J
apanese companies are sitting on a potential ¥25 trillion ($165 billion) treasure trove of undervalued real estate that global hedge funds and private equity firms are eager to tap into. This hidden asset has become a key driver behind several high-profile activist campaigns and mergers in Japan this year. A recent example is Elliott Investment Management's 5.03% stake in Tokyo Gas, which boasts a ¥1.5 trillion real estate portfolio – almost equal to the utility company's market value.

    The reason for this unrealized potential lies in an accounting anomaly: when Japanese companies hold onto properties like offices, hotels, and country clubs for extended periods, they record their value at book cost minus depreciation. However, Japan's property prices have skyrocketed in recent years, particularly in urban areas. If these assets were sold today, companies could reap significant profits from the difference between book and market value.