Daiwa House to bid for New City

Bloomberg

Bids may exceed 110 billion yen ($1.1 billion) for Tokyo- based New City, the first real estate investment trust to fail in Japan, one person said, declining to be identified because the information has not been made public.

New City, which earns rental income from apartments and homes it manages across Japan, filed for bankruptcy on Oct. 9 with 112.4 billion yen of debt. It said the failure was caused by difficulties in raising funds and selling properties because of the global financial crisis.

"While New City struggled to finance their business, their assets remain quite attractive, so the outcome could potentially lead to a revival in the Japanese REIT market," said Junko Miyagawa, a senior analyst at Shinsei Securities Co. in Tokyo.

A spokesman, who declined to be identified, at CBRE Residential Management K.K., New City’s asset management arm, said the firm isn’t accepting any interviews at the moment. Noboru Kaiho, a Daiwa House spokesman in Tokyo, and Junichi Yoshida, a spokesman at Development Bank of Japan in Tokyo, declined to comment.

Oaktree Capital Management LP, a U.S. private-equity fund that manages $55 billion in assets, is among bidders, a person familiar with the situation said in December.

New City manages more than 6,700 rental properties for which the firm paid 184 billion yen. About 80 percent of the properties are in the Tokyo metropolitan area, according to the company’s Web site.

New City, which pays dividends to investors in the trusts from rental income, in January extended to April 7 the deadline to submit its restructuring plan, which includes announcing a successful bidder, because it needed more time to undertake due diligence, it said in a statement.

Nikko Citigroup Ltd. is managing the sale, according to a New City statement on Nov. 5. Yumiko Iuchi, spokeswoman at Nikko Citigroup, declined to comment.