The following lists general risk factors possibly associated with investment in securities of Kenedix Realty Investment Corporation (KRI). The risks outlined below are not all encompassing. KRI attempts to hedge and/or eliminate the occurrence of such risks as much as possible and to implement a policy to counter these risks in the event that they occur. However, KRI does not guarantee that avoidance and countering of risks will be adequate.

Each investor is responsible for his, her or its own investment decisions and should judge investments based on a careful review of the items in this document.

The following are the risks described herein:

A. Risk pertaining to commercial value of KRI investment units or investment corporation bonds

1. (1) Risk concerning changes in market value of investment units or investment corporation bonds
2. (2) Risk concerning cash distributions
3. (3) Risk concerning fluctuations in income and expenditures
4. (4) Risk concerning dilution of value per unit after follow-on offerings
5. (5) Risk concerning reimbursement and interest payments for investment corporation bonds

B. KRI management policy risk

1. (1) Risk that properties being acquired based on support line memorandum cannot be acquired as assumed
2. (2) Risk concerning regional biases
3. (3) Risk that real estate cannot be acquired or sold
4. (4) Risk concerning fund procurement with regard to follow-on offerings, borrowings and investment corporation bonds

C. KRI structure and interested party risk

1. (1) Risk concerning dependence on and conflicts of interest with Kenedix, Inc. and Kenedix Asset Management, Inc.
2. (2) Risk concerning dependence on and conflicts of interest with Kenedix Advisors, Inc.
3. (3) Risk concerning dependence on and conflicts of interest with interested parties of KRI
4. (4) Risk concerning dependence on KRI's executive director and the personnel of the asset manager
5. (5) Risk concerning the absence of laws legally prohibiting insider trading
6. (6) Risk concerning changes to KRI's investment policy
7. (7) Risk concerning bankruptcy or the cancellation of KRI's registration
8. (8) Risk concerning deposits and guarantee money
   

D. Real estate and trust beneficiary interests risk

1. (1) Risk concerning real estate defects
2. (2) Risk concerning responsibility in the sale of real estate
3. (3) Risk concerning rental agreements
4. (4) Risk concerning building damage, loss and deterioration due to disasters
5. (5) Risk concerning ownership liabilities, repair and maintenance expenses, etc. related to real estate
6. (6) Risk concerning laws and regulations related to real estate and operations
7. (7) Risk concerning establishment / change of laws
8. (8) Risk concerning bankruptcy of the seller
9. (9) Risk concerning the master lease company
10. (10) Risk concerning subleasing
11. (11) Risk concerning tenant use of real estate
12. (12) Risk concerning co-owned properties
13. (13) Risk concerning compartmentalized ownership of properties
14. (14) Risk concerning leasehold land properties and leasehold structures
15. (15) Risk concerning lease properties
16. (16) Risk concerning development properties
17. (17) Risk concerning forward commitments, etc.
18. (18) Risk concerning toxic substances
19. (19) Risk unique to owning real estate as beneficiary interests in trust

E. Tax risk

1. (1) Risk concerning conduit requirements
2. (2) Risk that conduit requirements will be unfulfilled due to corrective measures from tax audits, etc.
3. (3) Risk that tax mitigation measures related to real estate acquisitions cannot be applied
4. (4) Risk concerning changes in the general tax system

F. Other Risks

1. (1) Risk concerning appraisal reports, etc.
2. (2) Risk concerning the application of asset impairment accounting
3. (3) Risk concerning investment in tokumei-kumiai

A. Risk pertaining to commercial value of KRI investment units or investment corporation bonds

(1) Risk concerning changes in market value of investment units or investment corporation bonds

As investment units are closed-end securities, investment units are not refunded at the demand of investors and conversion of investment units into cash is restricted to sale to third parties.

The market value of investment units or investment corporation bonds is affected by the supply/demand balance on the stock exchange, and sharp decreases in value are possible when massive selling of these units occur within a set period. Furthermore, market values may fluctuate due to various factors including interest rates, the economic climate, real estate market and other market-related factors. Decreases in the market value of investment units or investment corporation bonds may also result from administrative measures recommended or conducted by regulatory authorities as they affect KRI or KRI's asset manager, Kenedix REIT Management, Inc. (KRM), or also other investment corporations or asset managers. In cases when KRI's market value declines, investors or creditors may not be able to sell investment units or investment corporation bonds at the price they acquired them and losses may be incurred as a result.

(2) Risk concerning cash distributions

KRI plans to allocate cash distributions to investors in accordance with the distribution policy; however, the payment and size of distributions are not guaranteed. Profits and losses during fiscal periods fluctuate due to rental conditions, profits and losses from the sale of assets, impairment losses and losses from reconstruction efforts, and the like related to real estate and assets backed by real estate that KRI has acquired. These factors may cause fluctuations in the cash amount of distributions to investors.

(3) Risk concerning fluctuations in income and expenditures

KRI income is primarily dependent on rental revenues from real estate. Rental revenues derived from real estate may decrease greatly based on factors such as a decrease in the occupancy rate of properties, rent decreases as a result of negotiations with lessees or when rent increases previously agreed upon with tenants in rental contracts are not realized, etc. Furthermore, past income and expenditures and total rents for owned assets are not necessarily indicators or guarantees of future income and expenditures and total rents for the same assets. Additionally, it may not always be the case that the rents based on rental agreements concluded regarding the concerned real estate will be at an appropriate level compared to ordinary rent levels.

On the other hand, a reduction in income is not the only risk. There is also the possibility that cash flows will decrease due to a number of factors including the refunding of deposits and guarantees to departing tenants, expenditures needed for major repairs and maintenance, large capital expenditures, expenses necessary to acquire real estate and the increase of other expenses related to real estate.

Therefore, there is the possibility that income from real estate will decrease and expenditures related to real estate will increase. When one or both of these two events occurs, there may be cases where distributions to investors decrease and market values of the investment units drop.

(4) Risk concerning dilution of value per unit after follow-on offerings

KRI plans follow-on offerings of new investment units as necessary and such follow-on offerings will reduce the investment unit shares owned by existing investors. Furthermore, if investment units of follow-on offerings during KRI's fiscal period are offered at the same cash distribution amount as previously existing investment units, the investment unit share of existing investors may be affected negatively compared with the situation where no follow-on issuances are offered.

