Executive summary

Business overview

TSUKURUBA Inc. (hereafter, “Tsukuruba”)’s mainstay business is the brokerage of pre-owned and renovated condo units through its website- and app-based platform, cowcamo. The company focuses on properties in Tokyo’s 23 wards (particularly those in the city center) and Yokohama where demand is strong. Buyers of properties the company serves are mostly people in their 30s and 40s purchasing homes for the first time, whereas sellers are mainly reseller companies (i.e., companies specializing in renovating and reselling condos). Average property price of transactions handled by the company was JPY49.9mn in FY07/21. Tsukuruba started off as an operator of co-working spaces at the time of its inception in 2011, and launched the cowcamo business only in 2015. In FY07/21, the Cowcamo segment (cowcamo business) accounted for 76% of total revenue and 91% of gross profit; the remaining revenue and gross profit came from the Property Planning and Design segment mainly comprising the workplace business.

The cowcamo business stands out for its end-to-end service targeting homebuyers. The company provides various information to potential buyers of pre-owned condos, offers individual consultations, makes renovation proposals, introduces contractors, and takes care of the brokerage-related paperwork when customers decide on a purchase. At present, active users of the cowcamo platform total roughly 59,000; the figure represents a two-fold increase from the time the company listed at end-FY07/19. On the seller’s side, the company has handled brokerage for over 1,000 reseller companies. The market for pre-owned condos has expanded in recent years, fueled by diversifying consumer value regarding housing choices and the price hike of newly built condo units. In Tokyo’s 23 wards, pre-owned condo transactions reached JPY775.7bn in FY2020, up 2.2x from FY2010. In this environment, Tsukuruba’s approach of showcasing the appeal of pre-owned condos and proposing renovation ideas is well appreciated by relatively young households, says the company.

One of the characteristics of the cowcamo business is that it focuses on both sellers and buyers. The company analyzes buyers’ demands and pricing trends using data from its past brokerage transactions and browsing historyof cowcamo users, and takes this knowledge to offer sellers advice on appropriate selling prices and types of renovation that attract buyers. The service not only facilitates property sales for sellers but also supplies the market with more condos that satisfy buyer needs at the appropriate pricing. As a result, buyers have more options to choose from, and the pre-owned condo market becomes more active. Further, more activity in the market enables the company to accumulate more data on buyers’ behavioral history, which it can use to enhance advice to the sellers. Tsukuruba bases its business on this virtuous cycle.

Another differentiating factor is that the company combines the IT and media functions within its brokerage business of pre-owned condos. IT and media staff each account for roughly 20% of the company’s employees (salespeople make up another 40% and administrative staff total roughly 10%). The IT staff engage in development, operation, and updating of the mainstay cowcamo website and app, and also build systems for the company’s in-house operations. The media staff are charged with selecting condos to post on cowcamo and writing in-depth reports on these properties, a feature that sets the platform apart from other listing sites. The media team also operates the web-based cowcamo Magazine.

The main source of revenue in the Cowcamo segment is the brokerage commission the company earns on transactions concluded via the cowcamo platform. Commission comes to 6% of the transaction price at most, breaking down to a 3% commission (at most) earned from both the seller and the buyer. In FY07/21, total transaction volume of cowcamo—or gross merchandise value (GMV) as per company definition—reached JPY28.6bn; segment revenue was JPY1.24bn, and gross profit was JPY1.15bn. The ratio of revenue to GMV was 4.3%, and gross profit to GMV was 4.0%. The ratio of earnings to GMV declines when single-agency deals (transaction in which the company receives commissions from the buyer only) increase and when the company resorts to sending customers to outside brokers, missing some revenue opportunities in the process. Additionally, revenue and profit in the Cowcamo segment is also affected by resale transactions in which the company sources and sells properties as the principal.

Because of the nature of the cowcamo business—namely the online brokerage of pre-owned condo units, gross profit margin (GPM) tends to be high. In FY07/21, GPM in the Cowcamo segment was 92.9% and overall GPM was 77.8%. Personnel expenses make up a large portion of company’s expenses, particularly in the Cowcamo segment. According to the breakdown of expenses the company disclosed in FY07/20, of the JPY1.9bn in total expenses (versus revenue of JPY1.7bn), personnel expenses accounted for 40%, cost of property resale transactions 14%, rent 9%, outsourcing expenses 9%, advertising expenses 7%, and other expenses 21%. In FY07/21, Tsukuruba posted revenue of JPY1.6bn, a threefold increase over the past four years, but the bottom line came in at a net loss of JPY359mn. According to the company, it is still at a stage of prioritizing investment to lay the groundwork for cowcamo’s growth rather than pursuing immediate profits.

The Property Planning and Design segment centers on the workplace business, in which the company operates co-working spaces (co-ba) and rental offices (HEYSHA). In FY07/21, revenue from co-ba and HEYSHA accounted for roughly 60–70% of the segment revenue of JPY384mn. For both co-ba and HEYSHA formats, the company leases office space from property owners on a 4–10 year fixed-term lease agreement, remodels and furnishes the space based on its own design, and rents units out to customers such as startups and sole proprietors. Customers of co-ba either pay by the month or per drop-in, whereas those of HEYSHA secure their office space based on a rental contract of one year or longer. Unlike standard office lease contracts that require commitment of at least two years, rental periods are short term. Customers also benefit from relatively low initial and running costs. According to the breakdown of expenses disclosed in FY07/20, 54% of total expenses in the Property Planning and Design segment was rent for space used by co-ba and HEYSHA facilities.

In 2013, Tsukuruba began rolling out co-ba franchises. There are currently two directly managed co-ba facilities, both in the Shibuya area (Jinnan and Ebisu), and 19 franchises spanning Tokyo and regional cities in Japan. The company operates two HEYSHA facilities in Shibuya (Jinnan and Kitasando). Aside from the workplace business, Tsukuruba offers office design consulting and project management services, and also makes proposals on effective space utilization in this segment. Customers are mainly companies reevaluating the use of office space at junctures such as corporate reorganization, office moves, and new office launches. Revenue per project depends on the nature of the project and relations with the customer, among other factors.

The company has set forth a clear policy to focus on making cowcamo more competitive, and is actively investing in the platform. Currently, it does not intend to expand the Property Planning and Design segment.

