Secured Capital targets distressed Japanese sellers(2)

The Tokyo-based real estate investment firm is reportedly raising a $1bn fund to take advantage of failing residential property companies. Secured Capital CIO John Paul Toppino says current conditions are similar to the financial crisis of the late 1990s.

Secured Capital Japan is raising a $1 billion real estate fund to buy assets from distressed property companies in Japan, according to a report by Bloomberg.

Secured Capital’s chief investment officer John Paul Toppino said the Tokyo-based investment firm, which raises core-plus and opportunistic private equity real estate vehicles, had already raised half the fund.

Toppino, who went to Tokyo during the downturn in the late 1990s to compete with Morgan Stanley Real Estate and Goldman Sachs’ Whitehall Street funds, said in an interview with Bloomberg TV, conditions were comparable to a decade ago. “People were able to make a lot of money from 1997 to 2007. We just need to figure out where the base is.”

“We think the opportunities in the next six to 12 months are going to be very strong,” Toppino added. “We are really just conserving our capital right now.''

The report cited research from credit research firm, Tokyo Shoko Research, as showing a 24 percent increase in the number of real-estate companies that filed for bankruptcy protection in the year to August.

Last month, Los Angeles-based private equity firm Oaktree Capital Management said it would increase its stake in Japanese REIT, Re-Plus Residential Investment, to 48 percent, in a deal worth around ¥15.72 billion ($144 million; €97.4 million). In July, Dalton Investments, a California- and Japan-based investment firm, said it was raising up to about $450 million to invest in struggling J-REITs.

The creation of J-REITs in Japan had been credited with turning the Japanese real estate market into a financial product and raising real estate values. However, the country is now facing a glut of unsold residential property, with many J-REITs struggling to access capital and repay debts.

Toppino said the Secured Capital fund was looking to buy core-type assets from distressed sellers. “I've seen Japan in the ultimate valley, coming through to peaks in 2006 and 2007,” Toppino said. “It feels kind of like 1997, 1998 again.”

Secured Capital Japan closed its latest funds, the core-plus SCJ Residential Fund II and the opportunistic SCJREP Asia Fund, on ¥12.7 billion and $758 million, respectively in December last year. The SCJ Residential Fund II was an initial close, with the final close expected to reach ¥30 billion (around $285 million).