Furthermore, follow-on offerings may also affect KRI's value per investment unit and the supply/demand balance in the market.
KRI filed a shelf registration statement on February 4, 2011 with the Director of the Kanto Local Finance Bureau for the issuance of investment unit certificates for a planned issue amount of 100 billion yen which took effect from February 15, 2011. These funds are used for the acquisition of specified assets, for repayment of borrowings, etc. After the registration of this issuance, supplemental documents for the shelf registration may be filed and follow-on offerings of new investment units offered, in which case the value per investment unit may be drastically diluted. In this case, existing investors may be affected negatively compared with the situation where no follow-on issuances are offered.

(5) Risk concerning reimbursement and interest payments for investment corporation bonds

Risk concerning the payment of principal and interest on investment corporation bonds and insolvency may emerge as a result of a worsening in KRI's credit standing or other reasons.

B. KRI management policy risk

(1) Risk that properties being acquired based on support line memorandum cannot be acquired as assumed

KRI and KRM concluded a support line Memorandum of Understanding (MOU) with Kenedix, Inc. and Kenedix Advisors, Inc. However, this MOU is just an agreement regarding provision of information to KRI and KRM concerning particular real estate and for KRI and KRM to have preferred negotiation rights concerning the acquisition of said real estate and does not represent an obligation by Kenedix, Inc. or Kenedix Advisors, Inc. to sell said real estate at a value desired by KRI. In other words, according to the MOU, KRI is not always guaranteed acquisition of real estate it judges as appropriate or at an appropriate price.

As a result, there may be cases when KRI is neither able to construct an optimal portfolio nor amend the portfolio in a timely manner based on KRI's returns or stabilizing profits.

(2) Risk concerning regional biases

KRI plans to invest over 70% of its funds based on acquisition price in real estate, etc. in the Tokyo Metropolitan Area. Consequently, this real estate investment target may experience regional biases, and KRI's returns may suffer a material negative impact due to such factors as changes in the regional economy and real estate market, natural disasters such as earthquakes or typhoons and particular demographic shifts and other unique phenomena occurring in the Tokyo Metropolitan Area.

(3) Risk that real estate cannot be acquired or sold

Since each piece of real estate is quite unique, cannot be "replaced" and generally has low liquidity, there is a possibility that a property that is desired cannot be acquired or sold at the desired time. It is not necessarily the case that KRI will be able to complete the acquisition of desired real estate as well as acquisition of securities backed by real estate. Even if acquisition is possible, it may be unwise to do so from the perspective of the investment's profitability. Moreover, in cases where KRI sells previously acquired real estate or securities backed by real estate, it may not fulfill profitability expectations from the perspective of investment profitability such as the desired price or timing of a sale.

As a result, there may be cases where KRI is neither able to construct an optimal portfolio nor amend the portfolio in a timely manner.

(4) Risk concerning fund procurement with regard to follow-on offerings, borrowings and investment corporation bonds

The possibility and conditions of follow-on offerings of investment units, capital borrowings and issuances of investment corporation bonds may be affected by KRI's economic standing, interest rates and other factors. Therefore, their execution at the timing and under the conditions desired by KRI is not guaranteed in the future. As a result, the planned acquisition of assets may become impossible, unforeseen sale of assets may become unavoidable and fundraising may become difficult to manage.

In addition, when KRI seeks to issue follow-on offerings of investment units, borrow funds or float investment corporation bonds, there is a possibility that new financial restrictions such as to maintain cetain values in accordance with a financial index based on assets, liabilities and others, to maintain KRI’s credit standing at a certain level and to limit cash distributions to investors may be established as well as the new or additional placement of managed assets as collateral and the restriction of amendments to the Articles of Incorporation. These limitations may obstruct KRI's management activities or have a negative influence on the cash amount of distributions to investors. In cases where these restrictions are violated, the additional placement of managed assets as collateral as well as the assumption of cost burdens may be required, which could possibly have significantly adverse effects on KRI’s business operations.

KRI may pledge collateral to its properties when taking out borrowings or when issuing investment corporation bonds. If KRI then wishes to sell those properties which are pledged as collateral, there is a possibility that it may not be able to sell during the period or at a price it wishes to, due to the procedures necessary for canceling the pledge, or other reasons. Furthermore, in the case that appraisal value of the properties decreases due to a decrease of profitability, etc. or in the case of taking out another borrowing, etc. it may be required to pledge additional collateral to properties targeted for investment under certain conditions. Moreover, in the case that cash flows from properties pledged as collateral decreases or their appraisal value decreases, KRI may have to procure refinancing funds under unfavorable conditions, or it may even have to dispose of its properties at an unfavorable period or price. Should these assumptions actually take place, the results could have a negative impact on KRI’s earnings.

In addition, with all of its lenders, KRI has entered into a Basic Loan Agreement related to its fund borrowings, and such Agreement includes a financial covenant to maintain figures at a certain level relative to a financial index based on assets and liabilities.

Furthermore, conditions placed on interest rates for borrowings or investment corporation bonds and related costs may change due to market trends and ratings on investment corporation bonds at the time of the borrowings or issuance of investment corporation bonds, and variable interest rates will be affected by the subsequent market trends. In cases where interest rates for borrowings or investment corporation bonds increase or when the amount of borrowings or investment corporation bonds increases, KRI's interest payments will also increase. This type of increase in interest payments may have a negative effect on the distributions to investors.

C. KRI structure and interested party risk

(1) Risk concerning dependence on and conflicts of interest with Kenedix, Inc. and Kenedix Asset Management, Inc.

Kenedix, Inc. owns 85% of the shares of Kenedix Asset Management, Inc., which, in turn, owns 90% of the shares of KRI's asset manager KRM and is the primary provider of KRM's full-time employees. Additionally, KRI and KRM have concluded a memorandum of understanding with Kenedix, Inc. regarding preferential negotiation rights. Thus KRI and KRM maintain a close relationship with Kenedix, Inc. and Kenedix Asset Management, Inc. that significantly affects the securing of stable earnings and growth potential of KRI.

Therefore, if a relationship equivalent to the present relationship is no longer able to be maintained, this may have a negative impact on KRI.

Furthermore, in the event that KRI or KRM conducts a transaction with Kenedix, Inc. or Kenedix Asset Management, Inc. or one of the funds that these companies manage through asset management activities or the like, acts which conflict with the profit of KRI investors or creditors may occur in order to secure profit for Kenedix, Inc. or Kenedix Asset Management, Inc. or a fund that these companies manage. In such a case, the interests of KRI's investor or creditors may be damaged.

