Contract Design Comparison of Three Small Concession Cases in Small Cities — Breakthrough Patterns for the Three Walls

This is the first case study installment from the Public Asset Utilization Research Lab (ISVD-LAB-005). We select three small concession implementations in cities of 30,000–100,000 residents and compare how each contract design broke through the profitability, funding, and know-how walls introduced in the earlier structural analysis "Three Walls of Small Concession Structure."

The institutional side of small concessions in Japan is coming together. MLIT published "The Case for Small Concessions" in May 2026, and the Small Concession Platform now has 1,042 members. Yet in cities with fewer than 50,000 residents (1,227 of Japan's 1,788 municipalities), the adoption rate of the priority review regulation for PPP/PFI stands at just 3.4%. Implementation lags well behind policy design.

To close the gap between institution and implementation, contract designs of the frontrunner cases need to be dissected. This paper analyzes the following three cases.

• Fukuchiyama, Kyoto (population approx. 74,000): "THE 610 BASE," repurposing the former Naka-Mutobe Elementary School. Ten-year lease agreement with Inoue Corporation. Zero-public-burden type combining a strawberry farm, cafe, and craft beer brewing.
• Tsuyama, Okayama (population approx. 95,000): "Shiroshita-Koyado Kojiya," using the former Karita Family Attached Townhouse Group inside the Tsuyama Castle East Preservation District. Public facility management rights were resolved in March 2020 (Reiwa 2) and the facility opened for use on July 17, 2020, with HNA Tsuyama Inc. (a local operator). Subsidy-hybrid type combining preservation-district subsidies.
• Miyawaka, Fukuoka (population approx. 26,000): "Remote Work Town Musubu Miyawaka," repurposing the former Yoshikawa Elementary School. Three companies under Trial Holdings (Retail AI, Trial Company, and Meidi-Ya) were selected as concession operators via the private proposal system under PFI Act Article 6, with regional revitalization grant support.

All three have more than three years of operating history as of May 2026, and their contract designs can be traced through public documents and press reports.

Selection Criteria — Conditions Shared by the Three Cases

We narrowed candidates to those meeting all four conditions below.

1. Small city: Population of 30,000–100,000 (the segment where PPP/PFI adoption is thinnest)
2. Contract design verifiability: Contract form, term, and operator explicitly documented in municipal websites, MLIT case collections, or press reports
3. Implemented: Not at planning stage but already open
4. Three-plus years of operating record: Enough elapsed time for initial evaluation

Miyawaka falls slightly below the lower bound at 26,000 residents, but it was selected as a reference point showing that even ultra-small municipalities can host large-scale projects when the private proposal system is paired with grants. Contrasting it with Fukuchiyama and Tsuyama in the middle band clarifies how scale shapes contract design.

Profiles of the Three Cases

The three cases differ in facility type (school, traditional townhouse, school), business content (farming + food, lodging, AI hub + direct sales), and operator character (local construction firm, local operator, three subsidiaries of a major retail group). Reading these differences against the axis of "how the three walls were broken" surfaces a shared structure.

Breaking the Profitability Wall — Business Model and Revenue Design

Of the four revenue types classified in the earlier note "Structural Analysis of the Small Concession Three Walls" — zero-public-burden (Type A), subsidy-hybrid (Type B), FTK (Type C), and LABV (Type D) — the three cases occupy different types.

Fukuchiyama THE 610 BASE — Zero-Public-Burden Type (Type A)

Inoue Corporation leases the entire property including the school building, gymnasium, and grounds, installing seven greenhouses on the former schoolyard for strawberry cultivation (approximately 14,000 seedlings yielding about 7 tons annually). The main building was converted to strawberry-picking reception, cafe, marche, and workshop space. The gymnasium became a skateboard ramp. Land rent paid to the municipality is not publicly disclosed (no first-hand documentation was available for this paper); however, no operations subsidy flows from the municipality.

Revenue comes from a compound structure: strawberry-picking fees, cafe sales, marche booth fees, and craft beer sales. What no single business could sustain on its own is smoothed by bundling multiple seasonal activities under one roof.

Tsuyama Shiroshita-Koyado Kojiya — Subsidy-Hybrid Type (Type B)

Tsuyama City set public facility management rights on four buildings of the former Karita Family Townhouse Group with HNA Tsuyama Inc.: management rights were resolved in March 2020 (Reiwa 2), with the facility opening for use on July 17 the same year, and the contract term runs about 20 years (July 2020–March 2040). The operator pays a management-rights fee to the city and runs the property as a lodging business. Aiming to regenerate the Castle East Preservation District, Tsuyama combined preservation-district subsidies, streetscape environment improvement grants, and regional revitalization grants to cover part of the refurbishment cost.

