Real estate rags to riches: Coyo's Mizukami: king of factory leasing - Sponsored Section

Japan, Inc., Dec, 2003 by John Dodd

YOU'VE PROBABLY NEVER HEARD of Yoichi Mizukami, the unassuming 60-year-old shacho of Coyo Corporation (8866 on the Jasdaq). Certainly if you passed him on the street, nothing would tell you that he is the pioneer of partnership investments into real estate in Japan and today runs a highly successful real estate investment and property management business, with sales of [yen] 119 billion (about $128 million). We talked to Mizukami about his beginnings and his views on the real estate investment business in Japan.

How did you get started?

In the early 60s, my father was running a steel fabrication firm, and when I turned 20 he asked me to take over. Frankly, I had little interest in running a factory and instead decided to get into steel-based construction--still an emerging idea at the time. The problem was that I didn't have much money, so I got into real estate leasing as a means of bankrolling my project.

Unfortunately, I found out that there was a law in Tokyo that prevented leasing agents from borrowing money to invest in real estate. Stymied for a while, I eventually found a real estate firm in Matsudo, Chiba that was willing to take a risk with me. Chiba's legal controls didn't include leasing restrictions.

My first property was a 200 tsubo factory. I moved to Matsudo to be near the property and to take advantage of other opportunities there. But soon after I settled in, I saw something that shocked me. Back in those days, although urban workers were starting to improve their lives, things were still really tough for farmers. In each family, the youngsters would soon have to leave for the city to find work--leaving their parents to look after the fields. Also, property taxes were suddenly increased dramatically, causing untold hardship to those farm families.

I decided at that time to work with these people, to help them recover a decent lifestyle. I approached a number of farmers and suggested that we build warehouses and small factories, which bring in a rental income. This was a very radical idea at the time, and many people were suspicious of my motives. Why would I, at my own expense, build on their property and then share the rent with them? It seems obvious now, but back then many people told me that the business was bound to fail.

Finally, several families took up my offer and the projects were quite successful. Over the succeeding years, through to the early 70s, our success spread by word-of-mouth and I started getting as much business as I could handle. Coyo Corporation started out of this simple beginning.

Is it fair to say that you pioneered the concept of real estate investment partnerships in Japan?

Yes. Back in the 60s and 70s, there were two main methods of investing in real estate. Large companies would form subsidiaries and buy and sell using company or group funds. Smaller speculators would use their own cash, flipping properties after a short time for a quick profit, then moving on for a bigger kill. Neither of these groups of investors contributed much to the property owners other than to drive up land prices. The corporations would basically pull land off the market and lock it up as a company asset for many years--of course, if they built apartments, et cetera, I suppose that could be seen as a public service. The speculators are just there for the money.

My concept was to put together a contracted group of investors and to have them regard the property as a long-term investment with interest being paid from rental income. So this was a form of REIT, I suppose. In addition, I wanted to make a contribution to the good of society. I set myself a rule to always make sure that the family owning the property also benefited from any development. Was I successful in this second goal? Well, I still live in harmony beside my neighbors in Matsudo, so I suppose they must still like me.

Fast-forwarding to 2003, what does the company look like now?

I've tried to stay true to my roots, and the bulk of our business is warehouse leasing. However, now we also lease and sublease commercial real estate, private housing and condominiums. My overall vision is definitely the same: guaranteeing a rental income for property owners.

But this has to be a tough market. Don't most companies these days own their own properties?

Yes, they do--and particularly in the last 20 years, it has been hard to find arbitrage opportunities in leasing. However, interestingly, we're coming frill circle. The new accounting rules being introduced for corporations, to take effect in 2006, mean that many companies are looking to divest themselves of their real estate and lease it back--which will boost the real estate refinancing and securitization market. This is an area that we're moving into aggressively.

Also, our preferred area of business is distressed real estate. While this is riskier to deal with, thanks to over 40 years of experience, my team is able to take a building with a lot of debt, refinance it, then restore the building, then market it again. There are not many investment firms that can complete the full cycle at a reasonable cost--but with all our internal resources, we're one of them. Of course, risk equals reward, and in this category we're improving all the time.