(2) Risk concerning dependence on and conflicts of interest with Kenedix Advisors, Inc.

KRI and KRM have concluded a memorandum of understanding with Kenedix Advisors, Inc. regarding preferential negotiation rights. In other words, KRI and KRM maintain a close relationship with Kenedix Advisors, Inc. that affects the securing of stable earnings and growth potential of KRI. Therefore, if a relationship equivalent to the present relationship is no longer able to be maintained, this may have a negative impact on KRI.

Furthermore, Kenedix Advisors, Inc. has been entrusted with other business such as the management of another real estate fund and in the event that Kenedix Advisors, Inc. conducts a transaction with this other real estate fund, acts which conflict with the profit of KRI investors or creditors may occur to secure profit for said real estate fund. In such a case, the interests of KRI's investor or creditors may be damaged.

(3) Risk concerning dependence on and conflicts of interest with interested parties of KRI

KRI decides on important business matters through its Board of Directors comprised of an executive director and supervising officers in accordance with the Investment Trusts and Investment Corporation Law. The management of assets is outsourced to an asset manager, the custodianship of assets to an asset custodian and administrative affairs to an administrator. KRI depends to a large degree on the capabilities, experience and expertise of these parties to conduct business smoothly. However, there is no guarantee that these parties can maintain the personnel and financial standing needed to execute these services. In addition, the Investment Trusts and Investment Corporation Law assigns duties and responsibilities to executive directors and supervising officers of investment corporations and related parties, but the interests of KRI's investors and creditors may be damaged if the parties related to KRI violate the Investment Trusts and Investment Corporation Law or other laws or no legal measures are taken.

The continued existence, earnings or the like of KRI may be negatively impacted and the interests of investors and creditors damaged should the asset manager, asset custodian and administrator fail to execute their duties as good managers, fail to execute their duties with integrity for KRI or violate the duty to not harm KRI's interests when there is a conflict of interest.

Furthermore, some KRM directors have acquired stock of Kenedix, Inc. and will continue to acquire share warrants according to Kenedix, Inc.'s stock option plan. Consequently, conflicts of interest may arise between KRI and those directors at KRM who have acquired such securities.

KRI, KRM and the company holding in trust the beneficiary interests in trust for the portfolio also outsource duties to property managers, building managers, companies that keep in trust the deposits and guarantees of tenants and the like. The improvement of profitability and stability of earnings at KRI greatly depends on the capabilities, experience and expertise of these parties but there is no guarantee that these parties will necessarily be able to maintain the necessary people and financial foundation to execute their duties and no guarantee that the contracts with these parties will be maintained in the future. Consequently, KRI's continued existence, earnings and the like may be negatively impacted if these parties neglect their duties, violate their obligations in some other manner, lose the ability to execute their duties or if the contract with them is terminated for some other reason.

(4) Risk concerning dependence on KRI's executive director and the personnel of the asset manager

KRI operations rely heavily on the executive director at KRI and personnel at KRM. The loss of these officers and staff might result in a negative impact on the operations of KRI.

(5) Risk concerning the absence of laws legally prohibiting insider trading

KRI's investment units, unlike various listed securities, are not the subject of insider trading regulations as defined in the Financial Instruments and Exchange Law.

Some officers at KRI and KRM own investment units issued by KRI. The internal rules of KRI and its asset manager stipulate that officers and employees cannot conduct trades similar to insider trades as prohibited by the Financial Instruments and Exchange Law and designate the procedure for acquiring or selling investment securities issued by KRI. However, if officers or personnel conduct trades similar to insider trades without complying with the rules of KRI and its asset manager, this may damage the general trust in these investment securities and consequently lead to a decrease in their market price, a drop in the liquidity of these investment securities and other negative consequences.

(6) Risk concerning changes to KRI's investment policy

Any change to basic matters related to the asset management targets, policy, etc. in KRI's Articles of Incorporation requires the approval of the General Meeting of Investors, but it is possible to change the more detailed investment policy, portfolio development policy, management guidelines and the like that were designated by the Board of Directors without obtaining the approval of the General Meeting of Investors. Therefore, there is the possibility that these changes may not reflect the wishes of KRI's investors.

Furthermore, in the event of an acquisition for a controlling stake, etc. of KRI's listed units, KRI's management policy, structure or other matters may be changed in an unforeseen direction without the previous input of the General Meeting of Investors.

(7) Risk concerning bankruptcy or the cancellation of KRI's registration

There is the possibility that KRI will fall under the bankruptcy proceedings of the Bankruptcy Law (Law No. 75 of 2004 and ensuing revisions), organizational proceedings of the Civil Rehabilitation Law (Law No. 225 of 1999 and ensuing revisions) and special liquidation proceedings under the Investment Trusts and Investment Corporation Law (Article 164).
KRI is registered as an investment corporation based on the Investment Trusts and Investment Corporation Law and its registration may be cancelled in accordance with the Investment Trusts and Investment Corporation Law due to certain reasons (Article 216 of ITL). Those cases will result in the abolishment of the listing of these investment units, the dissolution of KRI and the commencement of liquidation proceedings.
In the event that KRI is liquidated, investors will only be able to collect back their investment from distributions of the remaining property after all creditors have been repaid (including repayment of investment corporation bonds). Therefore, investors may not be able to collect back all or part of their investment.

(8) Risk concerning deposits and guarantee money

KRI may use deposits or guarantee money deposited at no or low interest by tenants of managed assets as a part of the capital obtained from managed assets. However, the deposits and guarantee money from tenants may fall under the amount placed on deposit or have a shorter period in deposit than assumed by KRI as a result of rental market trends, tenant negotiations, etc. In these cases, the necessary funds will have to be secured through loans or other means. Additionally, in exchange for KRI being able to use deposits or guarantee money, KRI bears an obligation to repay the deposits or guarantees and may have to procure the necessary funds through loans or other means to cover said repayment obligations when they occur which may impact KRI's earnings negatively.

D. Real estate and trust beneficiary interests risk

KRI's primary managed assets are real estate and securities backed by real estate, and KRI also owns real estate beneficiary interests in trust. Owners of real estate beneficiary interests in trust and other assets backed by real estate acquire essentially the same profit conditions economically as if they directly owned the real estate that is the trust property or the real estate that backs the securities. Therefore, the risks related to real estate that are described below are essentially the same for real estate beneficiary interests in trust and assets backed by real estate.

