Joi Ito's Web

Joi Ito's conversation with the living web.

Mizuka and I went to the new Marunouchi Building built by Mitsubishi Jisho and had lunch with her parents. It was VERY flashy and expensive looking and jam packed with tourist types. Some restaurants are booked through the end of the year, which is rare in Japan. It is also probably one of the most expensive office buildings right now. On the first floor was a weird "XBOX Cafe" where people could play games and there were some huge screens running game demos. I guess if you have $40bb, you can afford to have a game cafe in the most expensive real estate in Tokyo. Also, everything was VERY high tech - steel, glass, concrete. It really reminded me of the Dogs and Demons book. All of the people lining up in front of the elevators watching impressive ads ABOUT nature on the HDTV displays...

The other amazing thing is that such a tall building was allowed to be built overlooking the Palace. In Japan, you are not supposed to "look down on" the Palace. I heard someone mumble, "Only Mitsubishi could do this..."

Anyway, it is obviously the "Thing to See" right now. It will be interesting to see what happens when all of the other new buildings open next year... Like the huge Roppongi Mori Building. Next year is supposed to be a big year that may crash the office building business because there are so many sky scrapers opening... What a strange thing to be happening during an economic crisis...

The XBOX Cafe
The view of the Palace from the 36th floor restaurant we ate at


"What a strange thing to be happening during an economic crisis..."

So true, and yet so sad.

The construction companies get to keep operating during the recession building these unneeded monstrosities and delaying any real reform in their industry. I can't help but think that these kinds of unnecessary expenditures will hit the economy at some time soon. If the buildings don't fill up, then they'll have to be written off, no?

But the building is really beautiful, and, as Joi mentioned, packed with tourists - maybe they could make up the building cost if they charge admission!

Or better yet, they could install a casino or a pachinko parlour in the basement...

C'mon, look around that bldg! There are many buildings "looking down" on the imperial palace. The "looking down" debate was strong when they rebuilt the imperial hotel back in the 80s, but since then, many tall buildings were built in the area, and that's not an issue any more.

> The construction companies get to keep operating during the
> recession building these unneeded monstrosities and delaying
> any real reform in their industry.

You know, Mr. Gen, you don't seem to understand the difference between a developer and a construction company. They are totally different. Also, developers don't "get" to build them, they take risks and do their own business decisions. And no, they don't write vacant offices off. Mr. Gen's worries are all imaginary. You should thank them that they are building this; that's the few things that are keeping the Japanese economy afloat these days.

Hiroo, I guess the building are getting bigger and closer. I think that the Marunouchi Building is the tallest building so close. As far as I could tell, we had the best view of the Palace. I agree that the rules are changing. We were looking down at the puny looking Palace Hotel which Mizuka's father said he remembered people saying was tall.

hiroo-san, I understand the difference between a developer and a construction company.

I also know that it's not simple enough to believe that the developers are merely taking a business risk. Developers receive subsidies from the government, loans from the failing banks, other guarantees to keep building in the recession.

I agree, this type of work does keep people employed, but it is at the expense of a prolonged recession. The demand isn't there for the office space, the subsidies should not have been given by the government, and the banks should not have lent the money to go forward.

Oh. So you seem to know something that no analyst in the field seems to know. So tell me;

1. What subsidy or guarentee does which major developer recieve in what form?

2. What's wrong about taking out loans from a failing bank?

I don't know about the subsidies to the developers, but I had dinner there again and it was PACKED. Restaurants are booked through the year. It's probably sucking business from other buildings in the area, but a lot of the people there are probably spending money that they would otherwise keep stashed again. I don't know how long it will last, but at least at a very local level, I think the building is probably increasing value.

Here is an article from Asian Business Watch about real-estate in Tokyo:

The bottom line is that this is bad news for real estate developers and construction firms, and their financiers, the banks. In FY2001, the real estate sector accounted for nearly 36% of risk-managed loans, while the sector is one of the smallest employers among Japan痴 major industries. Japanese property prices have been declining for the last 11 years, and could well continue declining until the link between bad debts and property collateral is completely severed. We would not be surprised to see the Showa Depression's 14-year record broken during the Heisei Malaise.

The Economist and BusinessWeek also covered the subject recently.

Well, this Asian Business Watch article says that this building boom is a bad business decision. Although the article's logic is a bit screwy (real estate development is inherently capital intensive, so comparison based on employee doesn't mean much), it's generall direction is just a rehash of the observation going around for a long time, and it's a general concensus among the analysts. But it doesn't support Mr. Gen's strange claims at all.

NY Times - Falling Land Prices in Japan Take a Heavy Toll on Banks

The twin declines in rents and property prices threaten to push more real estate companies out of business, leaving their bank creditors stuck with yet more nonperforming loans and yet more losses, analysts say. Land and buildings are pledged as collateral on most loans in Japan, so when the banks foreclose, they will be dumping even more real estate on a soft market, further depressing prices, which have already fallen by some 80 percent from their peak in 1988.
"What the [Japanese] government is doing is the 180-degree opposite of what logic dictates," said Akiyoshi Inoue, president of Sanyu System Research Institute, Japan's leading property appraiser. "If they want to boost property prices, they have to cut supply or raise demand, but they are doing neither."

I think this about sums it up.

Around the time when the Maru Biru opened, several analysts were predicting a crisis in the Tokyo commercial property sector; there were so many large developments reaching completion within the same year. I haven't seen the crisis unfold yet, but perhaps we will we see a bankrupcy of a developer soon - say Mori Building perhaps? I think it's possible.

Today the same analysts are predicting a residential property crisis in 2006. It seems that there are a huge number of condos due for completion in 2006 - and this will drive vacancy rates up and prices down. But even if the developers don't survive, the buildings will be there... I guess it's not just a Japanese phenomenon that the construction cycle is out of synch with the general cycle of the economy. I remember London at the time when Canary Wharf was completed. Everyone was talking about how ridiculous it was to have so much new office space which seemed doomed to sit empty for many years - but if you look at the area today, it's become a busy, vibrant area.