Re+ applied for bankruptcy procedures in Tokyo Regional Court yesterday and the application was received.
The hard work and brains of Re+ President Hirofumi Kang have unfortunately been overcome by market forces stopping their asset management process and cutting corresponding management fees this year. Pressure from banks to sell assets has increased where the debt term has completed. The business of supporting asset growth of the RePlus REIT, as well as many other JREITs, involves acquiring and stabilizing assets on a corporate book or within another private fund before selling stabilized tranches of buildings into the separately managed REIT. Market pullback in the JREITs this year has halted this process and left the assets tagged for the REIT in limbo with increasing lender pressure. The large deals in Beijing they were working on have also been hit this year.
RePlus has 32.59 Billion JPY (USD $292 M) in corporate liabilities as of today and 382 Billion in assets under management including private and public funds within the RePlus group as of yearend 2007, including assets of the RePlus REIT. The effect to the REIT is that the sponsor can no longer create a stable let alone growth scenario and this may actually benefit those looking to force a merger or acquisition of the REIT management subsidiary (and control of its assets)… OakTree would be an initial prime suspect for the REIT.
The assets held by RePlus itself, their design and various management divisions and subsidiaries, the RentGo system, etc. are all up for grabs to potential sponsors now.
There are a number of asset managers managing JREITS and private funds under similar pressure and we would hope recent pickup in the market will bring sponsors out of the woodwork before more of these situations occur. The underlying fundamentals of the assets are still very strong, especially in urban areas.