(1) Risk concerning real estate defects

Real estate may suffer from defects and neglect regarding its rights, land, soil quality, structure, etc. and such defects and neglect may not become evident until after acquisition. There are cases where KRI may, depending on the conditions, demand a representation and warranty concerning certain matters from the previous owner or make the previous owner liable for defects. However, even if the representations and warranties are found not to be true and because liability for damages and defects is pursued, the liability period is normally restricted to a certain limit and there are cases where liability can't be enforced because the previous owner has dissolved or has no capital.

In these cases, the interests of investors and creditors may be damaged due to the need for KRI to bear unforeseen expenses required to correct the defect to prevent a decline in asset value of the real estate according to the extent of defects.

Additionally, there may be cases where the buyer may be unable to obtain the rights to the real estate because the transaction has been completed in good faith based only on the records in the real estate registry. Furthermore, there may be times when items pertaining not only to rights but also to the real estate as indicated in the registry do not reflect actual circumstances. As in the preceding cases, KRI will pursue the liability of the seller to the extent permitted by law and the contract; however, the effectiveness of such efforts is not guaranteed.

(2) Risk concerning responsibility in the sale of real estate

KRI is registered as a real estate broker under the Building Lots and Buildings Transaction Law (Law No. 176 in 1952 and ensuing revisions) when it sells real estate. Therefore, excluding when the counterparty in the sale is a real estate broker, there are restrictions on placing riders in the sale and purchase agreement for real estate that would be disadvantageous to the buyer with regards to liability for covering defects. Therefore, when KRI sells real estate, there is the possibility that it will damage the interests of investors and creditors by having to cover unforeseen expenses incurred to correct defects in the sold property, etc.

There is also the possibility that the complexity of obligations regarding rights related to real estate will later lead to the revelation that the rights are limited by the rights of a third party, the rights are restricted by law or that the property is violating the rights of a third party. This may have a negative impact on KRI's returns or other interests.

Furthermore, in the sale of lease properties, the new owner shall be deemed to be the successor to such responsibilities as the repayment of deposits to the lessees, and actual business shall follow this rule. However, in the event that the previous owner did not obtain consent from the lessees for the exemption of relevant liabilities, the previous owner may be deemed to shoulder such liabilities together with the new owner, and, therefore, may undertake unexpected liabilities or responsibilities.

(3) Risk concerning rental agreements

a. Risk concerning the cancellation and renewal of rental agreements

When the lessee reserves the right to terminate a rental agreement, the rental agreement may be concluded during the contracted period or the contract may not be renewed upon expiration of the rental agreement period which may lead to a decrease in occupancy and rental revenues. When the right to terminate a rental agreement during the contracted period is limited with termination prohibition articles and termination penalty articles, and the renewal charge is set, there still remains the possibility that the court will reduce the predetermined amount of payment or reject the validity of the concerned article.

As a result, there is the possibility that the interests of KRI's investors and creditors will be damaged due to a negative impact on earnings from the drop in rental revenues etc.

b. Risk concerning rent delinquency

In cases where the tenant's financial standing has worsened, or the tenant has filed for bankruptcy, reorganization proceedings under the Civil Reorganization Law, reorganization proceedings under the Corporate Rehabilitation Law (Law No. 154 in 2002 and ensuing revisions) or other bankruptcy proceedings, the tenant may become delinquent in the paying of rents based on the rental agreement and the interests of KRI's investors or creditors may be damaged if the amount of delinquent rent surpasses the amount of deposit and guarantee money taken as collateral.

c. Risk concerning revisions to rent

When the length of the rental agreement with the tenant is relatively long, the rent and other content in the rental agreement are often reviewed on a periodic basis.

Therefore, the maintenance of present rents is not guaranteed in the future. The lowering of rents may impact KRI's earnings negatively and damage the interests of KRI's investors or creditors.

Moreover, even when the rental agreement includes provisions for regular rent increases, this is no guarantee that the rents will increase as stipulated as such increases will also depend on negotiations with the tenant.

d. Risk concerning the lessee's right to demand rent reductions

Excluding when the lessee of a building establishes a rider that relinquishes the right to demand a rent decrease based on Article 32 of the Land and House Lease Law in the leasehold building rental agreement for a fixed term, the lessee is able to make such a demand based on the provisions of this Law. If the demand is satisfied, the rental income from said real estate will decline and this may negatively impact KRI's earnings and damage the interests of its investors or creditors.

(4) Risk concerning building damage, loss and deterioration due to disasters

It is possible that the value of real estate will be impacted by its destruction, deterioration or damage as a result of fires, earthquakes, tsunami, severe rainstorms, floods, lightning, tornadoes, war, riots, civil disturbances, terrorism and other circumstances. This may damage the interests of investors or creditors because repair of locations that have been destroyed, deteriorated or damaged will require the building to be vacant for a certain period and thus reduce rental revenues and the value of said property. There is also the possibility that the interests of investors or creditors will be damaged due to the negative impact on earnings, etc. of KRI caused by insurance policies not being concluded due to unique circumstances of the property, the occurrence of damages that exceed the payment ceiling established in the insurance policy, the occurrence of disasters not covered by the insurance policy, payments not being made by the insurer based on the insurance policy or payments being reduced or delayed.
There has been no damage that would have a material impact on the management conditions of KRI as of July 29, 2011 resulting from the Great East Japan Earthquake and tsunamis on March 11, 2011. However, it cannot be denied that there is a possibility of a slowdown in the real estate transaction market as well as a significant increase in tenants relocating offices out of Tokyo in the future due to the accidents at the Fukushima Daiichi Nuclear Power Plant caused by the earthquakes and tsunamis as well as the ensuing power shortage and various other factors, and the possibility that the business results of tenants may be negatively affected. Furthermore, the possibility that an earthquake of the same scale or larger might occur or that other natural disasters or accidents might occur cannot be ruled out. If such are to occur, there is the possibility that KRI’s owned properties or properties to be acquired may be destroyed, deteriorated or damaged as well as the possibility that the surrounding regions or the Japanese economy as a whole may be negatively affected, and KRI’s earnings and asset value, etc. relating to owned properties by KRI may be negatively affected as a result.

(5) Risk concerning ownership liabilities, repair and maintenance expenses, etc. related to real estate

In the event that the life, body, property, etc. of a third party is violated as a result of a managed asset, there may be an obligation for liability and unforeseen damages may be incurred by KRI in the end. In particular, there are cases where the owner of a structure on land bears absolute liability according to the Civil Code (Law No. 89 in 1896 and ensuing revisions). When an insurance policy hasn't been executed due to unique circumstances of the property, there is the possibility as with (4) above that KRI will be negatively impacted.

