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Japan’s Landlord

For years, Minoru Mori has been transforming the Tokyo skyline. Now he has his sights set on even bigger projects.

Minoru Mori is not nearly as high profile as Donald Trump. But his impact on commercial real estate is arguably farther-reaching.

While little known in the United States, Mori is famous in Japan as a master builder. President and CEO of Mori Building, he is Japan’s largest commercial landlord, with nearly 100 projects to his credit since 1955. His reach extends to China, where his company is constructing the 101-story World Financial Center in Shanghai.

Mori, 69, who speaks modestly through a translator, has been behaving a bit like the publicity-seeking Trump lately as he conducts interviews with an entourage of public relations people and thick press kits touting his latest project in Tokyo, Roppongi Hills.

His projects are not just glistening glass boxes in the sky, but rather urban redevelopment zones designed to make Tokyo a more livable city. The $2.2 billion Roppongi Hills complex consists of 28 acres of residential and office towers surrounded by Japanese gardens, tree-lined streets, theatres, stores, a modern art museum and a hotel. A breath of fresh air in the urban jungle of Tokyo, the project has attracted Goldman Sachs as an anchor tenant, and most of the office and retail space has been rented. The apartments, costing between $2,000 and $7,000 per month, are nearly leased out too.

Why then is Mori bothering with the press? Because he has at least two or three more similar-sized projects he wants to take on in Osaka or Yokohama over the next five to 10 years. Plus, he says he is also in talks with a local partner in the U.S. about a possible development project in New York City.

The other reason is financial. With many Japanese banks facing a credit crunch, Mori is raising $1.7 billion from investors. The money is earmarked for repaying the debt to build Roppongi Hills and for investing in future developments. So far, he’s raised $814 million.

Granted, Mori Building has plenty of assets from the 100 buildings it owns in Japan. The company financed the Roppongi development with $848 million of its own capital but also borrowed $1.3 billion from Japanese banks. The debt load is a heavy one for the privately owned company, which had $1.3 billion in revenues and $26.2 million in earnings for the fiscal year ended March 2003.

Mori sat down with Chief Executive in his suite at the Four Seasons Hotel in New York. Here are highlights:

What’s your vision for Roppongi Hills?
We want to bring business together with residences, arts and culture in an attractive place to live that is convenient. This is a place where truly global players can come together and where there will be a high concentration of brains. We think it will be attractive to global businesses and will help Japan compete with other international cities. Japan has to realize that it must change and move from being an industrial to an informational society.

Could New York City benefit from something like this?
Yes, I have often studied New York, and there are good and bad things. The good things are that it is very convenient and that most things are within walking distance. But the bad thing is that there is too much traffic. The structure is not good for so many cars and the logistics are not good for the transportation of goods and services. There should be separate areas for pedestrians and cars. There’s also not much green around. It’s rather suffocating.

What’s your view of the plans for the rebuilding on the site of the former World Trade Center?
I think you can’t get away with just rebuilding the towers. This creates an opportunity to build an environment where people can live and work close to each other, and the proposals are not clear enough yet on that point. Here is an opportunity to rebuild with a grand plan for the whole area of downtown.

What is your favorite city in the world?
I think, Venice. It is a society without cars and it is a utopian situation in a way for logistics. The canals mean that it can only grow so much and because of this density it is a great city for walking around in small spaces, like New York is. That’s why I love New York.

Will your new developments in Tokyo help Japan compete for international business?
We certainly hope that this will be the trigger for more investment in Tokyo from overseas. Some investors have moved out thinking there is no future for Tokyo.

Isn’t this a bad time to invest in Tokyo?
We are very happy to say that we completed this project before Japan’s economy totally sunk. We think this kind of redevelopment could help transform Tokyo from an industrial society to a post-industrial society.

Why are you continuing to invest in Japan rather than elsewhere, given the economic climate?
We have pushed for easier regulations for urban development, and for the first time, we are beginning to see dramatic signs of change for a true model of urban regeneration.

Are you seeing signs of regulatory change?
Yes, there has been faster deregulation in special economic zones, where you are totally free from zoning regulations. You can choose a plan and build as you want. It is one thing to free up regulations, but we still need a master plan for urban regeneration to allow some projects and restrict others.

What have you learned so far in China?
I went there to preach and I came back with so many lessons. One is that it is not necessary to preserve old things. It is okay to scrap them and to do new things.

What have you learned not to do from other cities?
We’ve learned that mixed-use real estate development is good for the culture. For instance, in London, the Docklands office complex was not successful at first because to succeed, you must have office space and residences together.

Do you foresee more projects in the U.S.?
Yes, if there’s an opportunity we would even look at New York. We don’t deny that possibility because for us, New York is easier to understand than other cities in the U.S.

About Rebecca A. Fannin

Rebecca A. Fannin is the author of Startup Asia and Silicon Dragon.