Hong Kong-based investment manager PAG, the owner of Tokyo-based private equity real estate firm Secured Capital Investment Management, has closed the acquisition of a €700 million Japanese mezzanine property loan portfolio, according to a PAG statement.
The firm bought the Tokyo-based subsidiary of German bank Commerzbank AG, Commerz Japan Real Estate Finance Corporation (CJREFC), giving it the entire loan portfolio, operations and staff. The portfolio, which constitutes PAG’s largest loan acquisition in Japan, will be managed by PAG’s Secured Capital. Financial details of the deal were not disclosed.
The sale was part of a larger divestment of Commerzbank’s higher-risk loans. Commerzbank simultaneously sold a loan portfolio in Spain valued at €4.4 billion to JPMorgan and Lone Star, which combined with the sale to PAG is expected to free up €200 million in equity capital for the bank overall, according to statements.
For the Japan acquisition, PAG also brought in the C$219 billion (€150 billion; $205 billion) Canada Pension Plan Investment Board as a minority investor. PAG’s capital for the investment came from the record-breaking $1.5 billion Secured Capital Real Estate Partners V and the $965 million Pacific Alliance Asia Special Situations fund. Since 1997, Secured Capital and PAG combined have acquired 15,000 property loans in both single-asset and portfolio transactions, according to the firm.
“This is a very high quality portfolio of largely Tokyo-based commercial real estate and we are uniquely positioned in this market to manage and realize its value,” J-P Toppino, managing partner of PAG Real Estate, said in the statement. “The Tokyo real estate market is one of the most liquid markets in the world and has been attracting increasingly strong interest from both domestic and foreign investors, providing a boost to real estate property values.”
Toppino pointed to the anticipated rise in Tokyo office rents as an upside for the Commerz Japan portfolio. However, he also highlighted the significance of low costing senior debt in Japan, which has dropped to as low as 1 percent or less. He also emphasized that such debt makes Tokyo “one of the most attractive markets in the world in terms of cash on cash yields.”
This month, PAG also participated in the buyout of global property services business DTZ alongside TPG Capital and Ontario Teachers’ Pension Plan, in a deal valued at $1.215 billion, although that transaction was undertaken by its private equity business.
In March, PERE also revealed that the firm was plotting to launch a $1 billion core Asia fund, just a few months after closing the $1.5 billion SCREP V opportunistic fund.