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Kenneth Arbour, President of Century 21 SKY Realty and Tokyo Orientations, has spent over 20 years in the real estate and relocation business in Tokyo. This is the third of four articles, in which Ken covers trends in the real estate market in Tokyo and Japan.

With his feet firmly on the ground, and with more than a little humor, in this article Ken covers the relocations market and the services his company provides corporations and expatriates.

The world of relocation services

The world of employee relocation doesn’t sound, off hand, as if it would be of much interest to the average person, or at least someone not in human resources. But this particular business niche has seen some rather dramatic changes as it has evolved over the last 10 to 15 years. No longer does a new assignee to Japan, Mr Brad Smith say, suddenly arrive with his wife Angelina at his hotel, pull out the Yellow Pages and try to find a home, a school for the kids, a doctor, a language teacher and all the things that go into living here―and not only here, but in practically any reasonably sized city in the world.

Large new global organizations― Relocation Management Companies (RMCs)―have emerged to smooth and standardize all elements of employee relocation, and have entered into fierce competition for business. And, while it is true that North American companies are probably the major users of these services, it is only a matter of time before companies around the world use them as well.

The reason is simple―economics. The cost of expatriate relocation can be huge. A failed assignment is a large loss for any company in terms of money, time, and lost opportunities and so on. However, the single greatest reason for a failed expatriate assignment is the assignee’s family.

The RMCs try to reduce the possibility of unhappiness in the family by carefully managing the move from start to finish, and making sure all services provided are at the highest level. Sometimes the RMCs provide many or all of the services directly themselves. And sometimes they contract with companies like Tokyo Orientations to provide local services such as finding homes and schools, and immigration assistance, among the many services an international posting requires.

My relationship with Tokyo Orientations began more than 15 years ago and has been interesting for a number of reasons. First of all, it has been a challenge to keep up to pace with the rapid evolution of the industry. It has changed from a very local business in nature, where the local HR department made most of the decisions, to an international business where most decisions are made by the distant and sometimes mysterious ‘head office.’

The RMCs make contracts with head office HR departments to provide as uniform a service as possible―anywhere in the world―to personnel moving to locations as far flung as Hanoi, Acapulco, New York City, and even Tokyo. These services include moving household goods, language and cultural training, perhaps initial financing of the move, local assistance at the employee’s destination to help find a place for the assignee to live, a school for the kids and other various types of assistance (opening bank accounts, obtaining driver’s licenses etc.) so that the new arrival acclimatizes easily and settles in as rapidly as possible.

Sometimes though, who and how these services are provided are no longer an HR decision. A business that didn’t really exist much more than 15 years ago, even in the US, has become so standardized globally that the decisions on which companies and services to use are being made mainly on price―and often by the purchasing department.

Now if I may regress a little. 12 years ago when Tokyo Orientations founder, Ginnie McKay, came to us saying she was thinking of selling her business and retiring to spend her time skiing with her husband in Colorado, we thought this would be an interesting opportunity to combine the synergies of two companies with similar clients. Our first business, Century 21 SKY Realty, had done a thriving business with Tokyo Orientations and the relationship between the businesses looked good.

Tokyo Orientations was a small business at the time being operated by the manager who worked on a parttime basis mainly from her home, and RMCs, at least internationally, didn’t really exist. A year later, when the manager’s husband was transferred back to the US, the single piece of equipment we inherited was her telephone/fax machine.

My, how things change. In the intervening years we have not only opened a formal office, but now have 11 full-time employees and about 20 field consultants throughout the country. We have various direct corporate clients but also strong relations with several RMCs and are part of Reloc8 (www.reloc8asia.com), a network of local relocation service providers throughout Asia Pacific. More importantly, at the same time as these relationships have evolved, the services offered have become more professional and streamlined.

Even before the international assignee has stepped off the plane to search for a home, school, etc., he or she has seen housing layouts, photos, gone over school websites, and has already had lengthy discussions (and/or emails) with a local relocation professional who can normally answer any outstanding questions immediately. How can I bring my 1932 Oldsmobile Reo? How can I get Johnny on a hockey team? How can I find Johnny an English-speaking dentist after I find him a hockey team? What are my health insurance options?