Earnings trends

In FY07/21, revenue was JPY1.6bn (-5.5% YoY) and gross profit was JPY1.3bn (+5.9% YoY). The company logged an operating loss of JPY359mn (operating loss of JPY151mn in FY07/20) and net loss of JPY482mn (net loss of JPY432mn). Despite a 46.1% YoY rise in the transaction volume (GMV) of cowcamo, the increase in single-agency deals where the company receives brokerage commissions only from buyers and partial revenue outflow from the use of partner brokers dragged overall revenue growth. The company also actively invested in personnel and advertising to advance its plan to establish cowcamo as an online marketplace for pre-owned condos.

The company forecast for FY07/22 calls for revenue of JPY2.5bn (+50.8% YoY), gross profit of JPY1.8bn (+40.8% YoY), operating loss of JPY890mn, and net loss of JPY911mn. The forecast assumes roughly 30% increase in cowcamo’s GMV. The company also expects the ratio of its earnings to GMV to improve as its various measures for both buyers and sellers begin to show results. On the expense front, the company will continue to make active investments toward growth of the cowcamo platform. To this end, it intends to spend mainly on personnel, outsourcing, advertising, and expansion of business bases.

Strengths and weaknesses

Tsukuruba’s strengths, according to Shared Research: 1) Focus on the expanding pre-owned condo market with eyes set on specific target areas and customer base; 2) Business model with a dual focus on buyers and sellers; and 3) Effective integration of IT and media functions in the brokerage business.

Weaknesses are:1) Relatively low brand recognition; 2) Limited handling capacity that leads to missed revenue opportunities; and 3) While understandably still in the investment stage, yet to prove high prospects of turning a profit based on superiority of business model (given net losses in recent years).

Key financial data

Trends and outlook

Quarterly trends and results

1H FY07/22 results

* The company does not disclose actual figures or estimates for the resale transactions it conducts on its own (i.e., resale of pre-owned condos sourced using its own funds). As such, the earnings results and forecast shown below do not include these own resale transaction data. In addition, since the company does not disclose data on facility utilization rates and earnings in the workplace business under the Property Planning and Design segment, reference on such data is not made below as well. The same applies to the “Historical performance” section of this report.

Summary

• Revenue: JPY1.2bn (+60.3% YoY) (Progress rate versus full-year plan: 49.8%)
• Gross profit: JPY769mn (+29.6% YoY) (43.2%)
• Operating loss: JPY497mn (JPY118mn operating loss in 1H FY07/21) (Full-year plan: JPY890mn operating loss)
• Recurring loss: JPY507mn (JPY112 recurring loss in 1H FY07/21) (Full-year plan: JPY911mn recurring loss)
• Net loss: JPY506mn (JPY120mn net loss in 1H FY07/21) (Full-year plan: JPY911mn net loss) 
  

Revenue increased dramatically YoY due to an increase in gross merchandise value (GMV) of the cowcamo platform. Meanwhile, the take rate (defined as the ratio of gross profit to GMV) for the core Cowcamo segment declined YoY. Gross profit did not increase as much as revenue but grew steadily. During 1H, with a view toward future growth, the company improved product functions, conducted advertising activities with a focus on online advertising, provided training to sales staff handling property tours, and developed operating systems. In terms of sales activities, in addition to opening the cowcamo Kichijoji Showroom, the company expanded sales of fixed-price pre-packaged renovation products. In part due to expenses arising from these activities, 1H losses expanded YoY in all profit lines under operating profit.

The progress rate versus the full-year plan was 49.8% for revenue and 43.2% for gross profit. Given the seasonality of pre-owned condo sales and purchase, which tend to be active around the fiscal year end, the company said its earnings are weighted toward 2H. In terms of expenses, out of JPY2.7bn in planned SG&A expenses for the full year, the company had used JPY1.3bn (47.4%) by 1H. Based on recent changes in the macro environment and the effects of those changes on the real estate market and the company’s financial operation environment, however, in 2H, the company will re-examine costs with a focus on cutting back on fixed costs, and will shift its policies toward reducing the scope of losses through FY07/23.

Results by segment

Cowcamo segment

• Revenue: JPY1.0bn (+77.7% YoY)
• Gross profit: JPY716mn (+31.6% YoY)
• Operating loss: JPY235mn (JPY59mn operating profit in 1H FY07/21) 
  

Revenue grew substantially YoY. GMV of the cowcamo platform was JPY8.8bn (up 62.3% YoY) in Q2 alone and JPY17.2bn (up 44.8% YoY) in 1H. The take rate, defined as the ratio of gross profit to GMV, for the Cowcamo segment was 4.4% in Q2 (down 0.5pp YoY) and 4.2% in 1H (down 0.4pp YoY). In part for this reason, gross profit grew steadily but did not increase as much as revenue. The company posted an operating loss in this segment, but this was a result of its active investment in various areas aimed at future growth.

In Q2, as part of efforts to increase GMV, in terms of securing properties for sale, the company sought out new individual seller channels, developed services targeting individual sellers, and expanded the provision of in-house developed products. At the same time, in terms of securing buyers, it continued to improve products and services for buyers, and increased the number of in-house brokers to enhance the sales structure. In part as a result of these activities, there were 179 transactions on the platform in Q2 and 359 transactions in 1H, representing YoY increases of 51.7% and 44.8% respectively. Meanwhile, the average number of monthly active users at the end of Q2 was 57,000 (down 3.4% YoY), but the company indicated that it has been able to secure a certain number of new users, and it intends to focus more on converting existing users into actual transactions rather than increasing the number of registered users.

Regarding its 1H FY07/22 results, the company noted that it was able to increase the number of transactions on its platform more than it had expected. On the other hand, the company felt that the take rate did not rise as much as it had anticipated during 1H. According to the company, while inventory levels in the pre-owned condo market has come off its lowest point, it remains relatively low. In this environment, especially in the first half of the period, the company had fewer contacts with sellers who had a higher probability of yielding brokerage commissions, and the percentage of deals where the company could earn brokerage commissions from the property seller appears to have declined.

However, the take rate in Q2 came to 4.4%, up from 3.9% in Q1. The inventory environment in the market has gradually improved, and the percentage of deals in which the company can earn brokerage commissions from both buyers and sellers appears to have increased. In addition, the various measures implemented by the company contributed to the increase in take rate. Among the measures, efforts to expand sales of in-house developed products (products developed through in-house sourcing and together with partner reseller companies) as well as the increase in in-house brokered transactions contributed substantially to the increase in take rate. The number of in-house products offered in 1H rose 267% YoY. In addition, the number of in-house brokers hired by the company increased 76% YoY as of the end of Q2 FY07/22. The growth in headcount has enabled the company to handle some of the brokerage transactions in-house instead of sending customers to other companies due to capacity constraints, thereby limiting the outflow of revenues.

