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Lone Star has started extending loans for real estate deals in Japan, according to Reuters.

The US private equity firm will originate debt through Star Finance, and focus on a gap in supply of mezzanine debt tranches which has appeared from late 2007.

The move comes as Japanese city banks such as Mizuho Financial Group, Mitsubishi UFJ Financial Group and others have changed policy to push LTVs down following heightened regulation and US-based overseas real estate lenders such as Morgan Stanley, Capmark, Lehman Brothers, Citigroup, and Merrill Lynch have reportedly cut their exposure to securitized loan products amid the subprime loan crisis.

Lone Star / Hudson Japan has been investing in NPLs and real estate in Japan but not debt financing until now. They hired over some senior directors from Morgan Stanley`s shop and they have been closing deals from what we hear.

I hope this is an indicator that at least some of the liquidity dropped by the Japanese banks is going to be increasingly taken up by foreign firms.

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