The whole purpose is to ease the transition, which is pretty stressful even if you don’t have a family or young children. Ease the stress, and the family, the assignee, and the company, all have a much greater opportunity to have an enjoyable and successful time in their host country. And this success translates directly to a healthy bottom line for any company sending assignees to distant countries. That is why this business has grown and why it will continue to grow for the foreseeable future.

Ease the stress, and the family, the assignee, and the company, all have a much greater opportunity to have an enjoyable and successful time in their host country.

It all works because we are refining, almost automating, a very complicated process of moving a family from, say, Detroit to Tokyo, with the least amount of problems and fuss. Unexpected problems, when they do occur, are handled by someone who knows what they are doing. So the downtime and disruptions are kept to a minimum.

I remember reading about a surgeon who did the same 60-90 minute operation 4, 5 even 6 times a day, 5 days a week. He had been doing it for years. When he was asked by the reporter why he didn’t get bored or want to do other things, he said it was the beauty of doing his job successfully again, and again, and again.

It has been well documented that when you are having an operation it is best to have a surgeon who has done the operation many times. He or she knows what to expect and how to deal with it. This is also true when dedicated individuals are overseeing the orientation of a family to a new life in a new country. Someone who has done it many times, who knows the problems that may occur, and who knows how to deal with them quickly and correctly will experience a greater success rate. For us, it is the beauty of doing a complicated job successfully again and again.

Steps in the Relocation Process

The entire relocation process is more than a logistical problem for corporations and their staff assigned to positions in new locales. A variety of factors can combine to significantly intensify a family’s sense of dislocation and undermine the success of an assignment. Tokyo Orientations has focused on developing a diverse multicultural and multilingual consulting staff, mirroring our major client base of European and North American multinationals, to facilitate solid communication during the entire relocation process.

Tokyo Orientations’ overall process that works exceptionally well for individual and large group moves can be divided into the following stages:

Initial Consultation
Assessment of specific client needs and assignment considerations. Assignees are contacted to discuss and determine housing, schools, special needs and to coordinate a pre-move orientation program/survey trip. Survey Trip
A concise and comprehensive program for each relocation assignment. This phase is designed to acquaint the assignee with general lifestyle information, community resources, housing and school options, answers to questions and concerns related to the move. Pre-Move
Provides the assignee/family with assistance in selecting housing, schools and community resources. This phase focuses on assuring full access to the housing market and to expand on the information provided during the survey trip. After-Arrival
Focuses on making full use of the practical knowledge needed to transcend language and cultural barriers. This program includes assistance with official procedures and banking arrangements, assistance in setting up the home and ongoing support during the course of the assignment. Repatriation
Assistance for both human resources staff and assignees with logistical concerns when returning to the home country. This includes general preparation for the move covering canceling a lease, arrangements with moving companies, advice on shipment quotations, closing of accounts, mail forwarding and immigration issues. The successful orientation of an expatriate and their family must address numerous hurdles, in addition to the ones mentioned above, that may be encountered. Therefore, during all these stages, a sense of affinity is a key factor in communications with assignees and their human resources department. The assignee immediately feels at ease knowing that staff have a deep understanding of their situation and concerns. It is also vital that the agent communicates clearly and easily with Japanese human resources personnel and local vendors.

For detailed information about our services and the experienced people we are proud to have on our staff, please feel free to contact Tokyo Orientations.

Tel: 03-6821-7010

E-mail: info@tokyoorientations.com

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Kenneth Arbour, President of Century 21 SKY Realty and Tokyo Orientations, has spent over 20 years in the real estate and relocation business in Tokyo. This is the third of four articles, in which Ken covers trends in the real estate market in Tokyo and Japan.

With his feet firmly on the ground, and with more than a little humor, in this article Ken covers the relocations market and the services his company provides corporations and expatriates.

The roller coaster continues

“…from the time I separated from my partners, things started to improve significantly.”

In the first of this series I described how, at an economic low point just after my partners and I had begun our business, we suddenly―and to a large part inexplicably―had a tremendous burst of sales not only in expat residential leasing (our intended main business) but also in the sale of a phenomenally expensive (albeit small) piece of Kyobashi, plus overseas investment in Guam beachfront. In one brilliant month it looked like all our travails were behind us, and our future, as the song says, was so bright we’d have to wear shades.

