Leopalace21 lost its equity to construction defects, then earned a ¥11.8bn profit by 2022

Leopalace21, Tokyo-listed under code 8848, built small apartment blocks for individual landlords and then managed them. On 27 April and 29 May 2018 the company disclosed that partition walls in some buildings did not match the approved specifications, and the Ministry of Land, Infrastructure, Transport and Tourism began passing its property lists to local building authorities for verification and correction.

On 7 February 2019 Leopalace21 reported to MLIT that partition walls, exterior walls and ceilings in up to 1,324 further buildings did not conform to the specifications recognised under the Building Standards Act. The same day it booked an additional ¥36bn of special losses for repairs and cut its forecast for the year to March 2019 from a ¥5–7bn net loss to a ¥38–40bn net loss. President Hidese Miyama returned 30% of his monthly pay for six months.

MLIT instructed the company to explain matters to owners, report to the specified administrative authorities, carry out repairs swiftly, investigate causes and set up a consultation desk. A second MLIT notice on 29 May 2019 covered fire-resistance specifications after an external tip-off in February. The ministry then convened an expert panel on quality control in apartment construction, which reviewed the findings of Leopalace21's own external investigation committee alongside those of Daiwa House.

The repair bill outlasted the repairs. Leopalace21's consolidated balance sheet showed negative net assets at 31 March 2021, and on 29 June 2021 the Tokyo Stock Exchange designated the shares as subject to a delisting grace period running to 31 March 2023. On 16 May 2022 the company reported results for the year to March 2022: net assets back in positive territory and net profit of ¥11.8bn.

Negative net assets cleared and net profit of ¥11.8bn for the year to March 2022, two years after the exchange put its shares in a delisting grace period.

Repairs were mandatory and open-ended, so the only lever management truly controlled was the cost base and the asset perimeter; non-core units went first.

Management and brokerage fees on buildings that already exist are steadier than construction margins, and they kept arriving while new-build work slowed.

Reporting each new tranche of defects to MLIT fixed a finite perimeter — 1,324 buildings and a defined repair list — instead of an unbounded liability.

The exchange's grace period, extended to two years because the deficit was judged pandemic-related, bought the time to finish remediation and rebuild equity.

When a latent defect turns your product into a liability, survivors shrink to the part of the business that earns fees on buildings that already exist, and pay the repair bill out of that.

Leopalace21 kept its listing and stayed inside MLIT's remediation frame, while the ministry's expert panel surveyed quality control across major rental-housing operators and type-certified components, using Leopalace21's and Daiwa House's external investigation findings as its evidence base. The company that emerged is smaller and more service-weighted than the builder that first disclosed defective partition walls in April 2018, and the case became the reference point for how Japan inspects the walls, ceilings and fire resistance of investor-built apartment stock.