Mitsubishi targets growth of tiny property funding business

Fri Sep 28, 2012 5:21am EDT
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By Junko Fujita

TOKYO (Reuters) - Japan's top trading house Mitsubishi Corp (8058.T: Quote) is expanding its small real estate financing business to benefit from rising property purchases by foreign investors in the country and an expected jump in refinancing of loans, a senior executive said.

Diamond Realty Management Inc, a real estate asset management firm wholly owned by Mitsubishi, aims to raise 10 billion yen ($128 million) from Japanese investors in a second fund as early as March to provide mezzanine financing for deals, Diamond Realty's CEO-designate Takashi Tsuji said in an interview.

Mezzanine loans, subordinated to senior debt provided by banks, are used to stretch the amount of borrowing. They were popular during the pre-2008 crisis property boom in Japan when many assets were bought with highly leveraged financing.

After the property market burst in the financial crisis, many providers of mezzanine loans faded away.

But such financing could be in demand now when the property market in Tokyo has started picking up and foreigners are eyeing buying properties.

Angelo Gordon & Co, the $24 billion New York-based asset manager, bought in June the 13-storey Aoyoma Bell Commons property in Tokyo's posh Aoyama district, while MGPA, an Australian property investment firm, bought eight office buildings in the same month for around 12 billion yen.

"It is true that the Japanese banks are willing to lend money, so senior loans are accessible," said Tsuji, who is currently Diamond Realty's chief operating officer and will become its chief executive in November. The company manages about 550 billion yen in assets.

"However there is still a limit for senior lending when the balance of the loans and property value is considered. Mezzanine loans are instrumental in filling the gap between senior loans and equity."   Continued...