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Tag Archives: pacific

The Financial Times recently focused on continued distress in the Japan real estate market, which we in the industry increasingly feel while developers go defunct daily and debt is still difficult to find.

However, recently regulators have begun intervention in the JREIT market by directing asset managers to remember their fiduciary duty and not sell assets at a discount.  They back this up by monitoring banks and no longer allowing panicky refusal to refinance debt to these low-levered vehicles, which is what caused the NCRI issue. They argue that there was no reason for NCRI to need to file for civil rehabilitation.    Interview with FSA

Vulture investors flocking to Japan for distressed asset deals may be surprised not be able to find them in the JREIT market – except in the extremely discounted pricing of their stock shares.  The pricing of the NCRI bid may also surprise, as the Japan Development Bank is also participating.

But opportunities continue to arise in the real estate market.  Developers unable to sell to REITs and construction companies building it all continue to file for bankruptcy.  There is still a dearth of credit.  The NPL game is starting over again, but the best assets are still tightly owned by the large Japanese corps, conglomerates, and JREITs.

It is clear that distress continues in the Japan real estate market, and now the robust fundamentals are starting to erode due to a now deteriorating overall economic situation.  But we need to remember that the source of distress  in Japan was NOT in the fundamentals (and is not yet, except perhaps A-class office), it resulted purely out of the quick domestic stoppage to real estate debt market liquidity.  In the midst of the mayhem coinciding with a global credit crunch crisis, incidents like NCRI and defunct JREIT sponsors occurred and pulled the JREIT market down.   The government is finally getting their act together and we will likely see JREIT market support kick in as well as new liquidity measures from April and healthy banks looking at the sector again.

For opportunistic investors, the NPL market and developer/construction company-related situations allowing asset / debt discount acquisitions are arising.   For core/equity investors, it may be worth looking at the JREIT market again.

The Chinese are coming!!!   We are now seeing investors from the only major country relatively unaffected by the recent strengthening of the JPY arrive for bargain sales in the real estate equity markets.

Pacific Holdings (8902) was up 18% today (Website Here) on the announcement of a financial and management tie-up effectively giving management control to a group of unnamed major Chinese real estate companies and investors.  The market cap still JPY 1.8 Billion (USD 18 Million) – down 98% to date!!

Details of the proposed deal involve the group, represented by a Japanese investment platform KK Chuhaku Japan, a wholly owned subsidiary of Industrial Growth Platform Inc (IGPI), taking a 29% stake in common shares on the 19th of December, investing in 47 billion yen of class A preferred shares to be newly issued on the 26th of December and taking an issuance of new short-term (1 yr) nonguaranteed, uncollateralized corporate debt in the amount of 27 billion yen at the end of February.

Chuhaku Japan will effectively be given control of the board of directors and the right to select the new representative director and president of the company.   They are beginning discussions to create a new private real estate fund and retool the company management.

The Nippon Residential REIT (8962) stock price responded quickly to the news at 9% up but Nippon Commercial REIT (3229) did not respond as much up 1.6% today. (click for stock prices).