This is the sixth installment in the structural analysis series from the Public Asset Utilization Research Lab (ISVD-LAB-005). It dissects the "three walls" presented in MLIT's May 2026 handbook and maps the revenue structure types and breakthrough patterns drawn from 15 PMC seminar cases.
What Is Happening
Small concessions — the practice of municipalities lending or transferring idle public facilities to private operators who fund and manage them — have gained policy momentum in Japan. The MLIT handbook published in May 2026 confirms that projects with no planned public expenditure on operations are exempt from VFM (Value for Money) assessment requirements.
The government's target is to accumulate ¥30 trillion in public real estate revitalization projects over the decade from FY2022 to FY2031. The Small Concession Platform (SCPF), established in December 2024, had 1,042 members as of May 2025.
The institutional scaffolding is in place. Yet operators attempting to respond to public solicitations across Japan encounter three structural barriers.
Background and Context
What Are the Three Walls?
MLIT's "The Case for Small Concessions" organizes the reasons small concession projects fail to materialize into three categories.
| Wall | Core Challenge | Who Faces It Most |
|---|---|---|
| Image wall | No clear picture of how to proceed or what activation looks like | Municipal officials |
| Partner wall | PPP benefits unclear; private operators not found | Both sides |
| Commercialization wall | Procedural complexity prevents projects from reaching implementation | Private operators |
The handbook responds with three approaches: explanations of precedent cases, guidance on conducting sounding (official market dialogue), and procedural simplification. However, the description of the three walls remains a catalog of phenomena rather than a structural analysis of their causes. This piece examines each wall against the 15 PMC seminar cases to surface the underlying mechanics and breakthrough conditions.
Institutional Premise: What VFM Exemption Actually Means
One of the key distinctions of small concessions from large-scale PFI is the availability of a VFM exemption. Under the Cabinet Office's Priority Review Procedures, VFM assessment is mandatory only for projects exceeding ¥1 billion in construction costs or ¥100 million per year in operations. Projects generating zero public expenditure — no management consignment fee, no subsidy, building provided free of charge — fall outside this threshold.
The Fukuchiyama City elementary school reuse case (opened October 2020) is the clearest embodiment of this model. Municipal financial burden is zero; the building is lent free of charge while a ground lease fee of ¥1.6 million per year is collected. A combined operation of strawberry farming, craft beer brewing, and a café achieves profitability without subsidies. For this type, procedural simplification reaches its maximum: solicitation requirements, operator selection criteria, and the basic conception and plan can all be combined into a single application package.
Reading the Structure
Wall 1: Track Record Requirements and the Exclusion of Emerging Operators
Most public solicitations require applicants to submit three consecutive years of financial statements and, in some cases, ten or more years of continuous track record in similar operations. This is a requirement inherited wholesale from large-scale PFI practice.
The structural problem is that the operators most naturally suited to small concessions — locally rooted small businesses, social enterprises, NPOs — are precisely those least able to meet these requirements. Organizations under three years old, new entrants to disability welfare operations, design or consulting firms with no facility operations history: all are screened out at the document review stage.
Consortium applications are also constrained. Where solicitation terms require all consortium members to individually satisfy all requirements, adding an experienced operator to the consortium can disqualify other emerging members depending on the terms' interpretation.
The breakthrough pattern confirmed in practice is the sounding-first route. Participating in official market dialogues (sounding) before the project is formally tendered allows operators to engage during the project design phase, potentially influencing how track record requirements are set. MLIT's Guidelines on Sounding-Type Market Surveys explicitly permit bonus points and negotiated contract conditions for sounding participants, meaning pre-solicitation participation can generate competitive advantage.
Wall 2: The Difficulty of Proving Operational Continuity
For small-scale facilities, presenting a credible long-term financial forecast across a 10-to-30-year concession period is inherently difficult. Demand projections, user volume estimates, and per-visitor revenue assumptions all lack an adequate base of comparable precedents.
In the Miyawaka City elementary school reuse case (AI development + shared office + farm-to-table restaurant, 30 years), project costs reached ¥1,134 million, of which ¥563 million was publicly funded, with ¥458 million in regional revitalization grants. The subsidy is structural to the project's solvency; without it, demonstrating operational continuity would have been considerably harder.
By contrast, the Kamakura City historic house reuse case used FTK (Real Estate Specified Joint Enterprise) crowdfunding to raise the full ¥9 million: 180 units, a 2–8% return, plus non-monetary returns including facility usage privileges — a "community investment" model. For small-scale projects, turning demand uncertainty on its head by tapping local resonance as a capital source can work where conventional financial forecasting falls short.
Wall 3: Revenue Forecasting Difficulty and Revenue Structure Types
The financial structure of a small concession depends fundamentally on its type. Confusing types produces incoherent forecasts. Four revenue structure types emerge from the 15 PMC seminar cases.
