[BCM 001] Letter 66: Until Daily Life Becomes Information Gathering (Part 3) — The Original Experience of Real Estate Investigation
This is 001 from the Credit Management Secretariat (BCM).
In the previous letter (Letter 65), I talked about the provisional attachment of a company president's private residence. I went to see the home in Setagaya in advance, estimated the value of the land and building, and checked the status of the revolving mortgage before taking action.
That experience was not something I suddenly acquired.
The habit of looking at real estate with the 'eyes of credit management' was something I gradually acquired within a few years of joining the company. This time, I will talk about that original experience.
Main Point 1: The 'Gap' Between the Registry and the Site
In credit management practice, there are situations where you must evaluate the collateral capacity of a business partner.
In the case of unlisted companies, the company's land, buildings, factories, and the president's private residence are often used as collateral for loans from financial institutions. If you obtain the registry, you can see the set amount of the revolving mortgage. However, collateral evaluation is more than just that.
The fact that 'a revolving mortgage of 100 million yen is set' is clear. The problem is how much value that land and building actually hold. And, what is the difference between the set amount of the revolving mortgage and the actual collateral value? The presence or absence of this 'surplus' is a guideline for whether the business partner still has the capacity to borrow from financial institutions.
The numbers written in the registry do not necessarily match the actual value of the land. Even if the set amount of the revolving mortgage is large, if the market price of the land exceeds it, there is capacity. Conversely, even if the set amount looks small, if land prices have fallen significantly, the actual capacity is close to zero.
The work of going to grasp this 'gap' was the starting point of real estate investigation for 001.
Incidentally, recently there are cases where business viability evaluation by financial institutions and something called 'corporate value collateral rights' are being discussed. This is a direction toward moving away from collateralism. However, looking at the movements of the Financial Services Agency and financial institutions so far, 001 believes it will be a little longer before it seriously affects actual practice.
Main Point 2: Jumping into a Real Estate Agency
When investigating the area where a business partner's factory or the president's home is located, 001 would jump into a local real estate agency.
Road land prices and official land prices can be found by checking the National Land Price Map or the Registry Information Provision Service. However, there is a discrepancy between these figures and the actual transaction price (market price). Official land prices are often set at about 70% of the market price, and road land prices are often set at about 80% of the market price. The width of that discrepancy changes further depending on the area and the type of property. In popular areas of the city, the market price may significantly exceed the official land price, while in depopulated rural areas, it may fall below the official land price.
'How much per tsubo is land moving for around here?'
I would enter a real estate agency and ask as if it were small talk. Since the other party is a professional, they may be wary at first. However, if you continue the conversation a little, local information will come out. Recent transaction examples, inquiry trends, development plans, and the situation of surrounding landowners. Information not listed in the books emerges from the conversation.
This steady work creates a 'rough estimate' of collateral value. It is not a precise appraisal. What is needed in credit management practice is a rough judgment of 'how much the actual value of the land exceeds (or falls below) the 50 million yen revolving mortgage.'
I grasp the discrepancy between the road land price and the market price, multiply it by the area in the registry, and estimate the collateral capacity. It does not have to be precise. If you know the direction, it can be used for screening judgments.
Main Point 3: When I Saw a Condominium with No Collateral Set
I have had unexpected discoveries while investigating real estate registrations.
It was the home of a company president who was a business partner. Since I could barely obtain any financial information or performance data on them, I investigated the president's home to gather more material for my assessment.
It was a condominium in a prime location in Tokyo.
And, there were no revolving mortgages or mortgages set on it at all. No collateral set.
The financial institution had not taken any collateral. In other words, that real estate remained entirely as the president's personal asset. When I checked the actual market prices in the surrounding area, the value of that condominium was substantial.
With scarce financial information, this fact held great significance. The fact that the president personally held such assets meant that even if the company were to face a difficult situation, there was a high possibility that personal guarantees would be effective. At the very least, it provided a stronger basis for credit judgment than a business owner whose asset background was completely invisible.
There are also cases to the contrary. When I checked the registry, there were business owners who had multiple revolving mortgages densely set on their homes, leaving almost zero equity. Even if things looked fine on the financial statements, the fact that all personal assets were pledged as collateral was a reflection of the reality that they had borrowed that much from financial institutions.
Things that cannot be understood by looking only at numbers become visible through a single registry document. And, to read the meaning of that registry accurately, a sense of actual market prices is necessary. That is why it was necessary to go and see the site.
Main Argument (4): I went to see it at my own expense
When 001 first joined the company, company rules allowed for real estate investigations to be conducted for cases deemed necessary. The same applied to on-site inspections. Investigating the factories of business partners and the homes of presidents, and confirming the sites, was recognized as a standard practice in credit management.
However, after the IT bubble burst, the situation changed.
The trend of cost-cutting and personnel reduction progressed rapidly. Real estate investigation was no exception. The effort of the investigation itself, the high cost of management software, and such burdens became targets for review, and the direction shifted toward omitting on-site real estate inspections.
I think it was an unavoidable decision. In a phase where the entire company was tightening costs, it is not realistic to maintain labor-intensive and costly on-site inspections for all cases.
However, 001 did not stop going to see the sites.
I went at my own expense.
Even when it was no longer recognized as part of my duties, I continued to ride my bicycle on weekends to check the surroundings of business partners or travel to the vicinity of properties I was curious about. Even though company rules changed, the feeling of 'wanting to verify' within me did not change.
I don't know if that was good or not. However, the 'sense of the land' and 'price sensitivity' I acquired by seeing the sites continued to live on in my credit judgments even after the rules changed.
Real estate investigation is not an obligation, but a habit. Regardless of whether the company pays for it or not, the scenery you see changes depending on whether you have the attitude of verifying things with your own eyes.
To be honest, when I was first taught the work of real estate investigation upon joining the company, I was fed up with it.
The level of detail and the amount of effort required for the investigations were extraordinary. While my seniors were proceeding with the screening of business partners, 001 would spend almost the entire day just on real estate investigations and entering data into the financial analysis system for balance sheets. This repetition continued for almost a year.
But now, I think otherwise.
By experiencing this foundational work for a year, I developed an eye that could instantly recognize the meaning behind real estate information, as well as input errors or discrepancies in figures. A strangely large amount set for a revolving mortgage, calculations for collateral capacity that don't add up, an appraisal value for a piece of land that seems off—these instincts come from the accumulation of time spent diligently working with my own hands.
The foundational work I once thought was boring ended up being effective later on. This is often the case in credit management work.
001 feels that young people today have a tendency to avoid things they don't want to do or things that seem useless at first glance. I understand that feeling. However, I think it is actually a waste.
When 001 first started working, we were encouraged to just try doing even the jobs we disliked. The reason is simple. The judgments we make about what we are 'suited for' or 'not suited for,' or what is 'necessary' or 'unnecessary,' based on a mind fresh out of school, are not at a very high level. A person is not always able to correctly judge what suits them and what does not.
001 himself thought he was bad at jobs involving numbers when he was job hunting. Now, he is in a place completely opposite to what he thought back then.
To break out of your shell, it is sometimes necessary to experience things that go against your own wishes. The foundational work of real estate investigation was that kind of experience for 001.
Conclusion
Obtain the registry. Check the land price. Walk the site. Enter a real estate office.
None of these are special things. However, this accumulation fostered the 'ability to estimate' collateral value.
And before I knew it, I found myself thinking about the value of real estate every time I walked through town.
This is what it means for daily life to become information gathering.
BCM (Bureau of Credit Management) 'Explosive Speed Protocol' for completing tens of thousands of screenings single-handedly
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