28 Jun, 2012 -

Japanese property asset manager Kenedix Inc has won the exclusive right to buy a distressed property in central Tokyo formerly owned by a fund run by Morgan Stanley for about 51 billion yen ($639 million), less than half of the price it last sold for in 2008, three people with direct knowledge of the transaction said. The end of a one-and-a-half-year search for a new owner is a signal investors now see some upside to the Tokyo real estate market with analysts saying the city’s vacancy rates have almost hit bottom and rents for office buildings are set to rise. Kenedix manages more than 1 trillion yen worth of assets and is expected to officially receive permission next week to buy the 21-storey building. The property had been purchased by a fund known as MSREF VI for 118 billion yen in 2008, the end of the real estate boom fueled by debt financing.

MSREF VI in 2011 lost the rights to the building after failing to repay its loans on time. The building had been used as the headquarters of Shinsei Bank. “Investors appetite for Tokyo office market is recovering with increased expectation of rental recovery in the next 12 to 24 months. The recovery will be driven by the economic fundamentals and significant less office supply in 2013,” said Andy Hurfurt, an executive director at CB Richard Ellis in Tokyo. “The building is located in an area that is close to government offices and the financial district and popular with a variety of occupiers, including banks, professional services, corporate and government-related entities,” Hurfurt said.

Located near the Imperial Palace as well, the building was designed for a single tenant, which slowed the sale process. It was originally built in 1993 at the end of Japan’s asset inflated bubble economy for the Long-Term Credit Bank of Japan, which was bailed out by the government in 1998 and renamed Shinsei Bank. “As a build-to-suit for LTCB, the building has a few unique features, but I am surprised that the price was not higher and at face value, it seems like a good deal for Kenedix,” Hurfurt said. Mizuho Trust & Banking is conducting the sale. The building has been empty since January last year after Shinsei Bank moved its headquarters to another part of Tokyo. Mitsubishi Estate had considered bidding for the building, but withdrew, sources told Reuters.

(Source – “Reuters”)

27 Jun, 2012 -

Fortress Investment Group LLC, the investment company overseeing $46.4 billion, wants to raise $1 billion for a Japanese property fund by the end of the year, two people familiar with the plan said. The company’s second Japan Opportunity Fund, which invests in assets including real estate debt, is in the process of buying $200 million of debt from Japanese and foreign banks with a total principal balance of $1.3 billion, said the people, who requested anonymity because the information is private. Todd Ladda, New York-based managing director and head of capital formation for credit at Fortress, declined to comment. Fortress is seeking bargains in Japan’s property market following a record amount of defaulted debt from lending extended prior to the 2008 global financial crisis. Lenders and holders of commercial mortgage backed securities, who have been stuck with loans that no longer reflect their initial values, are seeking exits amid declines in real estate prices. “Fortress is betting on the future recovery of property prices,” said Yoji Otani, an analyst at Deutsche Bank AG in Tokyo. “Acquiring good properties in Tokyo can be difficult because that can be very competitive. Buying real estate loans is a way to gain control of properties.”

Investor Demand

Japanese institutional investors such as pensions and insurance companies account for 40 percent of investments in Fortress’s new fund, while those from the U.S. and Europe make up the rest, the people said. The fund, which will stop accepting new investment after December, has a targeted return of more than 20 percent, they said. The fund, with a three-year investment period, started in December and raised $650 million as of March, according to the New York-based company’s earnings statement. Fortress’s previous fund, the Japan Opportunity Domestic Fund, which raised 75 billion yen of capital in June 2010, generated 46.1 billion yen of returns as of the end of 2011, the company said March 14. In 2010, the fund bought loans made to Tokyo-based K.K. DaVinci Holdings, which ran Japan’s biggest private real estate fund. Bonds backed by commercial mortgages linked to everything from shopping malls to office towers were used to finance $66 billion of property acquisitions in Japan in the three years to 2007, according to data compiled by Deutsche Bank. The annual volume dropped about 70 percent in 2008 after Lehman Brothers Holdings Inc. filed for bankruptcy and investors shunned securities that bundled property debt.