The company does not intend to substantially expand sales of in-house sourced properties, which not only increases GMV but also improves the take rate, as this involves higher risk compared to regular brokerage transactions and has a larger impact on the company's balance sheet.

In Q2, the company also worked to develop an individual seller channel. As a result, the number of requests for property appraisals from individual sellers increased 193% YoY, and the number of brokerage requests from individual sellers increased 163% YoY in Q2. Although it will take some time before these efforts actually lead to an increase in GMV, the initial phase of its full-scale efforts to cultivate the individual seller channel appears to be going well. In addition, immediately after the end of Q2, the company launched urucamo, a matching platform that enables individuals who intend to sell their condo to see the reactions of potential buyers through an app. Whether this will lead to an increase in GMV or an improvement in the take rate will be a key point of focus going forward.

Property Planning and Design segment

• Revenue: JPY187mn (+3.9% YoY)
• Gross profit: JPY52mn (+8.3% YoY)
• Operating profit: JPY10mn (+344.5% YoY) 
  

Revenue and profits increased YoY. The disclosure of information on this segment is very limited. In the Property Planning and Design segment, Tsukuruba mainly engages in office/spatial design on consignment, as well as the operation of the co-working space co-ba and the rental office service HEYSHA. At end-Q2, the company had two directly managed co-ba facilities (Jinnan and Ebisu, Shibuya-ku, Tokyo) and 21 franchises; it had two directly managed HEYSHA facilities (Jinnan and Kitasando, Shibuya-ku, Tokyo). There were no changes in the number of directly managed facilities and no significant changes to the operating status of these facilities.

While the business environment surrounding the segment has been negatively impacted by the pandemic in some areas, it has also seen some positive impacts from corporate work style reforms and changes in the way people work. As such, demand for flexible workspace such as co-working spaces and rental offices appears to be on an upward trend. In addition, as companies are reevaluating their office environments, it may become easier for the company to drive demand for its contract office/spatial design services. Also, the company's office design work in this segment won the LIT Lighting Design Award 2021 (in the Workplace Lighting category), among other achievements.

The company has made it clear that it will prioritize the growth of its mainstay Cowcamo business, and in this segment, it basically intends to provide support to the Cowcamo business and test business ideas with an eye on the longer term.

For details on previous quarterly and annual results, please refer to the Historical financial statements section.

Company forecast for FY07/22 and longer-term policies and initiatives

Company plan

In FY07/22, the company forecasts revenue of JPY2.5bn (+50.8% YoY), gross profit of JPY1.8bn (+40.8%YoY), operating loss of JPY890mn (operating loss of JPY359mn in FY07/21), recurring loss of JPY911mn (recurring loss of JPY358mn), and net loss of JPY911mn (net loss of JPY482mn).

The main assumption underlying the forecast is that the mainstay cowcamo business will see a 30% YoY increase in gross merchandise value (GMV) in FY07/22. The take rate, which is the ratio of gross profit to GMV, is expected to increase by about 10% YoY to about 4.4%. In order to achieve this, the company is implementing the following measures.

Key measures

For sellers

Develop individual seller channel

Strengthen digital marketing: Revise website specifications to better attract individuals looking to sell pre-owned condos

Launch new support services for sellers leveraging the company’s renovated property appraisal expertise and data: Offer Renovation Sales Package to individual sellers, in which the company undertakes the sale of properties upon bearing renovation costs and guarantees sale (i.e., the company agrees to purchase the property if it goes unsold for a certain period of time)

Expand supply of in-house developed products

Increase supply of properties sourced on its own (but only handle properties for which risk can be hedged)

Increase supply of in-house developed properties through collaboration with primarily partner reseller companies (properties developed in collaboration with reseller companies have high margins as the company can expect to receive renovation planning fees and fees for listing on its online platform, in addition to brokerage fees)

For buyers

Enhance sales force

Increase the number of in-house agents

Integrate online and offline marketing: Develop brick-and-mortar stores for buyers; expand renovation services including Pre-made Renovation (a fixed-price renovation package)

The company looks to improve the take rate, which has been declining recently due to market conditions. Specific measures include increasing the supply of highly profitable in-house developed properties and raising the ratio of in-house brokered transactions through workforce expansion to curb revenue outflows.

In addition to these measures, the company will continue to develop and improve its services and products for both sellers and buyers.

Investment plan

The company intends to increase the platform GMV and improve the take rate, while continuing to invest aggressively in its core cowcamo business for future growth.

The company plans to increase its SG&A budget by 64.5% YoY to JPY2.7bn in FY07/22. Of this amount, the company expects to invest JPY180–230mn in the cowcamo business with an eye on future growth, which it expects to recover in the next fiscal year; additional JPY370–470mn in the cowcamo business, which it expects to recover in about three years; and JPY190–220mn to strengthen the organization for sustainable growth.

However, at the end of 1H FY07/22, the company announced plans to review costs, setting its focus on curbing fixed costs in 2H in light of changes in the macro environment (tightening monetary policy in response to global inflationary trends and the escalating situation in Ukraine). While the direct impact of macroeconomic changes on the company's business is expected to be limited, the company intends to take cautious measures.

The details of the company’s growth investment plan at the beginning of FY07/22 are below.

Investment in the cowcamo business (JPY180–230mn; expected to be recovered in FY07/23): costs for business base development and personnel associated with enhanced sales force; advertising expenses for customer acquisition

Investment in the cowcamo business (JPY370–470mn; expected to be recovered in about three years): personnel and outsourcing expenses to develop services/products for buyers and business for sellers; advertising expenses

Investment to strengthen the organization for sustainable growth: JPY190–220mn: recruitment, personnel, and stock-based compensation expenses mainly for officers, business directors, and managers

Due in part to aggressive spending for future growth, the company forecasts operating loss of JPY890mn (operating loss of JPY359mn in FY07/21), recurring loss of JPY911mn (recurring loss of JPY358mn), and net loss of JPY911mn (net loss of JPY482mn).

