■Real Gate ＜5532＞ Business Overview

5. Business process: In-house production all at once from planning/design to operation (ML/PM)

At the company, a project is formed for each property, and members such as planning and sales (home builders), first-class architects, first-class construction managers, designers, sales office workers, etc. cooperate to work under the project leader. In the project, planning/design, design/construction, leasing, and operation are carried out all at once. In particular, the company recognizes the importance of “operation” operations. Since analyzing the opinions of tenants, such as reasons for moving in and out and details of complaints, etc., is a good source of planning, it also contributes to early leasing up and the realization of high unit prices. Elite employees (88 people) are gathered, and they include first-class architects (5), first-class construction managers (6), and residential land and building traders (47 people). A base increase was implemented for the 2024/9 fiscal year to secure and retain excellent human resources.

6. Profit structure: Recovering upfront investments and costs by improving leasing utilization rates

In the “ML contract,” which is the main business model, rent payments to the building owner occur from the beginning of the contract, but since it takes time for the tenant company to be decided, vacancies occur and losses occur. In the typical example (a built building with a total floor area of 400 tsubo in Shibuya-ku, similar below), break-even sales are reached in 6 months and leased up in 8 months. After leasing up, a monthly gross margin of 2.5 million yen (25% of the end rent) can be obtained. The initial loss (6 months) is thought to be an upfront investment, and after a monthly surplus, investments are recovered, and profits are earned over 10 to 15 years. Regarding “ownership,” the upfront investment has become even larger, and property acquisition costs (taxes, brokerage fees, etc.) are 30 million yen even if the property price is excluded. Also, construction and equipment costs related to renovation will be borne by yourself. On the other hand, the monthly gross margin when leasing up is relatively large at 6.5 million yen per month (65% of end rent). “Ownership” is a highly profitable business model, but even for old buildings, the price ranges from hundreds of millions of yen to several billion yen, and since the equity ratio decreases, there is a limit to the number of buildings that can be worked on at one time. In order to maximize financial efficiency, the company sells properties owned for a certain period of time after leasing up and connects them to ML. The characteristic of “PM contracts” is that no upfront investment or costs are incurred. You can be in charge of planning, design, and construction before completion, and various support up to leasing is also income. Meanwhile, after leasing up, gross margin is relatively low at 0.8 million yen per month (8% of end rent).

7. Strengths: Achieving reasonable prices through technical, planning, and operational capabilities

The company's strengths can be summarized as “the ability to realize services at reasonable prices through technical capabilities, planning capabilities, and operation capabilities.” Regarding “technical capabilities,” it is possible to solve problems peculiar to old buildings, such as seismic reinforcement, construction of new elevators, changes in use, acquisition of inspection certificates, and improvements in durability, etc., and be reborn safely and securely. Regarding “planning power,” we have accumulated know-how in diverse common areas and sophisticated designs to create vintage properties, such as changing exterior designs, installing rooftop sky terraces, installing lounges, and introducing in-house art. Regarding “operation power,” since its establishment, PM operations and ML operations have been manufactured in-house, and direct communication with tenants has been carried out, which is the source of services with a high level of customer satisfaction. “Not making a mistake with an appropriate end price” is also an important factor in the company's strength. The company assumes an end price of around 0.03 million yen per square meter, and sets construction/operation costs and purchase unit prices by calculating backwards from that amount. By quickly and accurately estimating appropriate end prices, construction costs, depreciation and amortization costs, operating expenses, etc., purchasing decisions are also made faster. Since old buildings are advantageous in reducing construction costs, such as utilizing old parts as they are or daring to bare concrete, it is possible to provide them at an appropriate price.

(Written by FISCO Visiting Analyst Hideo Kakuta)