Diamond Realty Management Inc., a unit of Japan’s biggest trading house, aims to raise as much as ¥15 billion for a fund that provides loans for property acquisitions and refinancing in the country.
The unit of Mitsubishi Corp., which has ¥330 billion in assets under management, plans to complete the fundraising from institutional investors in Japan by the end of next March, said Naoshi Ogikubo, president and chief executive officer of Tokyo-based Diamond Realty. The fund will target annual return of about 6 percent, he said.
Diamond Realty is starting the fund to lure investors who are seeking safer and more stable investments following the recent market rout this month triggered by the U.S. credit downgrade and Europe’s sovereign debt concerns. The fund invests in mezzanine loans, which typically bridge the gap between the senior-class mortgage and the buyer’s equity, for real estate investors and owners seeking to refinance their assets.
“This will be a good investment with very low risks,” Ogikubo said in Tokyo. “By looking at the real estate cycle, the chances for property values to drop another 25 percent is low and there are few players who provide such lending.”
The fund’s mezzanine loans, paid after senior debt in case of default, will represent as much as 10 percent of the acquisition price, Ogikubo said. Banks typically offer as much as 65 percent of financing and the fund aims to provide the rest up to 75 percent of total property value, he said.
Prices for office buildings in Tokyo fell as much as 50 percent since their peak in 2007, according to an estimate by Los Angeles-based CB Richard Ellis Group Inc. The MSCI World Index, tracking shares in 23 developed nations, dropped 9.9 percent so far this month amid concerns about the U.S. economy and European debt crisis.
Diamond Realty plans to increase its assets under management by 52 percent to ¥500 billion by March 2013 through funding from its parent, Ogikubo said.
“We will use the balance sheet of Mitsubishi this year to acquire good properties first while investors are on the defensive right now,” said Ogikubo.
Diamond Realty said Aug. 15 it started a ¥25.8 billion fund that invests in data centers, the country’s first.
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