by IRR because it depends on the risk,” he said.

But development is a risk, as Mitsubishi Estate’s slow exit from the Lendlease-developed Salesforce Tower-Sydney Place shows.

The investor put its 30 per cent stake in the $2 billion development at 180 George Street, which went on the market in 2024, the year after partner Ping An Insurance put on hold efforts to sell its 50 per cent stake in the tower after only four months as values of office property fell.

Mitsubishi sold part of its stake in the tower to a group of smaller investors in May last year and is now negotiating with Singapore’s OUE REIT to sell the remaining portion.

“I would say we are almost there,” Matsunaga said. “Once the transaction is closed, we will have completely exited from Salesforce.”

Mitsubishi Estate also has a 25 per cent stake in a joint venture with Canadian investor Oxford Properties, in the Investa-developed Parkline Place office tower at 252 Pitt Street in central Sydney, where its own office is located.

In 2024, it invested in a $175 million 12.1-hectare logistics development in Melbourne’s outer south-east Pakenham with ESR.

Matsunaga said Mitsubishi Estate will keep a heavy focus on residential, even if larger equity sizes of investment in commercial projects pushes the balance towards 70-30 residential-commercial from 80-20.

In 2022, it took a two-thirds stake in Lendlease’s $3 billion One Circular Quay hotel and luxury apartment project.

In August, it took a half stake in Mirvac’s $2.3 billion Harbourside luxury apartment project in Sydney’s Darling Harbour and an unquantified stake in a $175 million Gold Coast luxury tower at Budds Beach.