However, at the end of 1H FY07/22, the company announced plans to narrow its losses through FY07/23 by reviewing costs, setting its focus on curbing fixed costs in 2H in light of changes in the macro environment. While the company does not intend to curb costs related to its sales staff, who are key to driving gross profit, it will review other costs such as recruitment, personnel, and outsourcing expenses, in addition to reevaluating budgets allocated to each department.

Medium-term plan

Tsukuruba has not announced a medium-term plan with numerical targets. It first intends to implement the specific measures listed above and confirm their effectiveness.

Initial forecasts versus actual results

At the time of its earnings announcement for Q3 FY07/20, the company disclosed a new full-year forecast, which called for revenue of JPY1.7bn, operating loss of JPY285mn, recurring loss of JPY290mn, and net loss of JPY372mn in FY07/20. Before then, the company did not release its earnings estimates and simply stated that “it expected to turn a profit.” The downward “revision” to losses was mainly due to the spread of COVID-19, during which time the company voluntarily suspended marketing efforts and many cowcamo users refrained from visiting properties. In FY07/21, financial results exceeded the company’s estimates for revenue and all profit lines. GMV overshot the company’s initial plan, while spending on personnel and advertising finished lower than expected.

Business

Business overview

Tsukuruba conducts brokerage of pre-owned and renovated condo units through its website- and app-based platform, cowcamo. By region, it currently targets properties in central Tokyo (within the 23 wards) and Yokohama. Tsukuruba’s business model, which combines real estate brokerage with technology and media, stands out for the use of accumulated data in the cowcamo platform to facilitate property sourcing, planning, and development. The company had its start in 2011 when it began subleasing co-working spaces and rental offices* out of a business base in Shibuya (now continued in the Property Planning and Design segment); it shifted focus to the operation of in-house developed cowcamo platform in 2015. Currently, Tsukuruba is keen to enhance the competitiveness of cowcamo as a marketplace for pre-owned condos, and aims to bring about structural innovation for a more liquid housing market.

In FY07/21, the Cowcamo segment accounted for 76% of company’s total revenue and 91% of gross profit, with remaining revenue and gross profit coming from the Property Planning and Design segment. The mainstay Cowcamo segment has seen growth in number of users of cowcamo website and app, and the total count and value of real estate transactions conducted through the platform have increased in tandem. Meanwhile, the company is still at a stage of shouldering heavy burdens of investment into cowcamo’s functionality improvements and advertising, particularly to raise brand recognition among individuals planning to sell their condos. In the co-working space and rental office business (Property Planning and Design segment), the fee income the company receives from users has continued to exceed its outlay on rent.

Primary source of revenue in the Cowcamo segment is the brokerage commission* (up to 3% of the transaction price) the company receives from buyers and sellers when transactions are executed. The company provides end-to-end services to help buyers in their journeys to purchase housing. These include provision of detailed information on pre-owned condos including qualitative data via the cowcamo platform, additional housing-related information sharing through web magazines and seminars, individual consulting, renovation proposal and contractor referral, and the real estate brokerage itself.

The company analyzes the buyers’ demands and pricing trends in the pre-owned condo market using data from its past brokerage transactions and browsing history of cowcamo users. It then applies this knowledge to provide property sellers advice regarding popular renovations that attract buyers, appropriate selling prices, and other themes. The universe of cowcamo users, who are particularly attentive to properties’ interior designs, is in itself a value the company provides to the sellers. There are roughly 1,000 properties currently listed on the cowcamo app and active users of the platform (website and app users combined) total about 59,000. To date, the company has handled properties of over 1,000 corporate resellers through cowcamo.

Meanwhile, the Property Planning and Design segment centers on the workplace business in which Tsukuruba subleases office spaces to third parties. This business accounted for 60–70% of the segment revenue in FY07/21.

The workplace business currently offers space in two formats: co-ba (co-working spaces) and HEYSHA (rental offices). Customers of co-ba either pay by the month or per drop-in, whereas those of HEYSHA secure their office space based on a rental contract of one year or longer. Customers are mainly startups, sole proprietors, and creators. The company began franchising co-ba from 2013. There are currently two directly managed co-ba facilities, both in the Shibuya area (Jinnan and Ebisu), and 19 franchises spanning Tokyo and regional cities in Japan. The company operates two HEYSHA facilities in Shibuya (Jinnan and Kitasando).

In the Property Planning and Design segment, Tsukuruba also designs offices on contract and offers various solutions in the real estate field. The revenue generated from these services vary depending on the nature of the service and the customer. According to the company, this segment functions as a place where it can pursue new business opportunities in the real estate field and explore collaboration with other companies in these new endeavors.

Business model

Cowcamo segment (76% of total revenue and 91% of gross profit in FY07/21)

Brokerage service specializing in pre-owned and renovated condos in central Tokyo and Yokohama

Tsukuruba’s mainstay business is the brokerage of pre-owned and renovated condo units in central Tokyo and Yokohama, using the in-house-developed cowcamo website and app. The market for pre-owned condos has expanded in recent years owing to the rise in prices of newly built condos and diversifying consumer values in choosing homes. Historically, transactions in this space were handled by real estate agencies with brick-and-mortar stores, operators of real estate portal sites, and resellers that purchase properties for resale to a third party. However, these businesses were unable to meet the full range of customer needs due their limited scope, and at times inconvenienced the customers in terms of access to various properties.

In contrast, Tsukuruba operates a website and an app that list available properties, and simultaneously handles brokerage. It also offers a breadth of other services for buyers: it provides individual consultation to buyers unable to decide on properties, proposes renovation plans and introduces contractors, and uses its web media and seminars to offer information to customers just beginning to contemplate a condo purchase. Customers have the option of communicating with Tsukuruba online or face to face, depending on their situations.

Sellers, on the other hand, can receive Tsukuruba’s advice on themes such as renovations that easily attract buyers and appropriate price settings. The company analyzes its brokerage transactions and browsing history of cowcamo users to assess buyers’ demands and pricing trends in the pre-owned condo market, and uses this knowledge to offer advice to the sellers. Its approach facilitates property sale for the sellers and widens the selection of available options for the buyers by boosting the supply of properties that meet the buyers’ needs, thus creating a virtuous cycle.

