JAPAN Trends and Developments Contributed by: Hiroshi Niinomi, Koki Hara, Naoto Yamamoto and Atsuo Kyoto, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
Use of special purpose vehicles In recent years, as the total development costs of large-scale redevelopment projects have increased, there has been a trend towards an increasing number of projects that not only involve the participation of professional con - tractors or developers but also use a real estate securitisation structure, such as a TK-GK struc - ture or TMK structure, in order to finance part of the project costs. There are several ways in which a special purpose vehicle can be involved in a redevelopment project, including the spe - cial purpose vehicle becoming a participant in a redevelopment association or the special pur - pose vehicle becoming an acquirer of surplus floor space after redevelopment. In this case, the difficulty is heightened because knowledge of both real estate liquida - tion schemes and redevelopment projects are required. TK-GK and TMK structures are reg - ulated by the FIEA or the Asset Securitisation Act, respectively, neither of which are directly related to development-related laws and regula - tions. For example, at the time of the approval of a business plan, the authorities may require that a special purpose vehicle submit a letter of support from a sponsor in terms of the special purpose vehicle’s credibility to be involved in the project for a long period of time. Issues in relation to increased development costs In addition to the increased scale of develop - ment projects, there are various other factors that increase development costs. The main factors are considered to be the soaring cost of construction materials due to the post-COV - ID-19 pandemic price increases and the weak - ened yen, as well as the difficulty in securing human resources.
Redevelopment Projects Urban redevelopment projects
A large number of redevelopment projects have been undertaken in metropolitan areas in line with the Urban Redevelopment Act (the “Act” ), including large-scale redevelopments in major metropolitan areas in Tokyo (Roppongi, Azabu, Shibuya, etc). The purpose of the Act is to pro - mote greater urban land use and facilitate the renewal of urban functions. The Act has the unique features of: • enabling the participation of developers who are development professionals; and • covering project costs by selling the rights in surplus portions obtained from the redevelop - ment or allocating these rights to developers who do not have rights to the property before redevelopment. Without the Act, it would be difficult to pro - ceed with redevelopment projects due to the challenge of getting the interests of various rights-holders for small-scale land and build - ings in project areas aligned while also covering project costs. Although individuals, redevelop - ment associations and local governments can be entities who carry out urban redevelopment projects, redevelopment associations are used in many cases, and the procedures generally involve: • an urban planning decision; • preparation and approval of a project plan; and • rights conversion, which is the main proce - dure for redevelopment projects and involves converting existing rights in existing real property into rights in newly redeveloped real property.
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