Revenue comes from lodging fees and full-building rental premiums; demand generation is placed on the operator side. Attracting domestic and overseas tourists and coordinating with local food and experience menus lift the average unit price.

Miyawaka Musubu Miyawaka — Private-Proposal Variant of Type B

Miyawaka City received a private proposal from Trial Holdings under PFI Act Article 6 for the former Yoshikawa Elementary School (closed 2018) and selected the concession operators without a competitive tender. The main building became the AI development hub "MUSUBU AI" (opened June 2021), the gymnasium became the farm restaurant "Grosseria" (opened April 2022), and the grounds became the direct sales shop "Miyawaka no Sato" (agri-tourism center, opened April 2022). Management rights are set on each of the three facilities separately: Retail AI Inc. holds MUSUBU AI, Trial Company Inc. holds Miyawaka no Sato, and Meidi-Ya Inc. holds Grosseria (all subsidiaries of Trial Holdings).

Revenue derives from shared office fees paid by AI development tenants, restaurant sales, and direct-sales commissions, with the business case leveraging synergies with Trial's distribution operations. Facility development cost totals ¥1,134 million (of which ¥563 million is the municipal share), with a 30-year contract term (April 2021–March 2051). Subsidies used are ¥458 million in regional revitalization grants and ¥105 million in the COVID-19 Regional Revitalization Emergency Grant.

Breaking the Funding Wall — Initial Capital Design

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Momentum Building

Promote PPP/PFI understanding Brief mayor and council

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Facility Selection

Inventory idle facilities Develop area vision

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Feasibility Review

Conduct sounding Public-private dialogue

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Business Plan

Revenue simulation Introduction feasibility study

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Public Call

Draft solicitation Operator selection

Initial capital design in the three cases shifts with facility condition and project scale. Fukuchiyama's school renovation kept the scope within a range that Inoue Corporation could fund from its own capital plus bank financing, because the main building's structure was in reasonable shape and the strawberry greenhouses were new installations on the grounds.

Tsuyama's traditional buildings require expensive seismic reinforcement and aesthetic restoration in line with preservation-district constraints. Combining preservation-district subsidies with streetscape environment improvement grants compressed the operator's initial burden. However, subsidized properties remain bound by use restrictions in the grant agreement, limiting the flexibility of lodging price adjustment.

Miyawaka's private-proposal scheme enabled facility development at ¥1,134 million (of which ¥563 million is the municipal share, with a 30-year contract term). The regional revitalization grant of ¥458 million plus a ¥105 million COVID-19 emergency grant funded the municipal share, while operators mainly carried operational equipment costs. The sheer project scale itself improved bank financing prospects.

Breaking the Know-How Wall — Operator Selection and Role Allocation

The structural problem "local small operators, social enterprises, and NPOs are screened out by track-record requirements" is circumvented differently in each case.

Fukuchiyama ran a public proposal-type solicitation as part of the Fukuchiyama School Reuse Project and selected Inoue Corporation, a local construction firm. Placing construction and operation in local hands reconciles construction quality with regional employment.

Tsuyama adopted a management-rights fee scheme and completed operator selection under PFI Act procedures. A local operator (HNA Tsuyama Inc., a local operator) acquired the management rights and now carries the business risk.

Miyawaka triggered the private proposal system first and confirmed the operator without any solicitation. This route, unlike a public competition, tends to work only when "an operator with a strong preexisting local tie" is available (Trial has a partnership agreement with Miyawaka and operates multiple school-reuse projects there). It offers high design freedom and allows the operator's know-how to be leveraged to the maximum.

Contract Design Comparison

Comparing contract clauses across the three cases reveals structural differences on the following items.

Contract terms vary widely across the three cases: 10 years (Fukuchiyama), about 20 years (Tsuyama), and 30 years (Miyawaka). Fukuchiyama's 10-year term is consistent with the "10-year rule" that avoids subsidy clawback for school reuse (Property Disposal Procedures Handbook). Tsuyama's concession contemplates long-term operation, and Miyawaka structures a 30-year large-scale contract inside the private-proposal frame.

For risk allocation, the demand risk placements identified in the earlier note "PPP/PFI Risk Allocation Matrix" differ clearly across the three. Fukuchiyama fully places demand risk on the private side, Tsuyama places it on the management-rights holder, and Miyawaka structures demand creation as an extension of the parent company's business strategy.

Monitoring clauses across all three cases are trimmed to the minimum on the municipal side, prioritizing operator discretion. Fukuchiyama in particular takes maximum advantage of the VFM exemption requirement, bundling the requirement specification and operator selection criteria into the solicitation notice and thereby cutting procedural cost.

