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Source: Reuters

INTERVIEW-Prospect bets on Japan property market turnaround

Published: 03 Mar 2009 17:41:13 PST

* Prospect sees market turnaround after New City bid

* Prospect chairman says raising Japan REIT investment (Adds details)

TOKYO, March 3 - U.S. investment firm Prospect Co is buying up Japanese real estate investment trusts (REIT), expecting a turnaround in the market following the results of bidding for failed New City Residence Investment.

Prospect, with a 5.49 percent stake in New City, is one of its top shareholders and is waiting to see how buyers price its distressed assets, as it could be a new benchmark to value Japan's property transactions.

The Development Bank of Japan, Goldman Sachs Group and Lone Star are among final bidders for New City, which filed for bankruptcy on Oct. 9 with 112 billion yen ($1.15 billion) in debt, becoming the first Japanese real estate investment trust to fail. The results of bidding are due as early as in two weeks.

Prospect's chairman Curtis Freeze said the New City bidding could be the start of finding the right direction as the rescue package would help spur Japan's property transactions. The market has almost halted in the past few months amid plunging property prices and a dearth of new investments.

"When they announce a cap rate for New City and if they announce that short-term debt will all be converted to long-term, then that would be a big plus for the real estate market because people would say 'OK, that's how things can be done'," Curtis told Reuters in an interview.

"Once the cap rate (for New City) is set, then transactions will come back because people would know how to price their transactions," said Curtis, who leads Prospect's management of just under $1 billion in assets.

Already, Japan's dwindling property market and banks' tightening of lending has led a dozen property developers to collapse. New City is so far the only REIT to fail but analysts see a handful of others on the verge of danger as they face difficulty getting refinancing agreements from banks.

Since hitting its peak in May 2007, the Tokyo Stock Exchange's REIT index has lost about 70 percent -- wiping off about 90 percent of net asset value held by Japan's listed REITs.

Meanwhile, Curtis welcomed the Japanese government's readiness to rescue the country's battered property market, pointing out Development Bank of Japan's entry into the bidding for New City.

"The government is underwriting this property auction. We can say New City is the first sign of Japan's property PKO (price keeping operation)," he said.

Also suggesting the government's seriousness not to let New City liquidate and to help bidding run smoothly, the Tokyo district court has recently allowed informal meetings between bidders and New City's major shareholders, which also include Barclays Capital and Nikko Asset Management, said Curtis.

Curtis said to help spur Japan's property and REIT market, the government should do more by introducing drastic steps such as injecting some $10 billion into the property market to help restore investors' confidence.

"The real estate market's collapse is also taking down real economy with it. The government is aware of this...that they can't let that happen," he said. ($1=97.33 Yen)

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