Mori Trust buys Meguro Gajoen despite ongoing lawsuit

Meguro Gajoen

In August, it was announced that Mori Trust had acquired Meguro Gajoen from Loan Star Funds for approximately 130 billion Yen. Singapore’s GIC was previously in talks to purchase the property for 134 billion Yen but backed out due to concerns over a legal dispute brought up by the original landholders.

Meguro Gajoen is a wedding hall, hotel and office building complex located 250 meters west of Meguro Station in Tokyo. Mori Trust acquired a large majority of the land (37,000 sqm) as well as the following five buildings with a total floor area of 150,000 sqm:

  • Arco Tower (office): 19 floors + 3 basements
  • Arco Tower Annex (office): 16 floors + 1 basement
  • Arco Square (retail): 1 floor
  • Hyakudan Kaidan (banquet rooms): 6 floors
  • Villa di grazier (chapel): 3 floors

The office tenants include Amazon Japan, Porsche Japan and Walt Disney Japan.

The historic Hyakudan Kaidan, which was reassembled inside the complex in 1988, includes seven tatami banquet rooms alongside a long keyaki-wood staircase. Four of the rooms were designated by Tokyo as tangible assets in 2009. The Hyakudan Kaidan was a setting in Osamu Dazai’s ‘Kajitsu’ novel in 1944, and was also the inspiration for the bathhouse in Hayao Myazaki’s ‘Spirited Away’ movie in 2001.

Meguro Gajoen Hyakudan Kaidan
The banquet halls and staircase in Hyakudan Kaidan

Family strife, bankruptcy and sale to Lone Star

Meguro Gajoen was opened in 1931 by Rikizo Hosokawa as a restaurant specialising in Japanese and Peking cuisine. He later built Japan’s first wedding hall which contained banquet rooms, guest rooms, shrine, church and a photo studio.

After Hosokawa’s death, his family took over the management of Gajoen but infighting and excess borrowing eventually led to the management company, Gashu Enterprise, filing for bankruptcy protection in 2002 with debts of 88.3 billion Yen. The company had borrowed 85 billion Yen from banks during the bubble between 1998 and 1991 to build the new Meguro Gajoen building, but the collapse of the bubble led to a sharp drop in expected earnings.  The largest creditor, Lone Star, eventually took possession of the property and transferred the operating rights to Watabe Wedding. In 2011, Arco Tower Annex, Villa di grazier and Arco Square were built.

Lingering lawsuit

A section of the land was once the site of the Gajoen Kanko Hotel. The hotel was operated by kabuki actor and businessman Kunizo Matsuo (1899 ~ 1984) in affiliation with Matsuo’s company Nihon Dream Kanko. After Matsuo’s death, his widow and company executives fought over management rights which led to the hotel cutting ties from Nihon Dream.

The hotel was later caught up in the Itoman scandal in 1990. As a result, the hotel filed for bankruptcy in 1997 and the building was demolished. The land was returned to Meguro Gajoen – the original landholder.

In 2007, a time when the Tokyo real estate market was at the peak of a mini bubble, Lone Star decided to build a new office building on the site for the former Gajoen Kanko Hotel and put the entire complex up for sale for 180 billion Yen. However, the collapse of Lehman Brothers in 2008 caused the property market to crash and plans were put on hold. In early 2011, the Arco Tower Annex, Villa de grazier chapel and Arco Square were completed. Lone Star put the complex back on the market but failed to find a buyer.

The real estate market began to pick up in 2013 and Lone Star put the property on the market for the third time. Most bids were were for around 100 billion Yen, but GIC’s bid of 134 billion Yen earned them preferential negotiating rights. GIC backed out of the deal after learning of a lawsuit filed by Hosokawa Holdings over a portion of land in the complex that is leased. Negotiation rights were then passed onto Mori Trust.

Information released by Mori Trust after their purchase indicated that the 37,000 sqm of land included a leasehold portion and scattered land holdings but did not elaborate further.

Mori Trust was originally founded as a subsidiary of Mori Building, but became a separate entity in 1999. The unlisted company focuses on real estate investment, hotels and development. The Mori Trust Sogo Reit invests in large-scale office buildings and hotels in prime locations. The operating revenue at the end of March was 8.7 billion Yen, with a net income of 4.5 billion Yen. Total assets were 334 billion Yen.

Source: Business Journal, September 14, 2014.

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