JAPAN Law and Practice Contributed by: Satoru Hasumoto, Takahiro Sato and Fuyuki Uchitsu, Mori Hamada
• the J-REIT structure. Of these three structures, the GK-TK and TMK struc - tures are primarily used to acquire a specific asset or portfolio identified at the outset. The TMK structure is more often preferred by non-Japanese investors. However, the J-REIT is used as a going concern vehi - cle for real estate investment, the asset portfolio for which can be continually expanded or replaced with new assets. The main features of each structure are discussed below. GK-TK Structure A GK-TK structure usually involves three types of vehi - cles: • the fund is formed as a limited liability company ( godo kaisha or GK); • the GK is to acquire and hold one or more TBIs in a real estate trust (property trust); and • the GK obtains quasi-equity investment from a TK investor under a TK agreement and takes out a loan from a third-party financial institution. • A GK is one of the ordinary corporate forms availa - ble under the Companies Law, with all equity hold - ers (members) of the GK bearing limited liability. For tax and other regulatory or practical reasons, real property is often traded under trust arrangements in Japan, ie, property is acquired in the form of a TBI rather than an outright purchase. In that case, the real property is owned by the trustee of the property trust (usually, a licensed trust bank in Japan) for the benefit of the GK as the beneficiary. A TK is one of the forms of partnership available under the Commercial Code and is formed by an agreement between the GK as operator and a TK investor. Under the law, the funds contributed by the TK investor belong to the GK as operator and all acts of the TK business are carried out in the name of the GK. TMK Structure A tokutei mokuteki kaisha (TMK) structure involves a specified-purpose company, a corporate entity spe -
cifically designed to acquire a specific asset (such as real estate) by issuing asset-backed securities under the Asset Liquidation Law. The most attractive feature of a TMK is that, by fulfill - ing certain requirements, it will be eligible for special favourable tax treatment that is not available to a KK or a GK. The imposition of various regulatory require - ments and special restrictions under the Asset Liqui - dation Law is the least attractive feature. In most cases, a TMK finances the acquisition of real estate assets (which can be actual real properties or TBIs) by issuing preferred shares and obtaining third- party debt. The TMK’s equity consists of “specified shares” and “preferred shares”. “Specified shares” are similar to ordinary voting shares of a KK. The amount of “speci - fied shares” is nominal and is not intended for the acquisition of real estate assets. “Preferred shares” comprise mostly of TMK’s equity. The third-party debt is usually obtained in the form of “specified bonds” or “specified loans”. J-REIT Structure Please see 5.3 REITs . 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity Please see 5.1 Types of Entities Available to Inves- tors to Hold Real Estate Assets . 5.3 REITs A J-REIT is a type of investment fund in corporate form under the Investment Trust and Investment Cor - poration Law, which is set up to acquire real estate assets (whether actual real properties or TBIs). Similar to a TMK, a J-REIT may be eligible for special favour - able tax treatment not available to a KK or a GK, but it is subject to various regulatory requirements and restrictions under the Investment Trust and Invest - ment Corporation Law. A J-REIT’s equity is issued in the form of investment units and the investment units of a J-REIT can be
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