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Aetos Capital to raise $1 bln property fund-source

TOKYO: Investment management firm Aetos Capital plans to raise US$1 billion (RM3.08 billion) for a fourth real estate fund to buy office buildings and condominiums in Japan and China, a person with direct knowledge of the matter said.

Aetos plans to raise the money by December and has already gathered US$250 million from investors, the person said, on condition he was not identified.

Aetos joins other big real estate buyers starting funds to purchase properties in Japan on the expectation that falling real estate values will rebound.

Price declines are slowing, according to the Japan Real Estate Institute. At the end of March commercial property values in central Tokyo had contracted by only 2.4% from six months earlier, compared with a 6.5% drop over a year, the research company said.

Fortress Investment Group set up an US$800 million Japan fund in June, while Morgan Stanley in the same month established a US$4.7 billion pool of cash to buy properties around the world, including Japan.

The latest Aetos fund would bring its North East Asia real estate fund total to US$4.5 billion. The firm began its investment push in the region in 2003 with a US$740 million fund, raising US$2.2 billion in 2005 and a further US$511 million in 2008.

Scott Kelley, chief executive of Aetos declined to comment on the fund in a recent interview with Reuters, but said the firm sees good opportunities in Japan's office building market.

"It is impossible to generalise about Japan as a whole but we do feel the Tokyo office market is bottoming and we see our own portfolio vacancy rates and rental rates improving," he said.

Aetos buys smaller offices and residential properties worth between 2 billion yen (US$24 million) to 15 billion yen, Kelley said.

Cap rates, or the rent yield on offices are currently around 5%, according to analysts. That is drawing investor cash away from the slim returns offered by government bonds and falling stock values. Access to low interest financing is adding to the allure of property.

Japanese banks are more willing to lend money than their western counterparts helping spur real estate transactions in Japan, Kelley said.

Aetos, he added, may even invest in Japan's non performing real estate loans if it means the firm can eventually control the underlying properties.

Aetos owns Japanese property investor, Simplex Investment Advisors Inc, which it bought with Goldman Sachs in 2007.

In 2008 it teamed up with Japanese firms in a failed attempt to acquire property developer, Daito Trust Construction Co, sources told Reuters at the time.

Aetos last year also bid to buy failed apartment developer Joint Corp, according to sources. -- Reuters
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