Tokyu Land Corporation
Tokyu Land Corporation
Tokyu Land Corporation is the third-largest real estate company in Japan. The company operates in various sectors of the real estate industry, including commercial office building and leasing, residential lots, and construction of housing. Nearly half of Tokyu’s business is housing construction. The company is perhaps best known for its suburban residential developments. Since its inception Tokyu Land has been associated closely with the Tokyu Corporation, a diversified Japanese company with its roots in the electric railway industry. In 1991 Tokyu Corporation still owned approximately 14% of Tokyu Land Corporation. Tokyu Real Estate Co., Ltd. was set up in December 1953 as a subsidiary of the Tokyo Electric Express Railway Company, now the Tokyu Corporation. Tokyu Real Estate was to run the urban development, gravel transportation, and recreational property businesses of its parent. The business of managing recreation grounds was handed back to Tokyo Electric Express Railway (TEER) later in 1953, and Tokyu Real Estate quickly expanded into other areas.
In 1954 the company acquired two other TEER operations, the Japanese Enterprise Company and Tokyu Construction Industry, operating an insurance agency, warehousing, and construction businesses. Within two years the warehousing operations and the gravel business were spun off to affiliated companies, the Yokohama Cooperative Wharf Company, and the Tokyu Gravel Company, respectively. In 1959 the Tokyu Construction Company took over the construction business. Tokyu Real Estate now focused on the sale and development of real estate.
The islands of Japan have very limited real estate resources, so historically the price of land has been very high. Real estate prices dipped only twice between 1936 and the early 1990s: in 1975 after the first oil crisis, and in the late 1980s after the government took measures to harness feverish price escalation based on speculation. Land in the city of Tokyo has always been particularly expensive. Fear of earthquakes has kept the height of office and residential buildings in the Japanese capital at less than 30 stories. In the most fashionable district of the city, a single square meter cost US$450,000 in 1988. Tokyu Land operates in a market where demand is perennially higher than supply.
In 1970 Tokyu Real Estate entered into a joint venture with Levitt & Sons, the largest U.S. homebuilder. The newly formed company was 40% owned by Tokyu Real Estate and was slated to produce 30,000 modular housing units in Japan within a few years. The company’s push into prefabricated housing was supported by the development by Tokyu Corporation of new railway connections between Tokyo and the surrounding areas.
In the early 1970s, Tokyu Real Estate Co., Ltd. changed its name to Tokyu Land Corporation. Also during the early 1970s, Prime Minister Kakuei Tanaka’s plan to redistribute Japan’s industrial development away from the traditional centers of Tokyo and Osaka encouraged a wave of land speculation that raised real estate prices all over Japan. The flames were further fueled by the easy availability of credit. In addition to land speculation, the popularity of suburban housing led many to believe that residential building would represent a major growth industry in the near future. The recession of 1974 quickly put the skids on this flurry of speculation. The effect of the recession on real estate prices was devastating. Tokyo land prices went into decline for the first time since 1936. Many investors had come to view Japanese real estate as an invincible investment and were shocked when the bottom fell out of the market. Hundreds of Japanese companies, including several large ones, went bankrupt due to their real estate investments.
The crash of the real estate market took a heavy toll on Tokyu Land Corporation. The company lost money on its own holdings, and it suffered from Japanese consumers’ fear of buying property. Tokyu Land was the last of Japanese real estate’s Big Three to recover from the crunch—profits were down through fiscal 1976.
The residential market was the first to rebound. Demand for houses showed an upturn in the spring of 1976. Luxury apartments in the big cities were in great demand, a trend that continued into the 1980s. In 1977 and 1978 land prices rose steadily, and in 1979 increases reached double digits—10% nationally, and 18.5% in Tokyo.
Tokyu Land followed a policy of expanding its overseas business to 10% of its total assets. Its parent company, Tokyu Corporation, had started a major resort development in Hawaii in 1970, starting with a golf course and hotel. By 1987 Tokyu Land was offering Hawaiian condominiums for sale. In 1980 Tokyu Land established a subsidiary in Singapore and began several major commercial and residential development projects there.
In the early 1980s, the market for new housing in Japan slowed. An oversupply of houses and a widening gap between housing prices and purchasing power were the main causes. The government under Prime Minister Yasuhiro Nakasone instituted an urban-renewal program to stimulate new construction and to replace old urban dwellings with new. Local governments were encouraged to relax restrictions. This cooperation was not immediate, and the plan got a slow start.
Although the housing market was slow, the Japanese real estate industry was reaping profits from other areas. Commercial property values in Tokyo were rising, nearly doubling in 1984. In 1985 Tokyu Land instituted a five-year plan to expand its rental property holdings. Construction on four large buildings intended to provide a steady source of rental income began in 1987. By March 1990 rental property made up about 15% of Tokyu Land’s total income.
Between 1983 and 1987 Tokyo’s commercial property increased in value by 160%. The city’s importance as a commercial center insured that office vacancies were almost nonexistent. Fear that prices would get out of control as they had in the mid-1970s prompted the government to take action. Starting in August 1987, all property transactions involving more than 500 square meters in Tokyo required governmental approval. Tax breaks for speculative land deals were abolished in 1988. The Ministry of Finance also warned banks against making too many property loans.
In the late 1980s Japanese investors began to grow more interested in real estate investments overseas. Real estate in the United States could be a far more profitable investment property than in Japan. The annual yield on investment for an office building in Tokyo in 1987 was about 2%, compared to 5% to 8% in the United States. The advantages were clear, and Japanese investment in U.S. properties became newsworthy.
Tokyu Land played upon a growing Japanese penchant for American-style architecture in a unique way in 1989. The company hired a U.S. architectural firm to design Beverly Hills-style luxury houses in Tokyo’s suburbs. The houses, built on half-acre lots, ten times the usual size, offered large yards with tennis courts, swimming pools, and spacious interiors.
In the early 1990s Tokyu Land Corporation had continued to add to its rental properties, viewing them as a stable source of income. Because Tokyo is likely to remain the unrivaled commercial center of Japan, Tokyu Land expects real property in the Tokyo area to remain extremely valuable and had been expanding its sales force there. Also, massive land reclamation projects in Tokyo Bay promise new opportunities in commercial real estate by the mid-1990s.
—Thomas M. Tucker