Also, when the real estate is destroyed, damaged, deteriorates or the like and repairs are necessary, the repairs and countermeasures may require enormous expenses. In the event that such repairs or countermeasures are difficult or impossible to carry out, the price of the real estate may drop because of decreased rental income obtainable from the real estate.

(6) Risk concerning laws and regulations related to real estate and operations

As a rule, when the Building Standards Law (Law No. 201 in 1950 and ensuing revisions) and the City Planning Law (Law No. 100 in 1968 and ensuing revisions) are revised, a new law is passed, or regulations concerning accommodation, redevelopment, rezoning and other such administrative acts are executed or applied, existing buildings (including those under construction) and their lots that do not satisfy these regulations are exempted from their application (so-called existing non-conformed). However, when these existing non-conformed buildings are to be rebuilt, the regulations are applied and so there is a need to make changes so that the regulations are satisfied. Consequently, additional expenses may be needed and there is also a possibility that buildings of the same scale cannot be constructed.

Additionally, various administrative laws and regulations and local regulations may be applied to real estate. Examples of these include City Planning Laws, regulations of ordinances by local self-governing bodies concerning preserved structures, restrictions on the building of structures in river conservation areas, the obligation for excavation based on the Protection of Cultural Properties Law (Law No. 214 of 1950 and ensuing revisions), the obligation to provide residences up to a certain ratio, the obligation to provide space for a parking lot, the obligation to install welfare-friendly facilities, the obligation to promote greenery and the obligation to install facilities that suppress rainwater flow off. With these types of obligations in place, it is possible that disposal and rebuilding of the concerned real estate will in fact become difficult or that an additional expense will be incurred by the owner to comply with these obligations.

Furthermore, when the managed asset is in an area that includes city planning aspects such as road construction, building restrictions may be placed on areas covered by the city planning ordinance which reduce the building lot area and in turn stem earnings. There is also the possibility that a building of the same scale as present cannot be rebuilt in the event of building reconstruction.

(7) Risk concerning establishment / change of laws

Laws and ordinances may be established and enforced with the objective of protecting the environment such as the Soil Contamination Countermeasures Law (Law No. 53 of 2002 and ensuing revisions), and these laws may impose investigatory, removal and compensatory obligations on the real estate regarding air, soil, subterranean water and other pollution regardless of the presence of any negligence.

There is also the possibility that real estate management costs will increase due to the revision of the Fire Service Law (Law No. 186 in 1948 and ensuing revisions) and other related laws and ordinances that can impact real estate management. In addition, there is the possibility that additional costs or burdens will be incurred in the event of the establishment, application and amendment of laws and ordinances that are for the purpose of reducing energy use and greenhouse gas emissions. Real estate rights may also be restricted due to revisions to the Building Standards Law and City Planning Law, the passage of new laws, and administrative acts including expropriation, redevelopment and rezoning. There is the possibility that these laws, ordinances and administrative acts and their changes may negatively impact KRI's earnings.

(8) Risk concerning bankruptcy of the seller

If KRI acquires real estate from a seller recognized or suspected to be in substantive fiscal crisis due to excessive debt or other financial factors, then the seller's creditors may cancel the transaction concerning this real estate (cancellation as a fraudulent act). Also, if the seller commences bankruptcy proceedings after acquisition of the real estate by KRI, the bankruptcy custodian, supervising member or custodian may reject the transaction concerning this real estate.

Also, when KRI acquires real estate from a party that acquired real estate from a certain party (hereafter, purchaser in this article only), there is the possibility that the transaction between the seller and purchaser will be rejected and that the results of that transaction will be contested if KRI is aware of information that could lead to the real estate transaction between the seller and purchaser being cancelled or rejected as a fraudulent act.

KRI will carefully consider the various circumstances concerning the risk that the custodian will reject or cancel the transaction and take practical steps to remove any risk that the transaction will be rejected or cancelled by the custodian as much as possible. However, it is difficult to completely eliminate this risk.

There is also the possibility that the embodiment of the transaction will lead to the judgment that the real estate transaction between the seller and KRI is a collateral transaction and that the concerned real estate comprises a part of the bankrupt property owned by the bankrupt party or that it is a part of the property of the seller who is legally reorganizing (that is, the risk that it is not a true sale).

(9) Risk concerning the master lease company

KRI may acquire properties in the form of master lease, a style of business involving the subletting of property to sublessees based on a master lease drawn up between the master lessee and KRI or the trustee.

In the event of the deterioration of the master lessee’s financial condition as it pertains to properties that are subject to the master lease, there is the possibility that lease payments from the master lessee to KRI or the trustee may fall behind, even if the sub-lessee has made lease payments to the master lessee. This is a consequence of creditors' garnishing the rent received from the sub-lessee.

(10) Risk concerning subleasing

When the right to sublet all or part of the property is given to the lessee (including sub-lessee), KRI may lose the right to select or remove at its own discretion tenants occupying the property. In addition, when the rent of the lessee is linked to that of the sub-lessee, the credit status of the sub-lessee may have a negative impact on KRI's earnings.

Furthermore, if an agreement is finalized to cancel the rental agreement or rescind said agreement due to the default of obligations, the obligation to refund deposits may be inherited by the lessor even when the rental agreement stipulates that the lessee inherits the obligation to refund deposits to the sub-lessee when the contract ends. In this case the cash for the deposit and such to be refunded may become the burden of the lessor and thus have a negative impact on KRI's earnings.

(11) Risk concerning tenant use of real estate

There are cases where the use or management condition of the real estate by the tenant may have a negative impact on the asset value of said real estate or KRI's earnings. There is also the possibility that the attributes of the sub-lessee or the successor of the leasehold rights deteriorate the tenant attributes of the real estate that is a managed asset and cause the rent levels of the entire building to decrease.

(12) Risk concerning co-owned properties

In cases where the managed asset is a property that co-owned with a third party, various risks exist regarding its preservation, use, disposal, etc. that are absent when it is owned by a single owner.

First, regarding the management of co-owned properties, Civil Code Article 252 states that management is to be conducted by the party with a majority of ownership unless there is a separate agreement between the co-owners. When KRI does not own the majority interest, the intents and wishes of KRI may not be reflected in the management and operation of said real estate. In addition, since the co-owner according to Civil Code Article 249 can use all of said co-owned property according to the ratio of ownership, the ownership or use of said real estate of KRI may be hindered by the exercise of rights by other co-owners.

