JP Toppino Interview

Jon Paul Toppino

Jon Paul Toppino

Group President, PAG and Managing Partner
PAG Real Estate

 

JP Toppino joined PAG (formerly Secured Capital) in 1998 and today serves as the Group President of PAG and Managing Partner overseeing PAG’s Real Estate Strategies.

Prior to 1998, he was responsible for Secured Capital’s U.S. debt advisory business and oversaw more than $2 billion in transactions. Under Toppino and the rest of the PAG team, the strategy has acquired interests in more than 6,900 high-quality properties and loan assets with a value of $31 billion.

Toppino holds a bachelor’s degree in economics from Florida International University. He is a member of YPO and serves on the Executive Committee of his chapter

1) Are you still keen about Osaka as you were before the COVID-19 pandemic?

 We remain a believer in the Osaka market. Vacancy rates remain quite low with few near-term new supply when compared with Tokyo, notwithstanding retail and hotels will remain weak until international travel and domestic tourism recovers. In fact, the hotel market was already in a state of oversupply before COVID-19. This market could take 2+ years to reach a recovery phase and will likely depend upon a widely available vaccine to combat COVID-19.

Other sectors we are leaning toward include data centers, high-grade distribution facilities and multi-family residences, all of which are less vulnerable to short- to medium-term disruptions. In fact, data centers are seeing increased demand due to increased needs for cloud storage. This will only increase as society pushes toward 5G.

2) Conversion to hotels has been a major strategy over the past few years. What can these hotels be converted to now?

 Initially, most conversions were from office to hotel and in some cases multi-family residence to hotel. It seems reasonable that conversion back to original use would be the easiest step. That said, conversion to senior housing (limited nursing functions) and corporate dormitories would also be logical given the common space and kitchen facilities.

3) With Fujitsu’s big work-from-home (WFH) announcement, how will offices be impacted? Is this something that will be short-lived or the start of a trend?

 We do not believe this will be short-lived. Fujitsu is a blue chip in Japan and occupies significant area in terms of office space. This will likely lead to a bit of a trend as corporations look to cut costs. Notwithstanding, we also believe there are some counterpoints to this.

Domestic companies use less than 50% of the average space per employee as a US company with most floor space somewhat overcrowded. We do not believe that current occupier space or typical floor layouts leave enough room for proper distancing. This is not just a COVID-19 issue, but a general health issue. Accordingly, we believe that this will offset some (possibly much) of the space lost to WFH.

Additionally, Japan has retained a culture for meeting in person, so we believe companies will continue to require adequate in-office conference space. My hope is that these meetings evolve into requiring essential participants only as opposed to the pre-COVID-19 ten people from each side.

Overall, WFH has proven to be useful, and in many cases, sufficient. That said, even for our company, which is very well set up for WFH from both a culture and, importantly, IT perspective, there remain inefficiencies to it.

This could result in a near-term swing to WFH for many companies followed by a more measured approach as companies weigh the lost efficiency against rent savings.