CMBS Default

As much as 700 billion yen of defaulted CMBS debt is set to be redeemed in the next two years, according to an estimate by Koji Kumamaru, managing director in the structured finance group at Moody’s Investors Service, based on the CMBS it had rated. Office property prices in Tokyo, which have declined about 40 percent from their peak in 2007, have been little changed this year, signaling the market is stabilizing, according to an estimate by Andy Hurfurt, an executive director at CBRE Group Inc. in Tokyo. The building transaction volume fell 45 percent in the first three months of this year from a year earlier, indicating a lack of supply for sale, said Kayoko Hirao, the head of Japan research at DTZ Research in Tokyo. “The market is approaching the bottom now in Japan,” said Hirao. “ There is a lot of potential to invest here now.” The capitalization rate measuring investment yield for Japanese office buildings worth more than $10 million has declined to 5.57 percent in the first three months this year, down from an average of 5.74 percent in the past 12 months, according to Real Capital Analytics Inc. A drop in the cap rate, which is a property’s net income divided by the purchase price, usually signals an increase in real estate prices.

(Source – “Bloomberg“)

20 Jun, 2012 -

Japan’s Nikkei share average advanced today, on growing speculation that the U.S. Federal Reserve will launch a new round of stimulus to help combat slower growth and the impact of the euro zone sovereign debt crisis. The Nikkei gained 0.8 percent to 8,721.50, breaking above 8,714.78, the 23.6 percent retracement of its fall from March 27 to June 4. “Market participants are extremely sensitive in a heightened stage of anticipation. The FOMC result tonight seems be to well telegraphed and it does seem to be there will be extension of ‘Operational Twist’,” said Stefan Worrall, direct of equity cash sales at Credit Suisse in Tokyo. The Fed is due to release a statement at 1630 GMT, following a two-day meeting.

Financials and real estate companies, which benefit the most from any reflation trade, were in demand, with Nomura Holdings , Japan’s top investment bank, up 2.9 percent, Daiwa Securities Group gaining 3.8 percent and Sumitomo Realty & Development adding 3.5 percent. Lenders Sumitomo Mitsui Financial Group rose 1.9 percent and Mizuho Financial Group added 0.8 percent, while Mitsubishi UFJ Financial Group climbed 2.5 percent. Bank of America Merrill Lynch said its top pick of major Japanese banks was Sumitomo Mitsui Financial Group, and raised its price target on the bank as well as Mizuho Financial Group.

“While the stock prices should continue to be affected by euro zone factors, we believe Japanese banks fundamentally offer good value and should be less affected by such global concerns, with asset risks quite low and solid growth possibilities supported by business expansion in the U.S. and Asia,” Merrill Lynch said in a report. Steelmakers rose 1.6 percent, rebounding from the previous session’s fall after U.S. AK Steel forecast second-quarter profit that fell short of analysts’ expectations and Tokyo Steel Manufacturing Co Ltd planned to drop prices for all contracts signed in July. But a trader said the sector continued to face headwinds as ArcelorMittal, the world’s largest steelmaker, was considering cutting more capacity in Europe to tackle over capacity and shrinking demand in the region, while a report that Toyota Motor Corp will cut its production capacity in Japan by more than 10 percent also boded ill for the country’s steel firms.

Toyota put on 1 percent, while Honda Motor Co Ltd rose 1.6 percent after Nomura upgraded the carmaker to “buy” from “neutral” and lifted its price target, saying the company’s U.S. sales had recovered faster than expected. The broader Topix climbed 1.3 percent to 744.48. Mitsubishi Heavy Industries Ltd shed 2.5 percent, however, after a U.S. court said the Japanese firm was responsible for a leak at a California nuclear power plant, as it did not properly test the pipes before installing them. The benchmark Nikkei is down 13.5 percent so far this quarter after rallying more than 19 percent in January-March, logging its best first quarter performance in 24 years.

