Lone Star Funds had the winning bid for the failed New City Residence Investment Corp., which toppled last October. The bid beat out rivals Daiwa House and Oaktree Capital. The transaction gives an indication of value for Japan's frozen distressed property market, and could help to unfreeze it. New City manages more than 6,700 rental properties for which the firm paid JPY184 billion. About 80 percent of the properties are in the Tokyo metropolitan area. The transaction has stimulated Japan's moribund J-REIT market, at least temporarily.
At the same time, the BOJ felt compelled to broaden the scope of assets they would accept as collateral for loans to include municipal and government bonds sold directly to investors (private issues) because financing access in Japan remains the tightest it has been for decades, and analysts believe the BOJ needs to do more to loosen credit, even though they have taken action every month since Lehman failed last year. From the BOJ's perspective, they believe it is time for fiscal stimulus to take the lead.
Orix Corp., Japan’s biggest non-bank lender but also a big real estate player itself is borrowing from the government as more loans to real estate companies turn bad and the cost of selling bonds rises. The yield premium investors demand to buy Orix’s 2.18 percent bonds maturing in July 2014 has more than tripled since before the bankruptcy of Lehman Brothers Holdings Inc. in September. On the other hand, the company’s share price fell 77 percent in the year ended March 31 as it issued convertible bonds, sold assets, increased borrowing and forecast its lowest profit since 1997. The firm, usually a big source of real estate funds, now can’t offer real estate loans to other companies at present. It is instead concentrating its resources in its own real estate projects.
On March 30, Azel became the eighth listed property company to fail this year in filing for bankruptcy with 44.2 billion yen ($457 million) in debt, citing a slump in condominium sales, difficulty in getting loans, and failures among construction companies. Bankruptcies among Japan’s listed corporations reached 33 last year, a postwar record, according to Tokyo Shoko Research Ltd., with many of them being real estate companies.
But finding a bottom in real estate prices in Japan could hinge on restoring life to the near-dormant J-REIT market. Listed and private J-REITs were a major driving force behind real estate gains from post-bubble lows, as J-REITs were the most aggressive buyers of properties through 2006. Now unable to roll over loans, a growing number of these REITs have turned to selling their property holdings, which is increasing the supply of distressed property.
The LDP's talk of outright purchases of Japanese stocks to support the market ostensibly includes purchases of J-REITs, and the conjecture that a healthy J-REIT market will support property prices as a whole.
Bloomberg