This view, unfortunately, did not take into account the fact that the Japanese real estate market bubble was about to burst, and with it a good deal of the rosiness in our future. Neither did our own exuberance help. With our success we had started adding more staff, far too many in fact, and advertising a great deal. It is one of the unfortunate aspects of business in Japan that when money comes in you need to try to spend it as wisely as possible for corporate benefit― or the taxman takes half. Not only that, but if you don’t spend it and your business looks too profitable, you risk the taxman assuming there must be more you are not hiding well and coming in to audit you. Thus, within a year, things had gone very sour indeed: I wasn’t being paid again, and relations with my partners were less than warm.

Into this rode a white knight, but not to save me. This white knight was the owner of a large restaurant chain who was looking to start an overseas hotel business to give his 18-year-old son something to do (company rules forbade the son entering the same company as his dad). My partners claimed this gentleman and his war chest of some US$700 million as their contribution to our company’s future. And me? All I had was a still struggling expat-oriented leasing business, which still required the injection of cash every now and then to make ends meet. Cash my partners were increasingly loathe to commit. But the fact of the matter was that I owned 40% of the company and it is difficult to kick out a partner who has a major share of a business.

Regardless of how poorly my sector was performing, the ownership of the business remained. My partners saw this as unfair and told me so. Their solution was for me now to voluntarily relinquish my share of the company to a level more akin to the anticipated value of my sector versus theirs. Needless to say this became a rather contentious issue. A war, in fact. But who wants an antagonistic partner who owns 40% when there are zillions on the table. Certainly not my partners. So we came to a deal brokered to a certain extent, strangely enough, by my wife. They would take Mr Deep Pockets and the overseas hotel chain, and I would take the expat rental business, which meant virtually everything else: that is the crummy little office, the old run down company cars, the company name, and the phone number. Boy, did I drive a hard bargain, eh? Ah, but perhaps you remember that beanstalk fairy tale?

Okay, comparing what happened next to a fairy tale is a bit of an overstatement. But nevertheless from the time I separated from my partners, things started to improve significantly. Our expat leasing business just kind of went up and up. First, however, I need to explain something. Since my partners wanted to retain control of the original company, I started a separate company― Arbour Realty. Imaginative, yes? I knew this would be temporary, so I didn’t really care about the name. Then, after spending half a year getting my realestate license and a new Century 21 franchise agreement organized, in the space of a week we had changed Arbour Realty back to Sky Realty, just after my former partners had gone from Sky Realty to something else. As a result, the company name, phone number, address, main personnel, crummy office, and cars all remained the same. To my clients nothing had changed, although the company was completely different, owned by me and my wife Noriko. And to our surprise, we proved almost as good at running a company as we did at making children. During this time, even in those few moments when my wife wasn’t pregnant, sales rose fairly consistently.

There are other, non-conjugal, reasons for this. The Century 21 name was definitely an important part. Also critical, in my view, was the fact that we were a pretty tight little sales organization concentrating on one thing―the expatriate leasing business. Certainly we dabbled in a few other things, but at this second beginning, or rebirth as it were, our focus was on leasing. And lease we did. The first year with just Noriko and I in command, our sales doubled. How neat was that! We could now pay people decently, and we gave everybody a raise. I believe, even if I do say so myself, that I have the reputation for treating my employees the best in this expat rental business in Tokyo. A fact that helps me get along tremendously well with my two Commie brothers in Canada, who because I run a business are always on guard for any anti-labour drift in my weltanshaung. In the second year, as well, the growth continued, our sales going up another 40%! This meant our sales more than tripled in two years! Okay, we weren’t Microsoft, but as far as I was concerned there was not a great deal to complain about. It was increasingly clear to me that all those Our Fathers and Hail Marys I had said as a kid, not to mention playing guitar at mass, were finally beginning to pay dividends.

Real estate tips for commercial investments
“There are several critical steps to ensuring that you are satisfied with arrangements for an office lease.”

In our first set of tips we focused on personal real-estate investments, and the considerations for searching for and purchasing a home in metropolitan Tokyo. This time I’d like to look at the considerations for office leasing, asset management and commercial investments.

Office leasing
There are several critical steps to ensure that you are satisfied with the arrangements for an office lease, whether you secure the lease directly or through an agent. They are: the property search; financial analysis; lease negotiation; lease language and documentation; and market research. These are fundamental steps that should always be thoroughly explored―casually dealing with just one area can have highly adverse effects down the road. In addition, you can judge the skill and mind-set of the real estate agent you are working with by how well they conduct financial analysis, and discuss with you factors that might impact on the management of your business.

