| TOKYO, July 23
TOKYO, July 23 U.S. private equity firm Lone Star
[LS.UL] will start extending loans for real estate deals in
Japan, eyeing a rush of property to be put on the block by
developers keen to raise funds, sources familiar with the matter
Lone Star, which has already established itself in the
Japanese real estate market by buying golf courses, hotels and
financial institutions, has now decided to branch out to provide
mezzanine loans to property buyers, three sources told Reuters.
Lone Star will offer loans through a company called Star
Finance Co Ltd, said the sources, who asked not to be identified
because the fund has not yet publicly announced its plans for the
Japanese megabanks such as Mizuho Financial Group Inc
(8411.T) and Mitsubishi UFJ Financial Group Inc (8306.T), as well
as overseas banks such as Citigroup Inc (C.N) and Merrill Lynch
and Co MER.N, are cutting their exposure to senior loans after
being hit by the subprime loan crisis.
That is helping boost demand for mezzanine or junior loans,
which are considered riskier but fetch higher interest payments
than senior loans.
Lone Star hired Michael Griffin, a former real estate
securitisation banker at Morgan Stanley (MS.N) in Japan, to lead
the fund's effort to find deals to finance, said the sources.
Overseas investors are raising funds to invest in Japan's
real estate market, sensing an opportunity to buy assets cheaply
with sector share prices sliding and developers looking to
offload assets to stay afloat.
Last month MGPA, a private equity real estate investment firm
that is half owned by Australia's Macquarie Group (MQG.AX), said
it planned to raise a new Japan fund worth more than $1 billion.
ING Real Estate also said last month it would launch a fund
for Japan later this year. [ID:nSP48870]
Richard Price, the firm's Asia head, said the best investment
opportunities in Asia would be in Japan, where rising borrowing
rates and a cut in bank lending for property could persuade some
owners to sell.
A handful of mid-sized Japanese real estate companies have in
fact folded in the past few months, with apartment developers
among the hardest hit by sluggish demand for housing as the
world's second-largest economy slows.
Last week developer Zephyr Co 8882.T collapsed with 94.9
billion yen ($885 million) in debt, the largest failure of a
listed firm in Japan in nearly five years. That followed Suruga
Corp 1880.T, a real estate firm that last month defaulted on
Companies keen to avoid the same fate have been rushing to
shore up their finances by selling assets.
Pacific Holdings Inc 8902.T, for example, has unveiled
plans to nearly halve its assets in the next few months, and has
reached out to Daiwa Securities Group Inc (8601.T) for a possible
capital injection. [ID:nT133167]
(Editing by Michael Watson)