Type selection is a function of facility potential and operator funding capacity. Fukuchiyama's zero-public-burden type works when facility potential is sufficient (sound main building structure plus schoolyard convertible to new use) and the operator can fund refurbishment from own capital or bank loans. Tsuyama's subsidy-hybrid type suits situations with high refurbishment costs and clear policy objectives for regional regeneration. Miyawaka's private proposal plus grant type fits when the operator has strong regional relational capital and the project can be scaled up.

The private proposal system functions as one route past the track-record wall. Under Miyawaka's model, operator screening by track-record requirements is skipped because no public tender is held. Yet this route presumes the operator's capacity to propose a business concept to the municipality (plus an existing local relationship), which raises the barrier for new entrants or non-local operators.

The 10-year contract term is becoming a de facto standard for school reuse projects. It aligns with the subsidy clawback rules under the Property Disposal Procedures Handbook and fits within bank financing repayment plans. Whether a five-year renewal option is attached varies, and the renewal prospect affects operator willingness to make upfront investment.

Common patterns across the three cases suggest principles to keep in mind when other municipalities consider adoption.

Principle 1: Design revenue bundling first. A school or idle facility that no single business can sustain becomes viable when bundled with multiple businesses whose seasonality and customer segments differ. Fukuchiyama's "strawberry + cafe + beer + marche" and Miyawaka's "shared office + restaurant + direct sales" are concrete examples.

Principle 2: Match facility condition with subsidy sources at the concept stage. For facilities requiring heavy refurbishment, corresponding subsidies (preservation-district subsidies, regional revitalization grants, vacant house utilization grants) should be built into the concept. Applying for additional grants after operator selection often creates mismatches with subsidy rates and use restrictions.

Principle 3: Fix the operator selection route — public tender or private proposal — early. Public proposal-type solicitations preserve fairness but constrain the participant pool depending on how track-record requirements are set. The private proposal system offers design freedom but presumes operator relational capital. Choose based on municipal policy goals and the local operator landscape.

Principle 4: The failure mode of portability lies in overlooking region-specific conditions. All three cases lean on region-specific assets: Tsuyama's preservation-district heritage, Miyawaka's partnership agreement with Trial, Fukuchiyama's climate and farmers suited to strawberry cultivation. When trying the same scheme elsewhere, these preconditions must be verified before the type is chosen.

The three cases have more than three years of operating record since their respective start-of-use dates and are ready for initial evaluation of contract design. Evaluation of business continuity across the full 10-to-30-year contract terms, however, remains a future task.

In particular, for subsidy-hybrid types (Tsuyama, Miyawaka), how business continuity motives shift after the subsidy clawback avoidance period (10 years) expires is a research question. Even under the zero-public-burden type (Fukuchiyama), how land rent and terms will change during the 10-year lease renewal negotiation will affect business profitability.

Going forward, this lab will track contract amendments, business content shifts, and operator turnover during the operational period. Small concession implementation patterns in small cities cannot be read from static contract design alone; they take structural shape only through dynamic operating processes.

If any statements in this article contain errors or misleading expressions, please contact the ISVD corrections desk.

Related Research Notes

• Structural Analysis of the Small Concession Three Walls — The foundational analysis of the profitability, funding, and know-how walls that the three cases broke through
• Structural Analysis of School Reuse Small Concessions — The structure surrounding 1,951 unused schools nationwide
• PPP/PFI Risk Allocation Matrix — Design principles for reading the risk allocation in the three cases

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References

The Case for Small Concessions (Published May 2026) — Ministry of Land, Infrastructure, Transport and Tourism. MLIT

Fukuchiyama School Reuse Project — Fukuchiyama City, Finance Department, Asset Utilization Section. Fukuchiyama City

Fukuchiyama School Reuse Project — Community Revitalization through Regional Asset Use — Fukuchiyama City, Finance Department, Asset Utilization Section. MLIT Public-Private Partnership Portal

Notification on Public Facility Management Rights for the Facility Utilizing the Old Karita Family Townhouse Group — Tsuyama City. Tsuyama City

Shiroshita-Koyado Kojiya (Tsuyama, Okayama) — Facility Management Operation Using the Old Karita Family Townhouse Group — Ministry of Land, Infrastructure, Transport and Tourism. MLIT Small Concession Platform case materials

Public-Private Partnership Project 'Remote Work Town Musubu Miyawaka' — Miyawaka City. Miyawaka City

MUSUBU AI, Miyawaka no Sato, Grosseria (Miyawaka, Fukuoka) — Public Facility Operation on the Site of the Former Yoshikawa Elementary School — Ministry of Land, Infrastructure, Transport and Tourism. MLIT Small Concession Platform case materials

PPP/PFI Promotion Action Plan (FY2025 Revised) — Cabinet Office. Cabinet Office