(Source – “Reuters India“)

15 Jun, 2012 -

Sparx Group Co, a Japanese asset manager, won money from a sovereign wealth investment company overseas to start a property fund focused on residential assets, Chief Executive Officer Shuhei Abe said. Sparx Asia Capital Management Ltd. will be responsible for the five-year fund, which will have maximum capacity of 40 billion yen ($507 million) and will start in August or September, Abe said in a telephone interview from Tokyo. The company will team up with a Japanese real estate investment trust in running the fund and will start with about 10 billion yen, he said, declining to name the state fund or the REIT. “The Japanese property market has become a very attractive investment,” said Abe. “We’re hoping that this business will become one of the core businesses for Sparx in the long run.” Sparx is widening its offerings beyond its focus from equity-related products to return to profit after it widened its full-year loss as performance and asset management fees dropped amid market declines. Sparx posted a net loss of 4.54 billion yen for last fiscal year, compared with a 3.7 billion yen loss a year earlier, even after the company cut salaries and relocated to less expensive offices in Tokyo. The company plans to eventually expand its offerings in the property market including logistics and hotels to meet rising demand from overseas institutional investors including sovereign wealth funds in the Middle East, Abe said.

Rising Demand

Sparx is entering the property business as real estate prices signal a recovery. Companies including Goldman Sachs Group Inc. (GS) also plan to start a private real estate investment trust to meet increasing demand from Japanese pension funds. The number of condominiums offered for sale in Tokyo and surrounding areas in April rose the most in 18 years as the nation’s property industry recovered from a record earthquake and tsunami in March 2011. The number of new homes put on the market two months ago surged 82 percent from a year earlier, the Real Estate Economic Research Institute said last month. Abe said last month his company plans to raise 50 billion yen for new funds including those that will invest in Japanese real estate and renewable energy. Sparx last year tied up with Kachikaihatsu Co. (3010), a Tokyo-based property firm which operates the Best Western hotel brand in Japan, for its first hotel fund that was aimed at providing lodging for relief workers and volunteers following the March 2011 disaster. It also started an Asian long-short equity fund last fiscal year using $10 million of the company’s own cash as seed capital. Shares of Sparx added 1.3 percent to 5,460 yen at the close of trading on the Jasdaq exchange in Tokyo. The stock has gained 1.9 percent this year, compared with the 2.2 percent advance by the Jasdaq index.

(Source – “Business Week”)

5 Jun, 2012 -

Morgan Stanley Real Estate funds and K.K. DaVinci Holdings, which ran Japan’s biggest private real estate fund, are among landlords that defaulted on loans taken on prior to the 2008 global financial crisis, as easy credit inflated values. Property prices in Tokyo, which have declined about 40 percent from their peak in 2007, have been flat this year, signaling the market is stabilizing, according to CBRE Group Inc. “The current market has a lack of office building supply,” said Hirokazu Anai, an analyst at JPMorgan Chase & Co. in Tokyo. “Sales of CMBS-related assets will be a positive for the market that has enough capital to buy these assets.” Bonds backed by commercial mortgages linked to everything from shopping malls to office towers were used to finance $66 billion of property acquisitions in the three years ended 2007, according to data compiled by Deutsche Bank AG. The annual volume dropped about 70 percent in 2008 after Lehman Brothers Holdings Inc. filed for bankruptcy that year and investors shunned securities that bundle property debt. The 46-member Topix Real Estate Index gained the most in more than a month, rising 3 percent at the close in Tokyo today, while the Tokyo Stock Exchange REIT Index increased 0.7 percent.

Raising Funds

Fortress, the New York-based asset manager with $46.4 billion, had raised about $650 million as of March 31 for its second Japan fund that will invest in real estate-related debt and other assets, according to the company’s earnings statement on May 3. Gordon Runte, a spokesman for Fortress, declined to comment. Goldman Sachs Group plans to start as early as July a private real estate investment trust with as much as 50 billion yen to invest in office buildings, and some residential and retail properties mainly in the Tokyo metropolitan area, two people familiar with the situation said last month, asking not to be identified because the information is private. Nomura Real Estate Asset Management Co, which set up Japan’s first private REIT, is acquiring more buildings that will double the size of the trust. Mitsui Fudosan Co, the nation’s biggest developer by sales, has also set up a private REIT with 72.7 billion yen.

‘Positive Signs’

“We have seen some positive signs in Japan’s property market,” said Atsushi Ogata, senior managing director and head of the fund management division at Nomura Real Estate Asset.“The office market may be near the bottom if it hasn’t already bottomed. Investors are finding it a good time to invest and that is why Goldman also plans to start a private REIT.” About 507.6 billion yen of loans will mature this year, with more than half backed by offices, and the rest by residential, retail and hotel properties, according to the Moody’s report by Takahiro Okubo, a senior analyst in the structured finance group. About 600 billion yen to 700 billion yen of defaulted debt will have to be redeemed by 2014, according to an estimate by Koji Kumamaru, managing director in the structured finance group at Moody’s in Tokyo, who spoke in an interview.

