This page contains a dictionary-style list of terms related to real estate investment in Japan.

  • Capex[Capital Expenditure]
  • Compliance[with building regulations]
  • Conversion
  • Financial Instruments and Exchange Law
  • Fixed Term Building Lease
  • Free rent
  • Life Cycle Cost
  • PML[Probable Maximum Loss]
  • Real Estate Liquidation
  • Real Estate Securitization
  • REIT[Real Estate Investment Trust]
  • Renewal Work
  • Renovation
  • Separation of ownership from control[management]
  • Sublease
  • Tenant Leasing
  • Tenant Merchandizing
  • Tenant Relationship
  • Tokutei Mokuteki kaisha[TMK]=SPC
  • Trust
  • Trust Beneficiary Right

CAPEX (Capital Expenditure)

In Japanese real estate industry, CAPEX may be used to refer to a mid and long-term repair plan, but more specifically, construction work to be accounted for as asset in the balance sheet. Tenants may cancel lease if there is a failure of equipment.

Thus, repairs of fixed assets are significant and generally intended to extend the useful life and increase the asset value. XYMAX considers appropriate planning and execution of repair work is essential to minimize a risk of property ownership and to maintain/improve the property value, irrespective of whether the fixed asset-related expenditure is expensed or capitalized.


Compliance (with building regulations)

Corporate scandals resulting from lack of ethical values have heightened the
awareness of compliance. In operating real estate business, there are various regulations we have to conform to, such as the Building Standard Act, the Fire Protection Law and the Law Concerning the Rationalization of Energy Use. Non-compliant properties will be difficult to sell and compliance issue is critical in executing an investment strategy.



A change in use of property and property value can be increased by converting use of property adapting to market needs. However, there are strict regulations governing property conversion in Japan and it is substantially difficult to do conversion.


Financial Instruments and Exchange Law

For contributing to the sound development of national economy and the protection of investors, the former Securities and Exchange Act was revised to form the new Financial Instruments and Exchange Act. In the real estate-related industry, trust beneficiary right of real estate and equity interest in a silent partnership also became subject to this regulation. New rules were set for financial instruments such as advertising regulations and delivery of document prior to conclusion of contract.


Fixed Term Building Lease

Traditional lease contracts in Japan are unique, it is designed to protect tenants from landlords and executed normally for two years which will be renewed at termination and cancellable (only from tenants) within the lease term, often with no penalties.

One of the building lease contracts newly provided for under the revised "Act on Land and Building Leases" enacted in 1992. Apart from a traditional lease contract in Japan, there will be no renewal of lease and the building lease shall be terminated by reason of the expiration of lease period. There is a special clause to eliminate the right to claim increase or decrease in rent and total rent amount can be fixed during the lease period. A strategic building management will be in place by utilizing a contract type depending on the intention of a lessor or a lessee. However, there are several procedures to take such as a prior explanation shall be given in writing before signing a lease contract.


Free rent

A tenant is exempt for the obligation to pay rent during a certain period during the lease period. Normally rent concession was granted to avoid duplicate rent payment when a tenant relocates to a new office by waiving the rent at the new office. In Japan, a free rent period will normally range from 3-6 month depending on the negotiation with tenants.


Life Cycle Cost

Significant cost including inspection/repair/replacement cost is required to maintain a building in a good state. Some reinvestment is required for upgrading the property functionality to secure stabilized net operation income, rather than just maintaining an obsolete building. Life Cycle Cost may be significantly large contrary to the initial investment. There are three ways of reducing Life Cycle Cost.

First, design the property focused on Life Cycle Cost upon construction. However, no such concept is factored into the construction stage because architects and construction firms are not seasoned in this area. Secondly, plan out daily maintenance work to trace defects and potential damages which may lead to significant cash out in the future. Life Cycle Cost may be reduced by planning and executing a steady mid-and-long term repair plan. Thirdly, to identify changing tenant needs for office requirements/functionality, plan for improving/upgrading IT requirements, etc. over long term. Investment return would be lowered without effective reinvestment. Life Cycle Cost can be reduced through optimal investment based on effective leasing and marketing.


PML (Probable Maximum Loss)

A term originally used for fire insurance in the US insurance industry. In Japanese real estate industry, it is used to analyze seismic risk (seismic PML) and defined as "In case an earthquake equivalent to a 475-year return period (the expected maximum loss with a 10% chance of occurring in the 50-year lifetime of a building) occurred that would give maximum loss on the subject facility or facilities, ratio of the physical loss amount (or 90% probability of non-exceedance) to the replacement cost" (Japan Structural Consultants Association).


Real Estate Liquidation

Real estate investment was previously centered on holding a property over a long term. In the era of high economic growth/extended reproduction, Japanese companies invested in real estate out of their high revenue, captured tax credit via holding real estate, and procured funds by loans backed by real estate. Land prices kept on rising every year, and companies continued holding properties to ensure extended reproduction, thereby the real estate market was illiquid.

However, after the burst of the bubble economy, the upside of holding properties has disappeared. With the decline in asset value/collateral value of real estate, massive loan interests started to weigh on companies. Various liquidation measures were taken to promote reduction in corporate assets. Companies started to repay debt by disposing real estate assets and the Japanese real estate market has gradually become liquid with increasing short sales/auction sales of the properties of the failed companies. This shift is called "Liquidation of real estate market".


