"We take a long-term perspective to build
assets that investors will be proud to have in their portfolio"

Built to last

Pembroke Real Estate Japan develops innovative properties and community ties

 


November 2019 Investing in Japan / Text by Toby Waters / Photos by Michael Holmes


While Japan’s manufactured goods are known worldwide for their quality and durability, the country’s real estate doesn’t share a reputation for longevity. Buildings, and especially houses, are often designed to depreciate rapidly and are then rebuilt from the ground up every couple of decades. However, Pembroke believes that Japanese tenants and investors deserve properties that can stand the test of time.

Established in 1997, Pembroke is an international real estate advisor that has developed over 430,000m2 of floor space globally and currently manages 802,000m2 across the world. The firm’s approach to the acquisition, development and management of properties is to consider the long-term prospects of its buildings, both as investments and as a part of the community.

“Unlike funds that have an exit date, we look at the long term,” explains Gordon Hatton, vice president and head of the Pembroke Japan office, which opened in 2002. “We look at what sort of asset we’re creating, what value we’re adding and what we’re contributing to improving the environment of the neighbourhood we’re entering — we build something that we will be proud to have in our portfolio for a long time.”

The firm’s Hikawa Gardens Akasaka is a good example of this type of thinking. It was the first property that Pembroke acquired in Japan and developed, an investment dating back to 2002. A 17-unit luxury residence, it primarily targeted expatriates living in Tokyo, since choices for high-end housing for foreigners were more limited at the time.

 

 

After managing the building for 15 years, Pembroke decided it was time to upgrade the property. However, it did something bold and seized on an emerging trend in Japan: the growing popularity of condominiums.

“After thorough analysis, we came to the conclusion that we would experiment with something we had never done before and sell condominiums,” he said. “We decided that we would take the chance to learn a new type of business while maximising the benefits of the market at that time.”

With renovations completed in October of last year, and all units sold by September, the condominiums are especially notable for their mix of Western and Japanese elements. For example, each unit has two Japanese-style bathrooms, providing residents the pleasure of spacious Japanese baths along with the convenience of having more than one bathroom, which upscale Western residences enjoy. Also, large ovens, which are uncommon in Japanese homes, are standard in Hikawa Gardens Akasaka’s condominiums.

The blending of cultures is also present in the cross-border nature of Pembroke’s development process. The firm worked with teams in multiple countries, including an interior design team from the UK, whose layouts were localised by a Japanese team. The final result surpassed expectations.

“It paid off,” Hatton says. “We outperformed what could typically be achieved in a renovated condominium project, by successfully repositioning the property with the premium quality that we want to deliver to the market.”

 

 

However, Pembroke’s success does not only rest on its ability to identify market trends. Its dedication to a people-first, collaborative approach during development is also key to winning over investors, tenants and the local community.

Hatton tells the story of Pembroke’s involvement with the revitalisation of the Tenso-jinja, a Shinto shrine in Roppongi that has a history dating back to the 14th century, and which was, for centuries, central to the community. During post-war reconstruction, buildings were erected all around it — hiding it to the point that even locals might not have known it was there. As part of the construction of Pembroke’s Tri-Seven Roppongi, a Grade A office building that stands next to Tenso-jinja, the firm opened up and expanded the space around the shrine, and reintroduced greenery to its surroundings.

“We felt that it could be a focus of the neighbourhood again, and that we could create a win-win development,” Hatton says. “It took time to negotiate a deal that would work for all concerned, but our focus the entire time was that we shouldn’t be trying to negotiate an advantage just for us, but creating value for the greater community.”

Pembroke’s long-term vision, combined with its consideration for community and attention to detail, has meant the firm has been able to deliver positive returns to its investors. As its activities have grown in scope and built on these successes, it is now looking to expand its business by offering real estate development services to new investors.

“Historically, we’ve had two sources of funding for our projects, and we’ve been working exclusively for those investors,” Hatton says. “But we’ve realised that we’ve gained a lot of expertise here that we can leverage. This is something that we can offer to other parties that may be considering development in Japan.”

Pembroke offers its comprehensive expertise and experience to potential investors, both domestic and international. For those overseas looking to diversify their portfolios and do development work in Japan, the firm can provide advisory services and insight into the local market. Its close ties — but deliberate lack of formal commitments — with a number of Japanese contractors, designers and financial institutions allow Pembroke’s clients to enjoy bespoke solutions and opportunities.

For domestic clients, the firm offers the chance to invest in unconventional projects, such as the Hikawa Gardens Akasaka condominium conversion, which are typically not offered by real estate advisors here in Japan.

“We’re always looking for niches,” Hatton explains. “I think a lot of the domestic developers who have the capability to carry out work here are more focused on the mainstream and what the market tells them. We run counter to that, addressing the unique needs of a global investor while also applying local perspective and expertise, rather than following the assumptions of market norms.”

As Pembroke expands the scope of its business, its long-term thinking and extensive expertise will help it to break new ground here — and bolster the reputation of Japan’s real estate sector as something that can, and should, last for generations. 

“our focus the entire
time was … [on] creating value for the community”

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