Special Servicers

Commercial mortgage backed securities, or CMBS, parcel bonds tied to property loans. The so-called tail period begins when the last loan in a CMBS reaches maturity and ends in about two to three years in Japan when the securities reach so-called legal maturity, the time when underlying assets of defaulted loans must be sold. So-called special servicers are firms that handle troubled property loans and are in charge of selling properties after defaults. The first default in Japan on loans included in CMBS rated by Standard & Poor’s took place in the second quarter of 2008 and increased to 137 cases with loans totaling 950 billion yen as of March, according to a May 14 report led by Yuji Hashimoto, a director at the rating company. Lenders have recovered about 501 billion yen after the underlying properties were sold, the report showed. Ichigo Group Holdings Co., a real estate asset manager, has bought properties from defaulted CMBS and will continue to consider them because of a lack of buildings for sale, according to Wataru Orii, president of Ichigo REIT Management Co, a unit of Ichigo.

Vacancy Rate

The office vacancy rate for grade A, or prime, office buildings in the first quarter rose to 7.3 percent from 6.7 percent in the previous three months, according to DTZ Research. The transaction volume for buildings of all grades fell 45 percent in the first three months of this year from a year earlier, signaling a lack of supply of buildings for sale, said Kayoko Hirao, the head of Japan research at DTZ. “Banks and other property owners are keeping the assets as they expect property values to increase,” said Hirao. “This has led to a low supply of buildings for sale.” Values of grade A office buildings are about 60 percent of their peak five years ago, said Andy Hurfurt, an executive director at CBRE in Tokyo. “It’s this correction that is now making properties in Tokyo look attractive to investors,” said Hurfurt.

Investment Yield

The capitalization rate, a measure of investment yield for properties, has declined to 5.57 percent in the first three months this year from an average of 5.74 percent in the past 12 months, according to Real Capital Analytics Inc., a New York-based research and consulting company. A drop in the cap rate, a property’s net income divided by purchase price, usually signals an increase in property prices. Japanese Reits, known as J-REITs, that are publicly traded are also set to double the amount of capital they raise through share sales this year amid signs of a recovery in the nation’s property market, according to Deutsche Bank. J-REITs may sell as much as 500 billion yen worth of shares through public and secondary offerings in 2012, said Yoji Otani, an analyst at Deutsche Bank in Tokyo. A total of 216.3 billion yen of share sales have been announced this year, compared with 223.8 billion yen sold in all of 2011, based on data compiled by the bank. The REIT Index, tracking the country’s 34 trusts, has gained 6.6 percent this year, helped by the Bank of Japan’s asset-purchase program aimed at boosting the economy. The central bank has acquired 90.4 billion yen of J-REITs since it first began in December 2010.

Buyer Demand

There is a lot of demand from the buyers, said Kiyokazu Ishinabe, executive officer and the head of CMBS Servicing Headquarters at Orix Asset Management & Loan Services Corp., which has sold more than 300 buildings since 2008. “Residential properties have been the most popular among investors based on its stable return,” said Ishinabe. “Since last year, investors have expanded their interest into other types of properties such as office buildings and commercial facilities.” In Japan, 194.6 billion yen of CMBS has been arranged this year, about 10 percent of the issuance in 2007, according to data compiled by Deutsche Bank. “The real estate market as a whole is moving to the next phase but the CMBS market is pretty much gone,” said Junichi Shimizu, a credit analyst at Deutsche Bank in Tokyo.

(Source – “Bloomberg”)

4 Jun, 2012 -

Foreign investors are leading a drive into Japanese property, looking to capitalise on some of the highest dividend yields in the world. Listed real estate investment trusts, or J-Reits, have outperformed the broad Topix index by 8 per cent since the market reversed course three months ago, helped by buying from foreign institutions, which have dominated trading values and net purchases since December [...]

(For the complete article – “Financial Times”)