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Dynacity (8901) filed for civil rehabilitation today with JPY 52 billion (USD 540M) in liabilities, following Noel`s (8947) filing for bankruptcy proceedings yesterday with 41.4 billion (USD 430M).  Noel`s property management and brokerage subsidiary ENR also filed at the same time.

These are both companies that began as small Tokyo condominium developers and grew quickly the last several years by selling to REITS rather than individuals, expanded the business base outside of their residential specialty to other sectors and took in too much land at last year`s prices which now cannot be developed, liquidated nor can a lot of their newly built stock be sold as REITs aren`t buying for now.

There are still a few more out there with the same problems.

These follow a wave of dropouts from the sector from summer including Suruga Corp, Urban Corp, C`s Create, Landcom, L-Create, Urban Design System, and of course the Real Estate finance and securities businesses of Lehman Japan, culminating in the filing for protection by the New City Residence REIT, an altogether unprecedented case in itself which will be interesting to see how the process is dealt with.

Some of these companies will be looking for new sponsors so the private equity firms will likely benefit, but others will work through a liquidation.  Unfortunately, most of the assets in these companies right now are not very interesting except for Urban Corp`s very nice office portfolio (note the strong interest in the bid to be sponsor by foreign private equity firms and the like) and Lehman`s assets.

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