Company history

Mori Taikichiro was born above a rice shop in Toranomon and spent his early life trying to get away from it. He read economics at Tokyo University of Commerce, taught at a sericulture college in Kyoto, and after the war moved to Yokohama City University, where he became dean of the commerce faculty. His father held nearly a hundred rented houses; almost all of them burned in the air raids. Returning to sort out the ruins, Mori stood at Shinbashi station looking over a burnt plain and, by his own account, resolved to rebuild with his own hands the place he had been born in.

What he brought to property was not a dealer’s instinct for prices but an academic’s habit of reasoning from a premise. Expecting postwar inflation, he used his father’s money to buy foreclosed land cheaply in Ginza and Shinbashi. When it duly appreciated in 1956 he refused to sell at market: he told a broker to place it at fifty per cent above the going rate, and when the broker balked, argued him down — Tokyo’s population would concentrate, land prices would rise geometrically, and a buyer paying half again over the odds would still not lose. An insurance company took it. Mori pocketed $83,333 (¥30m) and borrowed the same amount again from Daiichi Trust Bank to put up the first Mori Building.

In 1959 he gave up the deanship. The office that had been managing four buildings was incorporated in June that year as Mori Building Co., Ltd., capitalised by Mori himself and by four companies he had already set up with one of his four children as the largest shareholder of each. He never built outside a small patch of Toranomon, and explained the concentration as cowardice: scholars tend to caution, and he was cautious to the point of timidity, so investing on someone else’s ground frightened him, while in Toranomon — his own garden — he could work out the return in advance. There was calculation in it too. Buildings clustered in one district raise each other’s value; as the streets take shape the whole area is re-rated, first-class tenants arrive, land prices rise, collateral capacity rises with them, and the next project is easier to fund. The recession of 1964–65 tested it — vacancy across the trade passed seven per cent, the tenth and eleventh Mori buildings completed into an empty market, and the company got through only by selling land in Aoyama and cutting rents.

By February 1971, when the Nikkei reported that Tokyo would redevelop Akasaka as a model of living close to work, Mori Building had put up more than forty buildings in the streets around Toranomon. It had ¥1bn of capital and 250 staff; sales had gone from ¥288m in fiscal 1961 to a run rate approaching ¥3.3bn a decade later, and book assets stood at ¥25bn — ¥100m per employee. The Akasaka scheme was the first use of a private developer under the Urban Redevelopment Act and the largest project since the Shinjuku subcentre plan: eighty thousand square metres beside the American embassy, to hold high-rise offices, a hotel and apartments.

The work of redevelopment is almost entirely the work of buying land, and Mori refused to rush it. Property, he said, is unlike other goods in being a monopoly over a place; push with money and you fail, so you study the other side’s interests and share out fairly the value the new building will create. The twentieth Mori Building, completed in 1971, had taken ten years of negotiation. Applied to a whole city block, the same method took sixteen years to assemble the site and twenty in all: Ark Hills completed in March 1986.

Two other things took their present shape in these years. One was the group’s structure, built for inheritance rather than for business: four companies, each with one of Mori’s children as principal shareholder, held the property, with a voluntary association acting as the secretariat; Mori Building Development was added in 1970 for shorter-cycle projects, and two more companies were carved out later as the assets grew. The other was the first move beyond office leasing — Laforet Harajuku, opened in October 1978, a retail building with a location and a customer entirely unlike the Toranomon office district. Common functions were then split off into separate firms, leaving Mori Building and Mori Building Development as, in effect, asset holders with a handful of employees each. The arrangement served both inheritance and operations, and made the group very hard to read from outside.

Around 1975 Mori Building had changed how it borrowed, and the change decided how it survived what came next. It withdrew the land and buildings pledged as collateral to its banks and asked instead to be lent against the group’s earning power — treating the whole group as a single project. It took about two years of negotiation, with the income statements of existing buildings in hand, to get the banks to accept. Even in 1995, apart from a Japan Development Bank facility, its borrowings were unsecured, and it held itself to a rule that net debt should not exceed five times earnings.

Land prices still did the damage. In the year to December 1994 the group’s sixteen companies carried land, including leaseholds, at about ¥618bn against roughly ¥1,008.7bn implied by published land prices — some ¥400bn of unrealised gain. Measured on the basis used for the land value tax, however, the figure came to only about ¥760bn, and the gain all but vanished. Unrealised gains, Mori Building Development’s president Mori Akira admitted, had fallen from a peak of ¥1.5 trillion to the low hundreds of billions. Interest-bearing debt reached ¥770bn, more than seven times operating revenue — past the company’s own five-times rule. Revenue itself fell from ¥120.2bn in 1992 to ¥101.6bn in 1994, and net profit from ¥5.7bn to ¥4.5bn.

Mori Taikichiro died in February 1993. Forbes had once named him the richest man in the world, at an estimated ¥2.7 trillion in 1991; he shrugged that off, saying the true measure was what remained once the bubble was taken out. His taxable estate came to about ¥3.9bn and the inheritance tax to under ¥1.4bn — the return on decades of putting assets into his children’s names. Two sons took over: Mori Minoru, expansionary by instinct, around Mori Building and Mori Building Kosan, and Mori Akira, a former banker and the more cautious, around Mori Building Development and Mori Building Sangyo. Neither thought a single company possible, and merging the two sides would have cost too much tax. Their prescriptions differed accordingly: Minoru sought to offset weak rents with three projects in Dalian and Shanghai, capping the group’s exposure at under ¥20bn — a fifth of project cost — with institutional investors and trading houses alongside; Akira set out to raise the utilisation rate of land the group already held from under fifty per cent to seventy within three years.