Other possible risks include the co-owner exercising the right to demand that the entire co-owned property be subdivided (Civil Code Article 256), the possibility that the court may order an auction of the entire co-owned property (Civil Code Article 258) or that the entire co-owned property be sold by a co -owner who is exercising the right to subdivide the property and goes against the wishes of another co-owner.

Although a rider among co-owners concerning the abrogation of the right to demand subdivision of the property is valid, it loses validity after five years. In addition, even when there is a registered rider prohibiting subdivision, if one of the parties to the rider files for bankruptcy, the custodian can demand subdivision of the property for said ownership portion to secure the right to convert this ownership into cash. However, a co-owner can purchase the portion owned by the co-owner that has filed for bankruptcy at an equivalent price (Bankruptcy Law Article 52, Corporate Rehabilitation Law Article 60 and Civil Reorganization Law Article 48).

When the co-ownership interest of other owners has been mortgaged, it is believed that subdivision of the co-owned property will lead to effectiveness of said mortgage being applied to the entire property that had been co-owned in accordance with the ratio of said co-owner's (the party that took out the mortgage) ownership interest. Therefore, even if the co-owned interest of an asset under management is not mortgaged, when another co-owner's portion has been mortgaged then the division of said property will lead to the risk that said mortgage will remain in effect regarding the subdivided managed asset in accordance with the owned interest of other co-ownership parties.

The general interpretation is that a co-owned portion of real estate can be disposed of freely in the same manner as independently owned real estate, but there are cases where the co-owner bears an obligation to provide other co-owners with a preferential right to purchase its share when selling the share to a third party. This is done by agreeing to a preferential purchase right (first option) for the co-owned portion to be disposed among the other co-owners.

When a co-owner of real estate becomes a lessee of a property, it is generally considered that the rent obligation becomes an indivisible credit and that the obligation to return deposits becomes an indivisible obligation. Therefore, other co-owners are subject to possible impact from the credit risk of the co-owner who is the lessee.

Since co-owned real estate faces the above restrictions and risks compared to independently owned real estate, more time and expenses are required for their acquisition and sale. In turn, these restrictions and risks may increase factors which lower the property's value.

(13) Risk concerning compartmentalized ownership of properties

A compartmentally-owned building falls under the jurisdiction of the Law concerning Compartmental-Ownership, etc. of a Building Law (Law No. 69 of 1962 and its ensuing revisions) and is a building that is comprised of an exclusive area (residences, etc.) that is subject to independent ownership, a common area that is co-owned (entrance, etc.) and the building's lot area. Under the Compartmental Ownership, etc. of a Building Law, the management of compartmentally-owned buildings is determined by legal management methods and management bylaws (when there are such). When attempting to pass a resolution to rebuild, a vote must be held on the resolution and at least 80% of the compartmental owners and voting rights (the ratio of the exclusive area to the floor area unless the management bylaws stipulate otherwise) must pass the resolution (Compartmental Ownership, etc. of a Building Law Article 62). In this way, there are management restrictions as opposed to independently owned properties that don't fall under the Compartmental Ownership, etc. of a Building Law.

Although the exclusive area of a compartmentally-owned building can be freely sold, it is similar to a co-owned property in that there are cases where compartmental owners agree to preferential purchasing rights among themselves.

The following risks exist regarding the relationship between compartmentally-owned buildings and their lots.
Regarding the lot owned by a compartmental owner, the rights to own an exclusive area of a compartmentally-owned building are known as land use rights. In compartmentally-owned buildings, the separation and disposal of the exclusive area and its related land use rights is as a rule legally prohibited to maintain a sense of unity between the exclusive area and the lot use rights (Compartmental Ownership, etc. of a Building Law Article 22). However, when the land use rights haven't been registered, it is impossible to oppose a third party regarding this prohibition and the separation and disposal of the property following subdivision becomes possible (Compartmental Ownership, etc. of a Building Law Article 23). When the lot of a compartmentally-owned building is divided into several parts and when the compartmental owners respectively own one or several parts of the land independently as fee simple or land use rights in the form of leasehold rights (land use rights in the form of partial ownership), the lot can be separated and sold. When the exclusive area and related land use rights are disposed of separately, compartmental owners who don't own land use rights may appear.
When the land use rights are either use rent rights or a similar right and said lot is sold, auctioned or transferred to a third party in some other way, the compartmental owner may not be able to oppose the third party regarding existing land use rights.

In the case of compartmentally-owned buildings that reflect this relationship between compartmentally-owned buildings and lots, significant time and expenses are needed to acquire or sell such properties and this may lead to a number of factors which cause the asset's value to decline.

(14) Risk concerning leasehold land properties and leasehold structures

There are unique risks to owning buildings on leasehold land compared to owning buildings on land that you already own. Leasehold is not a permanent right to use the land unlike fee simple ownership, and the contract ends naturally upon expiration of the leasehold period (fixed term leasehold right) or when the owner of the leased land upon expiration of the term refuses to extend the leasehold agreement and has an appropriate reason for doing so (ordinary leasehold right). A leasehold right may also end when a party fails to pay land rents or ends the right for another reason. When the leasehold right ends, excluding cases where the building owner can demand purchase of the building at market price as stipulated in the Land and House Lease Law Articles 4 and 13 (Law No. 49 of 1921 and ensuing revisions), the land must be returned after tearing down the building on the leasehold land. In the case of an ordinary leasehold right, it is impossible for KRI to accurately forecast whether or not the owner of the leased land will reject an extension at the end of the leasehold period for a proper reason. Therefore, even when there is a right to demand acquisition of the building, there is no guarantee that the price will be equal to or greater than the price desired by KRI.

Ownership of the land for which KRI has leasehold rights may also be sold to another party or transferred to a third party due to the execution of a mortgage, etc. on the land that existed at the time the leasehold rights were set. In this case, when no requirements for opposition are in place concerning the third party in accordance with the laws and ordinances applicable to leasehold rights, KRI cannot oppose the new owner and may have an obligation to hand over said land.

Furthermore, if the leasehold rights are lease rights, the approval of the owner of the leased land is necessary when transferring the leasehold rights as a rule. When transferring ownership of the building on the leased land, the leasehold right for said land will also be transferred. As a general rule, it is then necessary to obtain the approval of the owner of the leased land at that time. Regarding this approval, the payment of approval fees to the owner of the leased land may be determined in advance and there are also cases where the owner invoices for such as a business customer (it must be noted that the right of the owner of the leased land to demand an approval fee is not guaranteed under the law).

