Tokyo is preferred over China by a royal investment firm.

Grosvenor, which controls the Duke of Westminster's property assets, is creating a new club-group alliance to invest in Tokyo real estate, which it feels offers the best potential in Asia. appart hotel

The corporation normally selects cities for investment, with Tokyo, Shanghai, Beijing, and Hong Kong being the most recent. However, concerns over China's slowing development, as well as credit tightening on the mainland and in Hong Kong, have prompted it to change course.

"Right now, we perceive the most advantageous price in Tokyo," Nicholas Loup, Grosvenor's Asia Pacific chief executive, told WPC News. "China is undergoing certain macroeconomic changes, with a focus on shadow banking and monetary constraints. Some of these limitations apply in Hong Kong as well."

Grosvenor has begun raising funds for a new fund in which it will partner with two to three additional investors to raise $250 million to $300 million. Because the partners will form joint ventures with local developers, the total capital will most likely be around $400 million.

Separate from Grosvenor Fund Management, which constructs typical fund structures for investors, Grosvenor Asia Pacific injects its own proprietary resources into private ventures. According to the corporation, the new partnership is not a fund and does not have the usual general partner/limited partner structure, but rather is a joint venture.

The investment vehicle will invest in four to six agreements, with each project receiving a majority ownership. It will use its local team to seek projects in Tokyo, where it has been operating for 12 years and has learned the subtleties of a market that is notoriously opaque and difficult to traverse for foreign investors.

"Just because of the availability of data, particularly in the residential market," Loup added, Tokyo "has its own level of problems." "We've got a team on the ground with a lot of experience. To acquire access to business and form partnerships, you need to build up a local expert staff, and we have a consistent flow of pipeline deals."

Japanese real estate, according to Grosvenor, is a strong cyclical opportunity. "We started investing in Tokyo again not long after the earthquake, and we thought the timing was about perfect even before the earthquake," Mr. Loup said. "Since then, we've witnessed the unintended consequences of so-called Abenomics."

The yen has lost 20% of its value compared to its 2012 average, increasing exports and promoting inflation from imports, according to Société Générale, while economic morale has increased to its highest hopeful level since 2008. "Abenomics appears to be succeeding," SocGen noted, despite the need for long-term structural improvements.

China, on the other hand, appears to be fragile. According to Standard & Poor's, half of the 38 property developers it grades have credit ratings of B+ or worse, indicating that they are "weak" or "vulnerable" with aggressive or highly leveraged risk profiles.

This will make it impossible for them to replenish land banks at a reasonable cost, as well as to carry out their commercial goals, according to the rating agency.

Grosvenor specializes on high-end residential buildings throughout Asia, either from the ground up or by purchasing and refurbishing existing properties, as it has done in Tokyo. It purchased the 102-unit Park Habio Azabu Tower in March, after its purchase and renovation of the Roppongi Arents and The Mark Minami Azabu buildings.

The new collaboration will have a two-year investment period for doing agreements, followed by a five- to six-year turnaround time for completion, for a total lifespan of around eight years.

In Asia, Grosvenor holds proprietary assets worth HK$12.7 billion (US$1.6 billion).