Why did this apartment building in Shinagawa sell at a low price? – JAPAN PROPERTY CENTRAL K.K.

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Last month, a J-REIT announced the sale of a 120-unit multi-family building near Shinagawa for 2.9 billion Yen (approx. US$19.8 million) to an unnamed buyer with handover to take place in April 2024.

The 15-story Residia Kita-Shinagawa rental apartment building sold with a cap rate of 4.6% based on the appraised value, while most multi-family buildings in central Tokyo currently have cap rates around the 3% range.

The seller has owned the building for the past 16 years, paying 2.72 billon Yen for it in 2007. 106 of the 120 apartments are designed for single-occupants, and the remaining 14 are compact-type units. Annual running costs were appraised at 19 million Yen, or around 157,000 Yen per apartment. The average apartment rent is appraised at around 14,245 Yen/tsubo per month. It was fully leased at the time of sale.

Why the low price and high yield?

The majority of the land falls within a planned relocation of the nearby Keihin Kyuko Main Line train tracks which means the building will soon need to be demolished and part of the land sold to the Tokyo metropolitan government. This project is taking place between 2020 and 2034. The news release of the building sale did not go into specifics regarding any discussions with the local government concerning the future sale of the land.

Sources:
Advance Residence Investment Corporation News Release, November 29, 2023.
Shinagawa City News Release, October 18, 2021.

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