In addition, the deterioration of the financial condition, bankruptcy, etc. of the owner of the leased land will cause all or a portion of the deposits, guarantees and such normally paid to the owner of the leased land to not be refunded. Traditionally there is no collateral set or guarantee for the right to demand a refund of the deposit, guarantee or like from the owner of the leased land.

Unlike the case where the land and building are owned by the same party, leasehold land and a building built on this leasehold land incurs the above restrictions and risks. Therefore, it may require more time and expenses to acquire or sell such property or may increase factors that lower the property's value.

(15) Risk concerning lease properties

KRI occasionally sublets buildings (including co-ownership and compartmental ownership) that it has leased from a third party or to the trustee, either independently or together with a building it owns, directly or through a trustee to tenants.
In this case, as was the case with the above, the financial deterioration, bankruptcy, etc. of the building lessor may led to all or a portion of the deposits or guarantees paid to the building lessor not being refunded.
In this case, as was the case with the above (14), the financial deterioration, bankruptcy, etc. of the building lessor may led to all or a portion of the deposits or guarantees paid to the building lessor not being refunded.

Additionally, under the Civil Code, when a rental agreement concluded by KRI directly or through the trustee with a third party terminates for any reason, there is the potential that compensation will be sought by the tenant upon termination of the sublease agreement since KRI or the trustee must also then end the sublease agreement with the tenant.

(16) Risk concerning development properties

KRI may conclude a sale and purchase agreement at the development stage to acquire properties after they are completed in accordance with the investment policy designated in KRI's Articles of Incorporation. Unlike acquisition of already completed properties after concluding sale and purchase agreements, such a case presents a variety of reasons why the property may not be handed over according to the sale and purchase agreement including delays, changes or suspension of development. As a result, earnings from the development property may fall far below the forecast, their attainment may be delayed past the scheduled time, or such earnings may not be attained at all. Additionally, KRI may need to bear unanticipated costs, damages or losses. These factors may impact negatively on KRI's earnings.

(17) Risk concerning forward commitments, etc.

When KRI acquires real estate or trust beneficiary interests in real estate, it may conclude a so-called forward commitment (a purchase and sale agreement for forward and future transactions, for which settlement and delivery are to take place after a certain time has elapsed from the date of signing of the agreement). In the case that a real estate purchase and sale agreement is cancelled for reasons attributable to the buyer, the buyer is required to bear responsibility to compensate for damages should a nonfulfillment of an obligation occur. Furthermore, many agreements have provisions for a penalty for cancellation which amounts to a certain ratio of the acquisition price of the real estate or trust beneficiary interests in real estate, regardless of whether or not the amount of damages, etc. were confirmed. Since there is a certain time period between the conclusion of agreements, such as the forward commitment, until the settlement and delivery of property, it is possible that KRI may not be able to procure funds for acquiring the real estate during that time period, due to changes in market environment, etc. Should KRI be forced to terminate the purchase and sale agreement, it could have a negative impact on its financial conditions, etc. as a result of having to pay penalty for cancellation, etc.

(18) Risk concerning toxic substances

There is the possibility that industrial waste and other toxic substances will be buried in land when KRI acquires land, land leasehold rights, surface rights and beneficiary interests in trust for these assets and the value of said land may plummet as a result. Unforeseen costs and time may also be required if the soil must be replaced or washed to remove said toxic substances. There is also the risk that a third party may suffer damages due to these toxic substances and that KRI will be held liable to compensate for said damages either directly or indirectly through the trustee. According to the Soil Contamination Countermeasures Law, there are cases where the land owner, manager or occupant are ordered to investigate and report findings to the prefectural governor about land contamination by specific toxic substances including lead, arsenic, trichloroethylene and other toxic substances. When the pollution from the specific toxic substances harm the health of people or may potentially do so, the prefectural governor may order pollution removal and other measures to be taken to prevent injuries and damages.

In this event, there is a possibility of an enormous financial burden being placed on KRI and there is no guarantee that the party that was the cause or other parties will always compensate KRI for the expenses it was forced to incur. In addition, when KRI acquires a building or beneficiary interests in trust where a building is placed in trust, the value of the building may plummet if the building's materials are found to contain asbestos or some other toxic substance or that the building is storing PCB waste. In addition, unforeseen costs and time may be required when it becomes necessary to replace all or part of the materials to remove these toxic substances or when it is necessary to dispose of or store these toxic substances. If a third party suffers damages from said toxic substances, there is the possibility that KRI will be required to compensate for those damages directly or indirectly through the trustee.

Future laws and ordinances may be established and enforced to protect the environment, and responsibility to investigate, remove and compensate for damages regardless of the cause may be incurred concerning real estate air, soil, subterranean water and other pollution.

(19) Risk unique to owning real estate as beneficiary interests in trust

KRI often acquires real estate in the form of beneficiary interests in trust.

The trustee owns and manages the real estate, real estate leasehold rights or surface rights as trust property for the beneficiary interest holder and all of the economic profit and loss in the end is ascribed to the beneficiary interest holder. Therefore, in owning beneficiary interests in trust, KRI will effectively bear the same risks via the trustee as when the managed asset is real estate.

When attempting to transfer beneficiary interests in trust under a trust agreement, it is common to demand approval of the trustee. Furthermore, beneficiary interests in trust that have real estate, real estate leasehold rights and surface rights placed in trust do not have the same character as investment securities which are transferred in the same way. Thus, when such beneficiary interests in trust are transferred in the same way as the transfer of debt, they also do not possess the same liquidity as securities.

Under the Trust Law (Law No. 62 of 1922 and ensuing revisions), it is essential that the trust is registered with the real estate placed in trust in case a trustee becomes subject to bankruptcy proceedings. This is to counter bankruptcy custodians and other third parties with the position that the real estate that is the subject of the beneficiary interests in trust is a trust property. If, for example, this registration has not been completed, KRI may not be able to argue to the third party that said real estate is the subject of the beneficiary interests in trust.

Also, in the event that the trustee of the trust property sells the trust property contrary to the objective of the trust or incurs some sort of debt with the real estate (trust property) as the allowance, KRI, as the owner of the beneficiary interests in trust of the real estate placed in trust, may suffer immeasurable damages.