Type A: Zero Municipal Burden (Fukuchiyama Model)
The municipality lends the building free of charge and collects only a ground lease fee. The private operator bears all renovation costs and achieves profitability through a multi-activity operation (agriculture, food and beverage, lodging, etc.). VFM assessment is not required; procedural simplification reaches its maximum. Two conditions must both be met: the facility must possess sufficient operational potential (location, floor area, structural condition), and the private operator must be able to secure renovation financing through self-funding or bank loans.
Type B: Subsidy-Hybrid
National subsidies — from MLIT, MEXT, the Cabinet Office, or others — cover a portion of renovation costs. Regional revitalization grants, vacant property utilization grants, and urban development subsidies are commonly applicable. Higher subsidy ratios reduce private initial investment and lower entry barriers, but the requirement that operations continue for 10 or more years (to avoid subsidy repayment obligations) becomes entangled with proof of operational continuity. The Tsuyama City historic house case combined heritage preservation subsidies, townscape improvement grants, and regional revitalization funding, with a stepped structure: rent-free for the first three years, then an annual concession premium from year four onward.
Type C: FTK (Real Estate Specified Joint Enterprise)
FTK mechanisms aggregate small-unit investments and deploy local finance and community investment to raise initial capital. In the Hanno City Moomin Valley Park case (¥7.4 billion), an SPC obtained use permits for public land, avoiding land acquisition costs, and assembled capital from local investors and regional financial institutions. Using the FTK special purpose company exception allows diverse investors to participate in local finance structures previously accessible only to a limited range of underwriters.
Type D: LABV (Land Asset-Backed Vehicle)
The municipality contributes land as a physical equity input, while chambers of commerce, banks, universities, and regional companies contribute financial capital. In the Sanyo-Onoda City case (A Square), the facility integrated municipal service counters, a chamber of commerce, a bank branch, student dormitories, and a welfare center. Municipal land contribution reduces the private sector's initial burden and allows lower-revenue mixed-use functions to be incorporated into the same facility.
| Type | Municipal Burden | Subsidy Dependence | Initial Capital Source | Key Conditions |
|---|---|---|---|---|
| A Zero-burden | None | None | Private equity, bank loans | Facility potential, operator financing capacity |
| B Subsidy-hybrid | Medium–high | Yes | Subsidies + private | Subsidy eligibility, 10-year continuity design |
| C FTK | Low | None–low | Small-unit investment, CF | SPC formation, Type 1 operator license, investor appetite |
| D LABV | Land contribution | Partial | Land in-kind + capital investors | Municipal willingness to contribute, multi-party consensus |
Institutional Design Hints
The sounding-first route is the only institutional pathway for bypassing the track record requirement wall. Participating in project design before formal solicitation enables operators to influence how track record requirements are written. Bonus points and negotiated contract conditions for sounding participants are mechanisms explicitly sanctioned by MLIT's guidelines.
Leveraging the VFM exemption should be the starting point of procedural design. Structuring the project so the municipality bears no management consignment costs (building provided free, ground lease only) takes the project outside the scope of Priority Review Procedures, eliminating the VFM assessment requirement. This also enables solicitation requirements, selection criteria, basic conception, and basic planning documents to be combined and simplified.
SCPF specialist dispatch directly addresses the image wall. The Small Concession Platform operated by MLIT provides specialist dispatch to support municipalities with project design and sounding operations. Private operators who register with SCPF gain exposure to municipalities looking for partners and appear in the member directory as a starting point for operator matching.
Conclusion
Reading the three walls structurally reveals that they are not independent problems but a connected structure in which procedural sequencing, capital routing, and track record requirement design reinforce one another.
The track record wall is avoidable through sounding-first participation. The proof-of-continuity difficulty shrinks when the revenue type is correctly identified — in Type A, the subsidy continuity conditions that make proof difficult simply do not exist. Revenue forecasting difficulty changes in structure depending on which of the four types applies.
The next phase of analysis for this research lab is the mapping of local conditions (population scale, facility location, municipal fiscal position, existing private operator distribution) to revenue structure type compatibility. The ability to read whether a small concession has room for entry depends not on whether a project exists, but on the capacity to distinguish whether it is a Type A or Type B case before the solicitation is published.
Corrections and Contact
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References
The Case for Small Concessions (published May 2026) — Ministry of Land, Infrastructure, Transport and Tourism (MLIT). MLIT
PPP/PFI Promotion Action Plan (FY2025 Revised) — Cabinet Office. Cabinet Office
Guidelines on Sounding-Type Market Surveys (revised March 2024) — Ministry of Land, Infrastructure, Transport and Tourism (MLIT). MLIT
PPP/PFI Priority Review Procedures Establishment Status (as of March 2025) — Cabinet Office PPP/PFI Promotion Office. Cabinet Office
Small Concession Platform — Ministry of Land, Infrastructure, Transport and Tourism (MLIT). MLIT