The company says Cowcamo segment’s “circular” business model, which positions both buyers and sellers of pre-owned condos as important clients, is made possible through the systems developed in-house. Its strength in IT has also helped the company raise efficiency of internal operations, and communications with external parties. The company’s CEO, Hiroki Murakami, defines cowcamo as “a platform that integrates and optimizes the value chain of pre-owned condo market through the power of technology.” Mr. Murakami joined condo developer Cosmos Initia Co., Ltd. (TSE JASDAQ: 8844) after graduating from college, and moved to Next Co., Ltd. (currently, Lifull Co., Ltd. [TSE 1: 2120]) before founding Tsukuruba. At Next, he planned and developed IT products such as software as a service (SaaS), and also engaged in marketing.

Properties handled via cowcamo and customer profile

The pre-owned condos the company handles are mainly located in central Tokyo; based on cowcamo’s property listings by area, there is heavy concentration in the Setagaya, Shibuya, and Minato wards. The average transaction price per property is roughly JPY50mn, and about half of the condos brokered by the company are already renovated or are sold/bought on the premise of renovation. Tsukuruba says individuals make up almost 100% of the customers buying pre-owned condos via cowcamo. Many are single households of people in their 30s and 40s and small families such as DINK couples who purchase housing for the first time. In contrast, roughly 95% of the sell-side customers are companies with many being resellers of pre-owned condos.

Services for the buyers of pre-owned condos

Focus on qualitative information highlighting properties’ stories and designs

According to Tsukuruba, property specifications were historically the only information available on pre-owned condos put up for sale. However, the company thinks buyers should be choosing properties envisioning the lifestyle they want to achieve at their new homes, and in this sense, more light should be shed on properties’ stories and designs. Hence, the company takes the approach of offering qualitative information and visual images, unlike the conventional brokers of pre-owned condos that focus on providing quantitative information. Conventional operators of property listing sites also depend on the users to narrow down their searches online. In contrast, the company prefers to proactively match properties and buyers by making various proposals. For example, the cowcamo platform can make property proposals to users based on their browsing history. Another cowcamo feature is the function called “MIX,” which presents a list of candidate properties, selected in advance based on unique criteria. Using MIX, the company creates proposals that take into account special attributes, such as properties suitable for raising children or those with a good view, in addition to the location and design criteria. Tsukuruba also places importance on appropriately providing information on both pros and cons of properties in order to avoid mismatch between the seller and the buyer.

Report and commentary on each property featured in cowcamo

Roughly 1,000 properties are currently listed on the cowcamo app. Of the properties available for brokerage, the company handpicks those that it finds particularly suitable for listing on cowcamo because of their stand-out appeal. The editorial team prepares a report and commentary on these properties after conducting a thorough on-site check covering a range of items from the condo’s interior to its surrounding environment. The information is then posted on the platform with supporting photos.

Generally speaking, brokerage websites for pre-owned condos only provide basic data: unit price, location and access, floor space of exclusive area, unit layout, floor location and total number floors, total number of units, date of completion, property manager, and photos provided by the seller. The information tends to be dry and often do not give potential buyers an idea on what it would be like to live in the particular condo. In comparison, the information provided on cowcamo is thorough and buyer-oriented, according to the company.

cowcamo as a tool for establishing first touchpoint with buyers

The company positions the cowcamo website and app as a tool for establishing its first touchpoint with buyers. While the listings on cowcamo are narrowed down to handpicked properties, the company also suggests properties outside the scope of the online platform depending on the course of communication with potential buyers.*

Operation of web media cowcamo Magazine and hosting of various seminars

With an in-house editorial team, the company also functions as a media. It showcases the appeal of various towns through its web-based cowcamo Magazine, where it also features articles based on interviews with customers who have bought condos via cowcamo and renovated them on their own. The company also periodically hosts informative seminars appointing its staff as speakers. Participants have the option of participating in these seminars online.

In addition to the web media and seminar offerings, Tsukuruba also responds to individual inquiries from potential buyers of pre-owned condos via face-to-face or online consultation, depending on the customer’s preference. When the potential buyer wishes to renovate, the company also has the capability to propose a plan and give referral to design firms and contractors based on the budget and type of construction required. In these ways, Tsukuruba provides buyers with end-to-end services encompassing information provision, individual consultation, proposal of renovation ideas, referral of designers and contractors, and brokerage.

Fun user experience and stylish design

The cowcamo website launched in 2015 received the Good Design Award in the software, service, and system category in 2016, and the Android app-version officially released in 2018 received Google Play’s Best of 2018 award of excellence in the “hidden gem” category. The app can narrow down searches based on various unique criteria; the stylish look and focus on fun user experience are also its outstanding features, says the company.

Services for the sellers of pre-owned condos

Advice based on analysis of past transactions and browsing history

The company analyzes its database of past brokerage transactions and browsing history of cowcamo users to grasp trends on buyers’ demand and market prices of pre-owned condos. It then uses this knowledge to provide various proposals to property sellers. For instance, it gives advice on renovations that buyers appreciate or price settings in line with current market trends. In addition to the sizable user base of cowcamo, which in itself serves as an asset for buyers, we understand that Tsukuruba has the capacity to utilize its accumulated data to offer customers advice on how to sell their properties more quickly and on better terms.

Branding collaboration with resellers

As part of its services for sellers, the company has been working with resellers of pre-owned condos to establish different brands for the properties handled via cowcamo. It calls this effort the “reseller support service.” Tsukuruba first collaborated with Star Mica Holdings Co., Ltd. (TSE 1: 2975), with whom it concluded a business alliance in December 2019, to market Star Mica’s properties under the SELEC brand. The company expanded its branding initiatives in April 2021, and since then, created four brands—SELEC, emot, ALUX, and context—each appealing to different potential buyers in terms of their family compositions and criteria they prioritize.

The company has a tie-up with a different reseller for each of the four brands, but has not disclosed the collaborators for brands other than SELEC. The collaboration with Star Mica has also resulted in the development of a successful renovation patterns, according to the company.

Customer acquisition and advertising

Customers in the Cowcamo segment are the sellers and buyers of properties. To attract buyers, the company conducts digital marketing rather than taking the conventional route of distributing flyers and sending DMs. On the sellers’ side, it either directly approaches potential sellers or is approached by them with a deal; the company says the ratio is roughly 50/50.