Real Estate Securitization

With the amendment to the "Investment Trust Act" in 2000, the scope of investment asset which had been limited mainly to "securities" was expanded to cover real estate allowing investment in various types of assets. As a result, a property fund market promoting allowing entry of extensive investors including a general investor started to be formed and a real estate finance business to support a new market emerged. Property management business gathered attention to bride the finance and real estate industries and XYMAX has become a pioneer in the property management in Japan.


REIT (Real Estate Investment Trust)

With the introduction of revised Investment Trust Act (Act on Investment Trust and Investment Corporation) in Nov. 2000, the scope of investment trust was expanded from securities to cover general property rights including real estate, setting the stage for growth in J-REIT market. In the J-REIT structure, investment trust itself is just an entity and a third-party asset manager will be appointed.

"Unlisted REITs" are organized to avoid correlation to stock market.


Renewal Work

On top of considering return from investment (achieve higher income and lower running cost by improving performance), we have to flexibly accommodate changing tenant needs to maintain/improve the asset value upon renovations. XYMAX will propose the most effective renewal plan given the funding plan of a property owner based on its accumulated experience in various renewal works.



To change the function/use of an aged property and improve building quality to increase the property value.


Separation of ownership from control (management)

In corporate governance, shareholders ("Owners") and Management Team ("Control") are actually separated respectively. The responsibility of the management is to control the company representing shareholders' interests, make management decisions to improve the corporate value and earnings and reward shareholders with dividend payments. Amid a harsher corporate environment, this trend has become more prevalent in Japan, whereas there was no separation of ownership from control at a property management company in the pre-bubble era. This was the same both for a comprehensive property company and a privately owned property company.

"Management" might had been overlooked as there was much upside in holding a property. In fact, the transaction amount was defined as per the market rate (transaction records) and the cash flow generated from the property was not important. However, after the burst of the bubble economy, property ownership became less attractive given the increasingly harsher real estate investment market. Now that profitability of the property is a key metric to determine a transaction price, the investment return has become a benchmark and high-quality property management services are increasingly important.



Subleasing is renting all or part of the property to another person (an end-user or an ultimate lessee) after leasing from the property owner. A sublessor will lease the property to an end-user at a rent higher than what he pays to the owner, and the difference will be his profit. The owner will not gain such profit but can reduce property-related risks by appointing a seasoned local property management company and enjoying fixed-rate rent irrespective of the building occupancy.

XYMAX proposes various types of subleases tailored to the needs of a property owner such as
1) "fixed-rent sublease" (pay fixed rent to an owner)
2) "percentage rent sublease" (rent calculated as a percentage of a tenant's annual sales)
3) a median type of the former
1) and 2) called "partnership-type sublease" (pay fixed rent when profitability is low and percentage rent when certain level of income is secured).


Tenant Leasing

Tenant leasing is not aimed at "leasing at a high rent". Property Managers shall create an optimal sales strategy and make multiple proposals after assessing the property and the market trend. Also from an owner's perspective, we shall consider the image and credit of the property as a whole. Our strengths in leasing include close and extensive network of sales and economy of scale backed by abundant number of properties under management.


Tenant Merchandizing

After carefully evaluating the core demographics in the target market, a property manager will strategically set the image, direction and brand image of a subject commercial facility to develop an effective tenant mix plan (strategic allocation of diverse tenants of different industries and pricing strategies)


Tenant Relationship

Regular communication with tenants is essential even after signing a lease contract for effective property management. As for the tenanted area, due care shall be taken when there are changes affecting the business hours and the customer flow. It is also important to assess possible impacts that signboards, efforts to draw in customers, and smell from restaurants would have on the common area. If there is a bottleneck in customer flow due to structural defect, property managers shall gather representatives of tenants to seek a workable solution and take measures flexibly.


Tokutei Mokuteki kaisha (TMK) = SPC

A special type of company to be established for asset securitization transactions under the Asset Liquidation Law. Under the TMK structure, assets such as property are owned, securities are issued backed by such assets, profits are distributed and interests are paid. As withholding tax may be exempted in most cases based on tax treaties, TMK structure is used by institutional investors in and outside Japan.



Under the Japanese Trust Act, a trust is defined as "an arrangement where a person (settlor or grantor) transfers a property right to a reliable person (trusteeļ¼‰and the trustee administers or disposes the property (trust property) in accordance with a certain purpose (trust purpose) on behalf of another person (beneficiary)"

A settlor can define the purpose of trust freely and the trustee will sell and manage the trust property on behalf of the settlor and the beneficiary. The scope of trust property includes various assets such as monies, movables and immovables. In case of real estate, the settlor uses a trust for various purposes such as for minimizing inheritance tax, reducing holding cost, utilizing the property effectively and outsourcing management. Further, the trust property will not be forcibly executed or foreclosed in the event the originator fails and the property is legally protected against bankruptcy.


Trust Beneficiary Right

A right to enjoy the income from administration or disposition of the trust property under a trust contract.

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