From full-line developer to capital-efficient property company (2019)

Development without ownership

The core of this strategy is that it deliberately relativized the thing long held to be a developer’s strength — owning assets. Securing good locations, holding them for the long term and stacking up rent is a solid way to run a business, but capital sleeps in it and efficiency is hard to raise. Tokyu Fudosan Holdings chose instead to keep its priority locations while bringing in third-party capital and releasing the rest in stages, recovering the fruits of development early and turning them into the next investment. Rather than competing head-on with Mitsui and Mitsubishi Estate, which lead it on scale, on the sheer quantity of assets, it decided to differentiate on the speed at which capital turns — a realistic strategy for a later-arriving full-line developer.

Development without ownership, however, cuts both ways. Staged sales raise capital efficiency, but letting go of prime assets early thins the base that generates rent over the long run. The more third-party capital is combined in, the more uncertainty is carried as well — development profit left on the table, or sales that stall when the market turns. Concentration on a single priority area, the greater Shibuya district, is a strength for as long as the district keeps rising in value, and a weakness if that premise breaks. How far a model that earns on the turnover of capital can be stabilized across the waves of the property cycle is the question the shift to capital efficiency has yet to answer.