Launch of first brick-and-mortar store in Jiyugaoka

Although its customer acquisition strategy on the buyers’ side is centered on digital marketing, Tsukuruba took a new step to increase customer touchpoints by leasing commercial space in Setagaya to open its first offline store, cowcamo Shop Jiyugaoka (launched August 2021). The store is used for customer consultations arranged on a reservation-only basis as well as for hosting seminars, and does not station regular staff. The company’s presence in Jiyugaoka began with a showroom. Currently, its sales bases include one store and two showrooms. The company intends to increase similar sales bases but has not commented on the timing.

Tie-ups to expand customer base

In July 2021, Tsukuruba concluded a business alliance agreement with Money Forward, Inc. (TSE 1: 3994), which provides the Money Forward ME household accounting book app that supports personal financial management. Through the alliance, the company plans to address the needs among Money Forward app users to sell their housing. These types of collaboration with outside partners are also measures the company takes to win customers for the Cowcamo segment.

Personnel

As of end-July 2021, Tsukuruba had 164 employees; the average age was 32 and the average length of service was two years and four months. Salespeople and product staff each made up roughly 40% of total employees, with administrative and other staff making up the remaining 20%. Product staff further divide into IT staff who develop, operate, and update the cowcamo website and app, and media staff who write property articles for cowcamo or edit the cowcamo Magazine, at a roughly 50/50 ratio.

The company says having in-house product staff dedicated to IT and media operations is its strength, adding that medium- to long-term competitiveness of the cowcamo platform as a pre-owned condo marketplace hinges on the company’s ability to secure software engineers and designers.

Brokerage commissions

In the mainstay business of brokering pre-owned condos, the company typically earns brokerage commissions from both the buyer and the seller when a transaction is completed. The fee (excluding tax) per party is calculated by multiplying the transaction price by 3% (upper limit), then adding JPY60,000 to the total. Japan’s Building Lots and Buildings Transaction Business Act stipulates the upper limit of real estate brokerage commissions at 5% for the portion of transaction amount that is JPY2mn or less, 4% for the portion exceeding JPY2mn but no more than JPY4mn, and 3% for the portion exceeding JPY4mn.

Many real estate transactions are valued at over JPY4mn. Assuming a pre-owned condo for sale is priced at JPY50mn, precise calculation of the corresponding brokerage commission (maximum amount) would be as follows: JPY2mm x 5% + (JPY4mn - JPY2mn) x 4% + (JPY50mn - JPY4mn) x 3% = JPY1.56mn. Meanwhile, the simpler calculation of JPY50mn multiplied by 3% results in a brokerage commission of JPY1.50mn. The difference of JPY60,000 between the two calculation methods remains the same regardless of the price of property. Based on this fact, it has become a common practice among real estate brokers, including Tsukuruba, to use the formula of “transaction price x 3% (upper limit) + JPY60,000” to calculate their fees. Note that “transaction price x 3%” is the statutory limit, and it is up to the transaction parties to determine the actual fee rate.

From the broker’s perspective, dual-agency deals that bring in brokerage commissions from both the seller and the buyer are preferable, but there are also many single-agency deals where fees are received from just one side. In FY07/21, the company decided to refer potential buyers to external partners (brokers) when inquiries from such customers exceeded its handling capacity. The decision was part of Tsukuruba’s risk control measures, in which the company temporarily cut back hiring amid spread of COVID-19. Under this arrangement, the company receives from the partners a referral fee and a success fee in the event a transaction is completed, but the brokerage commission goes to the partners. Six partners are currently listed on the cowcamo website. The company explains that partner selection is based on referral through reliable sources, and partners are limited to those that understand the values Tsukuruba upholds. That said, the plan going forward is to expand brokerage using in-house resources.

Segment KPIs

The company’s key performance indicators (KPIs) in the Cowcamo segment are: the total transaction volume of pre-owned condos on the cowcamo website and app (gross merchandise value [GMV] according to company definition); the take rate, defined as the ratio of company’s profit to GMV (calculated by dividing segment gross profit by GMV); and the segment gross profit. The company also tracks cowcamo’s monthly user count and number of transactions for supplementary reference.

Among the other related performance indicators in the Cowcamo segment, the number of active users refers to the count of registered cowcamo members who have used the website or app to search properties during a given period (not the cumulative total). GMV is the sum of sales generated from condo purchases via cowcamo along with other ancillary services. The table below indicates changes in KPI trends over the past several fiscal years. Since Q3 FY07/20, some of the KPIs have trended downward YoY due in part to the effects of COVID-19.

Take rate trending around 3–6%

The take rate, one of the segment KPIs derived by dividing the segment gross profit by GMV of the cowcamo platform, has been trending around 3–6% (see chart below). Since the brokerage commission is at most 3% for a single-agency deal and 6% for a dual-agency deal, we understand this take-rate range to be reasonable.

Take rate depends on deal type, dual agency or single agency

The company’s take rate depends on a number of factors. One key element is whether the company is handling a dual-agency deal (commissions received from both seller and buyer) or a single-agency deal (commission received from one party only). Another is whether the brokerage commission belongs to Tsukuruba or an external broker partnering with the company.

Fewer supply of pre-owned condos leading to single-agency deals and potentially lowering the take rate

The company says it almost always receives brokerage commissions from the buyer once a transaction is completed, so single-agency deals are generally cases where no commissions come in from the seller. Shared Research believes the recent downtrend in the company’s take rate could be in part attributable to the declining supply of pre-owned condos in the market.

When the market supply of pre-owned condos falls, reseller companies (i.e., companies specializing in renovating and reselling condos) face greater difficulty in sourcing properties. In these instances, property sales by reseller companies decrease, while those initiated by individual property owners increase. Individual sellers often have an exclusive brokerage arrangement with a real estate agency in place when they put up their properties for sale. Hence, other brokers without any direct connections with these sellers are often unable to receive commissions from sellers even if they can find buyers. As a result, many brokers are left without a choice but to conduct single-agency deals when transactions by individual sellers rise while those by corporate resellers fall, which is the recent market environment.

Additionally, against the backdrop of intensifying competition among brokers, real estate agencies including major ones appear to be forging stronger relations with corporate resellers using the leverage of existing business dealings and corporate group ties. In the event their efforts come to fruition and give rise to cases where the sellers come with pre-assigned brokers, Tsukuruba will face difficulty earning sell-side commissions even when it succeeds in finding buyers, and its take rate will likely fall as a result.