In addition, when the initial settlor bears a certain degree of liability for defects regarding the trustee of the trust property in relation to defects of the trust property that already existed at the commencement of the trust and based on the trust agreement, KRI may suffer immeasurable damages and harm the interests of investors or creditors because the trustee of the trust property fails to appropriately pursue the defect liability or is unable to pursue such liability appropriately.

E. Tax risk

(1) Risk concerning conduit requirements

Under the Tax Code, a special regulation regarding taxation of investment corporations stipulates that investment corporations meeting certain requirements (hereafter, conduit requirements) are exempt from double taxation at the investment corporation and investor level, and thus investment corporations are allowed to record profit dividends (distributions), etc. as expenses. KRI endeavors to meet the conduit requirements, but there remains a possibility that the conduit requirements cannot be met in the future due to a change in investors, restrictions on underlying capital to pay distributions, a lack of such capital, fund source, opacity concerning definitions of borrowings, corporate taxes accrued from differences in the treatment of accounting and taxes, differences in the perspectives of tax authorities and KRI, revisions to laws and other factors. If KRI were unable to meet the conduit requirements, it would be unable to record profit distributions, etc. as an expense and KRI's tax burden will increase. This would negatively affect distributions paid to investors.

(2) Risk that conduit requirements will be unfulfilled due to corrective measures from tax audits, etc.

There may be a case where conduit requirements in previous business years will be deemed to have not been met ex post facto in the event that a tax investigation is conducted and a difference in interpretation between KRI and the tax authorities regarding the treatment of conduit requirements leads to corrective measures. In this case, the denial of filed tax returns for distributions recorded as expenses in previous business years may lead to an increased tax burden for KRI and could have a negative impact on distributions paid to investors.

(3) Risk that tax mitigation measures related to real estate acquisitions cannot be applied

The investment policy in KRI's Articles of Incorporation stipulates that the portfolio will be managed so that the value of qualified real estate (real estate, real estate lease rights, surface rights, or beneficiary interests in trust where real estate, land lease rights or surface rights are placed in trust) versus the total value of qualified assets owned by KRI will be at least 75% of all assets. KRI's line of thinking is that by satisfying the investment policy stipulated in the Articles of Incorporation and other tax requirements it will receive tax mitigation measures for the real estate transaction taxes (real estate acquisition tax) when it directly acquires real estate. However, KRI may not be able to receive the tax mitigation benefits if it doesn't meet the tax mitigation requirements or the mitigation requirements change.

(4) Risk concerning changes in the general tax system

There is the possibility that taxes and public charges will increase and that this will impact KRI negatively if there are changes to the tax system regarding KRI and the interpretation, management and treatment of the tax system regarding real estate, real estate beneficiary interests in trusts and other assets of KRI. In addition, the amount of net income of investors may decrease in the event of ownership or sale of KRI's investment units or a burden on investors for tax filings and other tax procedures may arise due to changes in the tax system concerning distributions paid on profits from investment securities, refunding of investments and the transfer of investments and changes to the interpretation, management and treatment of the related tax system.

F. Other Risks

(1) Risk concerning appraisal reports, etc.

Valuations indicated in real estate appraisal reports and real estate pricing investigations are no more than opinions concerning evaluations at the time of the analysis that are based on the analyses of individual real estate appraisers, etc. and objectively do not automatically match the suitable real estate price. There is the possibility that appraisals, studies and the like of the same property could lead to different audit and study valuations depending on which appraiser conducted the appraisal, the valuation and study methods used and their timing. In addition, the appraisal reports are not a guarantee or promise of the possibility of buying or selling said property at the valuation in the appraisal or study presently or in the future.

The results of building engineering reports and earthquake PML valuation reports are recorded when a specialist verifies design drawings, visually inspects present conditions, interviews facility managers, etc. of buildings being appraised to determine present defects and forecast future defects, necessary repairs and renovations and to calculate the cost for doing such, cost of replacing the building, the anti-seismic performance of the building and the risk of loss from earthquakes. However, these reports do not guarantee that there are no real estate defects, etc.

In addition, the PML values calculated for properties are no more than forecasts based on the analyses of individual specialists. The PML values are indicated by the ratio of the foreseen damage recovery costs to the replacement cost of the building (%), but there is the possibility that a future earthquake may result in recovery costs that are greater than expected.

(2) Risk concerning the application of asset impairment accounting

As a result of the compulsory application of accounting standards relating to the impairment of fixed assets (Statement Concerning the Establishment of Accounting Standards for the Impairment of Fixed Assets, (Business Accounting Council, August 9, 2002) and Guidelines for the Application of Accounting Standards for the Impairment of Fixed Assets (Business Accounting Council Application Guidelines No. 6, October 31, 2003)) from the fiscal year starting April 1, 2005 onwards, KRI has applied asset impairment accounting.
Asset impairment accounting refers to the accounting procedure whereby the book value of commercial real estate, mainly land and buildings, is reduced in order to reflect the likelihood of recovering investment under certain conditions in the event that there is no prospect of securing a return on the relevant investment due to a decline in profitability. The application of asset impairment accounting means that factors such as trends in land prices and profits from operational real estate could result in accounting impairment losses and could potentially have an adverse effect on the KRI's performance. However, such losses are only recognized for tax purposes upon the sale of the relevant real estate (excluding cases in which requirements for the inclusion of appraisal losses under expenses for tax purposes are met and the portion of impairment losses covered under the tax depreciation allowance). Consequently, there is a possibility that discrepancies could arise between tax and accounting figures, resulting in increased tax costs.
There may be impairment losses due to the substantial devaluation of KRI property due to the fluctuations in economic conditions and real estate prices.

(3) Risk concerning investment in tokumei-kumiai

In accordance with its Articles of Incorporation, KRI may invest in a real estate-related tokumei-kumiai (Japanese silent partnerships). In such tokumei-kumiai, KRI’s TK Operator (Tokumei-Kumiai Operator) uses KRI funds to invest in real estate. However, in the event of deterioration in income from and the value of the relevant real estate, the amount of distribution and redemption of principal that KRI can recover as a party to such a tokumei-kumiai may decrease. Accordingly, there is the possibility that KRI will not be able to collect funds invested via its TK Operator. In addition, the assignment of interests in a real estate-related tokumei-kumiai are often prohibited or limited in accordance with the agreement, and there is no established secondary market. The liquidity of such interests in a real estate-related tokumei-kumiai is therefore low and it may be difficult to assign such interests in a timely manner and at an appropriate price at the time that KRI intends to assign the interests.