The following items should also be introduced during negotiations: rentfree periods, reduced security deposits, landlord-funded building upgrades, rights to option space, rights of first refusal and timely return of excess space. Not every item here can be secured in every situation, but knowing the state of the market, and the particular background of an owner/landlord can provide leverage to securing favorable terms.

At the same time, you should consider service providers and the handling of competitive bids for interior design services, office furniture suppliers, information technology assessment and installation services. Starting to think of these services after you’ve signed the lease is often too late, and quite difficult to arrange at the last minute.

Asset and property management
If you are planning on becoming the owner of a residential or commercial property, the first key to profitability is maintaining occupancy levels above the market averages.

As a part of the management process, you should consider the following areas of activity. How well you juggle them will contribute significantly to your long-term success.

Portfolio Review: Strategic analysis and investment planning to diversify or consolidate assets as necessary.

Marketing: Tenant and agent relations, lease negotiations, lease documentation, market surveys and pricing strategy.

Operations: Maintenance and repairs, restoration supervision, capital expenditures programming, and vendor, personnel and sub-contractor relations.

Accounting: Invoicing and rent collection, payments, reporting and budgeting.

Investment transactions
In many cases the planning for investment transactions can be applied to activities for asset and portfolio management. To maximize the value of real estate assets, you or your agents should be prepared to cover a variety of complex transactions and related business options.

By going the extra mile in the following areas, you can ensure that everything is in place to generate a decent return on investment: portfolio analysis, strategy formulation, transaction procedure guidance, property search and selection, title search, financial analysis, negotiations, public and private invitation bidding and marketing.

The methodological handling of the steps in each of these areas will eliminate a large amount of the guesswork involved in a transaction. If you are pursuing any of these areas of activity feel free to contact any of our licensed brokers and commercial sales managers to arrange a consultation.

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With more than 20 years in the real estate and relocation business, Kenneth Arbour, President of Century 21 SKY Realty, is providing a 4-part series of articles covering interesting trends in the marketplace

These articles are drawn directly from Mr. Arbour’s extensive experience in residential and commercial sales and leasing, and presented from a ground-level perspective.

Tackling the Real Estate Market in Tokyo

Riding the Wave in the ’80s
It’s been a roller coaster, a ride that not only reflects the dramatic changes in real estate values in Tokyo itself, but also the often topsy-turvy nature of perhaps any business. When I first started with Century 21, land values in Tokyo were rising at an incredible clip － 100%, 200% maybe more － every YEAR! It really could not last, but who ever believed it would? After all this was 1987, and in the four decades since the war land prices had never fallen. Why shouldn’t the Imperial Palace be worth more than the State of California? The Nikkei was hitting 37,000! This was the Japan that could say no!

And actually Japan as a country did say no. It was typically a bunch of bureaucrats, who, with less than what should have been the expected amount of fanfare given what was to take place, brought in the National Land Law. The what? Yes exactly. Who knew what the heck it was? But one of the requirements of this new law was that every property transaction over 100 square meters － not very big － would require the approval of a government employee empowered to reject any deal he saw as inflationary. So picture this: you are a real estate agent, you have two people ready to make a deal. They have agreed on the price, the removal of tenants or old buildings, renovations, setbacks, the buyer has secured financing, everything is in place except for one small factor, the approval of the planning guy over at the ward office who takes one look at the price and tells everyone to go home and renegotiate － to something lower. What the %#&*$!

And that was it. The bloom was off the rose. Once it was clear that properties being sold at less than a 1% annual rate of return would never be viable since there would be no capital gain, the whole thing collapsed. The dive in the Nikkei was more obvious, but that had a lot to do with the fact that a large number of share transactions occur every day and the prices were right there in the newspaper. And, don’t forget, the high value of many Japanese companies rested largely on their vast real estate holdings. Even if they were not sold, these assets were declining rapidly in value, as was the companies’ ability to borrow ever larger amounts of money against them to finance overseas expansion, capital investment, or new factories. With those reduced assets, the companies became less creditworthy, their borrowing costs rose, many had trouble, and some didn’t survive.