Further, the company thinks some brokers are opting to discount commissions to secure quality condos for sale, although this has not happened among its own transactions so far. If this trend spreads, it could bring down commission rates for the real estate brokerage industry as a whole. Also, some resellers are trying to find buyers on their own to reduce fee expenses amid rising property-sourcing costs, according to the company.

Expanded use of outside partners also causing take rate to drop

As part of its risk control measures during the COVID-19 pandemic, the company decided to temporarily cut back hiring and use the resources of external partners (brokers) instead. This move has been another factor behind the take rate decline. In FY07/21, the company increased the referral of potential property buyers to external partners when inquiries from such customers exceeded its handling capacity. We understand that just over 10% of the company’s transactions in FY07/21 was handed over to external partners. The more the company uses partner brokers, the lower the take rate will be due to the outflow of brokerage commissions.

Challenge of take rate improvement

Despite the temporary adverse effect of COVID-19, Tsukuruba has thus far achieved steady increase in the number of cowcamo active users, and transactions via the platform also grew in both number and total volume. The company understands one of its next challenges to be the improvement of take rate, and is already taking steps to bolster relations with property sellers and strengthen in-house brokerage resources. The table below tracks the average transaction value and gross profit per transaction on cowcamo. The transaction value has trended in the JPY40–50mn, which is a reasonable level considering that Tsukuruba mainly engages in the brokerage of pre-owned condos in central Tokyo and Yokohama.

Revenue and expense structures

Revenue

The main source of revenue in the Cowcamo segment is the brokerage commission the company receives from the seller and buyer of a pre-owned condo when a transaction is completed. The commission per party (pre-tax) is calculated by multiplying the property price by 3% (upper limit) and adding JPY60,000 to the product. Note that in some cases, the commission comes from only one party (single-agency deal). Also, in cases where the company hands over transactions to external partners, it earns a referral fee and a success fee (when the deal is closed) instead of brokerage commission.

At times, Tsukuruba conducts resale transactions of pre-owned condos on its own (i.e., resells pre-owned condos it sourced using its own funds). The company says it engages in resale transactions only when it can expect to earn a profit with high certainty based on the information it has obtained. Unlike brokerage, which is a fee business, the top-line revenue posted on resale transactions tends to be large, but their gross profit margin is generally between 6–10%. The company’s policy is to continue conducting resale with a focus on deals that have a high probability of generating profit.

In the Cowcamo segment, the company also records revenue from ancillary services such as renovation planning fees.

Expenses

Personnel costs make up a large share of the expenses in the Cowcamo segment, given that its business model is structured on brokerage of pre-owned condos using an online platform. Other major expenses include outsourcing and advertising expenses. When the company engages in resale transactions, it records property acquisition costs under cost of revenue, although such expenses are not incurred regularly. In terms of fixed and variable expenses, the company classifies travel and transportation expenses of its brokerage staff, their customer meeting expenses, and expenses associated with the issuance of real estate contract disclosure statements as variable expenses.

Property Planning and Design segment (24% of total revenue and 9% of gross profit in FY07/21)

Segment overview

In the Property Planning and Design segment, the company runs the workplace business (operation of co-working space [co-ba] and rental office [HEYSHA]), handles office design and planning, and more broadly engages in planning and business creation in the real estate domain. In FY07/21, the workplace business accounted for 60–70% of the JPY384mn segment revenue.

Workplace business

Summary

The workplace business currently offers space in two formats: co-ba (co-working space) and HEYSHA (rental office). co-ba, launched shortly after Tsukuruba’s inception in 2011, is the company’s founding business. In both formats, the company leases office space from property owners, remodels and furnishes the space based on its own design, and rents units out to the users. Customers of co-ba either pay by the month or per drop-in, whereas those of HEYSHA secure their office space based on a rental contract of one year or longer. There are currently two directly managed co-ba facilities, both in the Shibuya area (Jinnan and Ebisu), and 19 franchises spanning Tokyo and regional cities in Japan. The company operates two HEYSHA facilities in Shibuya (Jinnan and Kitasando).

For directly managed co-ba and HEYSHA facilities, Tsukuruba typically signs a 4–10 year fixed term lease agreement with property owners. According to the company, owners tend to think that having a co-working space or a rental office facility in their properties improves the building’s image, and for this reason, Tsukuruba has been able to secure space at sub-market rents. The company says that since the launch of these businesses, usage fee income from co-ba and HEYSHA has consistently exceeded its outlays on rent on an annual basis. While the company refrains from disclosing data on utilization rates and profit margins, we believe the breakeven utilization rate for both formats appears to be around 60% (applies to private rooms in the case of co-ba).

Main customers

The main customers of co-ba and HEYSHA facilities are startups, sole proprietors, and creators. In the case of directly managed co-ba jinnan facility, for example, roughly 80% of the users are startup entrepreneurs and their teams, and the rest are freelance engineers and designers.

Short-term contracts and cost benefits as selling points

Customers find value in co-ba and HEYSHA since they offer rental space for short-term use. Workspace at co-ba is available by the month or per drop-in, and HEYSHA offers one-year lease contracts, whereas a standard lease contract for office space calls for a leasing commitment of at least two years. Particularly for startups that find it difficult to envision their future in two years’ time, there is value in office space available for shorter terms. Depending on the location, co-ba facilities are equipped with various types of workspace including private offices, dedicated desks, and hot desks. The option to choose the workspace that suit individual needs is an added benefit for the users.

On the cost front, tenants of standard offices are required to pay a deposit and brokerage commission when they rent office space. They also need to make significant initial outlays on interior construction, and pay the running cost of office equipment once they move in. Users of co-ba and HEYSHA facilities are not subject to these expenses, although they are charged certain initial expenses.

Community building, another asset

The company says the networking opportunity provided by co-ba is another asset for the users, as many of them choose the co-working space format to interact with others. The layouts are designed to encourage communication, and the facilities host networking events regularly. Therefore, the co-working space format is particularly beneficial for startups proactively seeking new business ideas and opportunities, according to the company.

Rollout of co-ba franchises since 2013

In 2013, Tsukuruba launched a partnership system for co-ba and began rolling out franchises. The opening of co-ba Akasaka in December 2013 was the first initiative under the system. Franchises have since increased to 19 locations, spanning Tokyo and regional cities in Japan. Although details are not disclosed, we understand the company typically receives franchise fees from the franchise partners. Franchising co-ba has its merits for users as well, explains the company; for instance, users paying for monthly plans of over JPY15,000 can drop in at any co-ba facility in Japan for free.

