When capital from outside Japan looks at a hotel here, the questions arrive in a different order from a domestic buyer’s. Price and yield come later. What comes first is a narrower question: how does this transaction actually complete?
It is a reasonable place to start. In Japan the answer is rarely visible in the offering material, and the six items below tend to decide both the timetable and the final number. We set them out in the order in which they usually have to be settled.
1. What exactly you are acquiring
A Japanese hotel can change hands in several forms, and the choice changes the documentation, the tax treatment and the advisers required around the table.
- Direct real estate (freehold) — you take the land and building themselves.
- Trust beneficiary interest (TBI) — the asset sits in a trust and you acquire the beneficial interest in it.
- SPC or TK interests — you acquire an interest in the vehicle holding the asset.
- Share transfer — you acquire the company that owns the hotel.
Sellers frequently decide early that they will sell the building and stop there. In practice the structure is worth reopening, because for some buyers a different form is the only one that completes. Keeping the options alive at the outset widens the pool on both sides of the table.
One point on our own position. Golder Inc. is a licensed real estate broker in Japan and is not registered as a financial instruments business operator. Under the Financial Instruments and Exchange Act a real estate trust beneficiary interest is a deemed security, and broking, agency or intermediation of its sale requires registration as a Type II Financial Instruments Business Operator. On TBI transactions we therefore act as an adviser on the underlying real estate and operating business, and where broking of the interest itself is required we introduce a registered operator and confine our own role to research and analysis.
2. Whether the licence travels with the asset
Operating a hotel in Japan requires a licence under the Hotel Business Act. The assumption we most often have to correct is that the licence comes attached to the building. It does not. It is granted to the operator.
The structure therefore decides the answer. Acquire the company and the operator has not changed, so the licence continues. Acquire the real estate and install a different entity as operator, and a fresh application is required. The same logic applies to a property running under the Private Lodging Business Act. This one distinction can move a closing date by months, which makes it a question to resolve before the price is agreed rather than after.
3. Whether the building complies
Three records carry most of the risk: the certificate of completion inspection, the history of any extension or alteration measured against what was actually approved, and the current fire-safety position. Older hotels in Japan quite often carry an open item in at least one of them.
Buyers from outside Japan price that possibility cautiously, and reasonably so, because remediation lands on the owner after completion. Where a seller has already assembled and disclosed the position, the caution has much less to work on — which is worth more at the negotiating table than most sellers expect.
4. Who is going to run it
Until the operating arrangement is settled, a buyer cannot fix the revenue assumptions. Without those there is no price.
Three questions decide it: whether the incumbent operator’s contract can be assigned, whether its fee structure is defensible at today’s market, and, if it cannot or should not be assigned, whether a replacement operator can be secured on terms that hold. For a first acquisition in Japan this is usually the binding constraint — not the capital and not the asset. Where a seller can genuinely offer the hotel either with operations in place or with vacant possession, the conversation moves considerably faster.
5. Whether there is an exit
The entry price attracts less scrutiny than the way out. Who buys this asset in five years? Does it meet J-REIT acquisition criteria? For certain sizes, locations and asset types the honest answer is that the exit is thin, and that alone stops acquisitions that would otherwise price well.
Seen from the other side, it is also the most useful thing an owner can learn about their own hotel: which pool of capital it actually belongs to.
6. Who is involved, and how long it takes
Japanese transactions involve more parties than most jurisdictions, and from outside the sequence is hard to read. A licensed broker, a judicial scrivener for the registration, a tax accountant, an appraiser and counsel each enter at a different point. Setting out that map at the start removes most of the uncertainty about timing.
Costs follow the same pattern: brokerage fees, registration and licence tax, real property acquisition tax, stamp duty, consumption tax and, for non-resident sellers, withholding. The amounts turn on your own position and belong with your tax adviser. Our part is to assemble the material that adviser needs, and to put the Japanese professionals around it.
Where this leaves you
None of the six is a matter of opinion. Each has a documentary answer sitting somewhere already — in the operating contract, the licence file, the building records, the accounts. What varies is whether those answers were gathered before the process began, or are discovered one at a time during negotiation, each discovery bringing it to a halt.
We spend a disproportionate share of our time on that assembly, at both ends of a transaction. It is the least interesting part of the work and the part that most often decides whether it completes.