We had a client then who saw the National Land Law coming, starting the next October, and thought it would be very clever to buy the most expensive properties of less than 100 square meters they could find. They figured since these small properties would escape bureaucratic review they would continue rising in price forever. This was like thinking that the market for the Hope Diamond would collapse, but all the little stones would just keep rising in price. I know this sounds ludicrous now, but in 1988 we had only been in business a year. The National Land Law was just another proposed government measure that might or might not have happened, or might have been fatally watered down. Or it might have been like the end of government guarantees on bank deposits, which keep getting pushed back until they will no longer have any impact. So this potential buyer came to us － introduced through a large trading house － and they were searching for the best, the purest, the most beautiful small diamond. And we found it for them in Kyobashi: just 28 tsubos (3.3 square meters or 36.7 square feet). At the now unbelievable price of JPY190million per tsubo, we had a deal.

To put this into perspective, I remember waking up in the middle of the night in June of that year with a dark feeling that we weren’t going to make it with this real estate company I had helped establish with a couple of Japanese guys whose names began with “S” and “Y”―my “K” gave us Century 21 “SKY” Realty. Money was going out, but not much was coming in. Things looked bleak. It had been a year. Virtually all our initial capital was gone. I, among others, wasn’t being paid.

Then came July! For the first time we made JPY10million in commission income － from our leasing business, even though we had entered real estate in the first place to go after the luxury expat rental market. This was a huge amount of money for us. But not only that, we flew down to Guam and started to help assemble the beachfront property for what would become the Onward Hotel on Agana Bay. And last but certainly not least, there was Kyobashi. It is hard to describe our feelings at this time…no, it’s not. We were jubilant.

Real Estate Tips for Personal and Commercial Investments
Obviously the market has changed significantly since then, but surviving those early days has given our sales staff tremendous insight into what is necessary to survive, and adequately serve our customers, in a very competitive market.

So we now feel qualified in talking with expats looking for rental housing, potential home-buyers, businesses and investors seriously looking for properties.

With people looking into purchasing a home in Tokyo, we suggest that they stay in central Tokyo (the Shibuya, Hiro, Roppongi and Akasaka neighborhoods), with a focus on reasonably new properties when possible.

With property values going up in the central area, of course money will go further in the areas outside the JR Yamanote Line train loop. All that said, if a home-buyer only has JPY20 million, JPY30 million or even JPY80 million, they have to face the reality of not being able to afford anything big in Tokyo. Then there are the particulars of personal real estate in Japan including getting nailed with registration taxes, inheritance taxes, etc. Next, potential purchases should determine whether they are buying a property for living or as an investment. Quite a few members of the international community buy properties they intend to live in, rather than with an eye on leasing them out. It’s good to keep in mind though that you don’t have to stay in Japan once you’ve purchased a property. You can buy it as an investment and then leave the country.

Starting the Search
It is almost always a better bet to start with a real estate agent rather than trying to browse on the internet. While an online search might give you a general idea of availability and prices, the devil is in the details, especially when sinking US$1million to US$2million into a property.

As one example of what home seekers are going to encounter, it is highly unlikely they will find a Western-style house he or she wants to live in. Japanese contractors, in general, don’t build these homes for foreigners － they are built for Japanese tastes. In these cases, expect the ceilings to be too low, the rooms too small, and there will probably be only one bathroom.

Financing a Personal Loan
One thing that should be understood is that anyone is eligible to buy real estate in Japan. If you don’t need to get financing from a bank, for the most part there will be no problem. The main problems which people have often heard of involves securing loans from banks. However, that situation has changed tremendously in the past few years with banks loosening their requirements for foreign residents seeking credit. In general, I would say it is essential that you have either permanent residency or a long-term visa when applying for a loan. If a person doesn’t have permanent residency, banks probably won’t be interested in dealing with you, although some banks will talk with you if you are not a permanent resident. It should be expected that all the banking transactions and documentation will be in Japanese.

Other factors include how much the property’s owner and the banks want to sell. In the bubble era, there was a significant amount of property that just sat there for 5 or 6 years. If an owner really wants to sell it, then they’ll be more cooperative in helping you secure loans. That makes life quite a bit easier.

Once financing is secured and you know what you want, there shouldn’t be any problems. After that, everything related to the transaction can be completed in as short as a month.

The next article in this series will cover more details on the end of the real estate bubble in Tokyo.

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