Customer acquisition

co-ba and HEYSHA customers are generally acquired through referrals or social media. Franchise partners of co-ba are customers to the company as well since they pay franchise fees. These partners also mainly rely on referrals and social media to bring in users to their facilities. At times, the company taps into its operating experience to provide franchise partners support in their business launches, and share information on its website to help attract users to franchised facilities.

Future policy for the workplace business

At present, the company does not plan to increase the number of directly managed co-ba and HEYSHA facilities, but is open to considering more co-ba franchises if it is approached by interested parties. That said, it does not intend to accept proposals from all potential franchisees. Franchise partners are expected to share Tsukuruba’s philosophy of supporting startups in their endeavors, and must satisfy the minimum facility specification the company requires in co-working space operation.

Spatial design, consulting, real estate solutions, and property design and planning

Summary

In addition to the workplace business, the company engages in a range of real-estate related services in the Property Planning and Design segment. These services include office design consulting and project management, spatial design in which the company proposes effective use of space, and contracted business creation in the real estate domain. With a team of licensed architects versed in providing designs on contract, the company aims to provide various real estate-related solutions through its services.

Customers and earnings

The customers of the spatial design business are mainly companies reevaluating the use of office space at junctures such as corporate reorganization, office moves, and new office launches. Tsukuruba does not engage in active marketing, and mainly gets assignments through referrals, word of mouth, and customer inquiries. It also enters design competitions to win assignments. Revenue per project depends on the nature of the project and relationship with the customer, among other factors. To date, the company has provided planning and design work primarily for offices, but has had experience in development and renovation projects for other types of properties including vocational schools, clinics, stores, and residences. Some projects were for listed companies.

Shared Research understands that the company does not plan on aggressively pursuing revenue and profits in the spatial design business; rather, it sees the venture as a way to uncover the seeds of future businesses. For instance, in July 2020, the company formed a capital and business alliance with Marui Group Co., Ltd. (TSE 1: 8252). As their first collaboration, the two parties appear to be working on a new business related to rental housing. We understand the Property Planning and Design segment occasionally takes on an important role in cultivating collaborative opportunities, which could develop into new businesses over time.

Segment KPIs

At present, the company does not plan to expand the Property Planning and Design segment, and nor does it plan to increase the number of directly managed facilities in the workplace business. Meanwhile, the company tracks performance indicators for the workplace business as KPIs for the segment, given that the business accounts for the majority of segment revenue. Since the workplace business involves subleasing, the company monitors the utilization rates at co-ba and HEYSHA; in particular, it pays close attention to the utilization rate of private offices at co-ba, which has an impact on profitability (utilization rates are undisclosed).

Revenue and expense structures

Revenue

In FY07/21, 60–70% of revenue in the Property Planning and Design segment came from the operation of co-ba and HEYSHA facilities. The primary source of revenue in the workplace business is the usage fee received from customers utilizing the facilities based on annual, monthly, or per-use contracts. We also understand that the company receives franchise fees from franchise partners of co-ba (details undisclosed). The company does not generate revenue from spatial design on a recurring basis. Revenue is generated when projects emerge, and the amount depends on the nature of the project, and the company’s relations with the customer, among other factors.

Expenses

The largest expense category in this segment is rent the company pays to property owners to lease space for directly managed co-ba and HEYSHA facilities. The company typically signs a 4–10 year fixed-term lease agreement with the owners. The company says that since the launch of these businesses, usage fee income from co-ba and HEYSHA has consistently exceeded the outlays on rent on an annual basis. On the other hand, in the spatial design business, upfront expenditure appears to be outpacing revenue inflow, because of recent increase in activities to sow the seeds for new businesses.

The largest expense category in this segment is rent the company pays to property owners to lease space for directly managed co-ba and HEYSHA facilities. The company typically signs a 4–10 year fixed-term lease agreement with the owners. The company says that since the launch of these businesses, usage fee income from co-ba and HEYSHA has consistently exceeded the outlays on rent on an annual basis. On the other hand, in the spatial design business, upfront expenditure appears to be outpacing revenue inflow, because of recent increase in activities to sow the seeds for new businesses.

Market trends

Market for pre-owned homes

Expansion of pre-owned housing market fueled by active condo transactions

Tsukuruba specializes in the brokerage of pre-owned and renovated condo units in central Tokyo and Yokohama. According to the Real Estate Information Network for East Japan, the market for pre-owned homes in the Greater Tokyo area has almost doubled from JPY941.3bn in FY2000 to JPY1.8tn in FY2020, with robust sales of pre-owned condos driving market growth.

In Greater Tokyo, market growth particularly evident in the 23 wards

A comparison of market trends for pre-owned condo transactions in Tokyo and the rest of Greater Tokyo (including surrounding prefectures) indicates clear market growth in the former, particularly in central Tokyo that covers its 23 wards. The share of pre-owned condo transactions in Tokyo has consistently trended upward, accounting for over 60% of the total for Greater Tokyo in recent years. The majority of these transactions have been in central Tokyo.

Market growth in Greater Tokyo underpinned by increases in both number and average price of pre-owned condo transactions

In all areas of Greater Tokyo, both the number and average price of pre-owned condo transactions have been trending upward, with clear growth seen particularly in central Tokyo.

Japan’s tax reduction program for housing loans upgraded from time to time to stimulate home purchases

In Japan, the environment for purchasing housing has been relatively favorable, which is one of the reasons behind expansion of the pre-owned condo market. The Japanese government has a long-running tax reduction program for housing loans, which it has upgraded from time to time when home-purchase demand dipped due to consumption tax hike or worsening economy. The tax reduction program not only covers purchases of newly built housing, but also pre-owned homes and renovation projects.

Interest rates on housing loans also low

Housing loan interest rates have remained low in Japan against the backdrop of Bank of Japan’s monetary-easing policies and tough lending environment for banks. The tax break on housing loans, together with low interest rates, continues to work to the favor of consumers considering home purchases.

Spread of condos in Japan

One of the first decisions consumers make when contemplating home purchases is whether to buy a condo or a detached house. While surveys indicating the breakdown of such decisions are not available, the ratio of condo units to the total number of households (by region) has risen moderately, showing that many housing in Japan now take the form of condos. According to information provided by the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), potential homebuyers tend to prioritize their choice between condo or detached house over the choice between new or pre-owned property.