TOKYO—In June 2010, New York City-based Fortress Investment Group LLC closed its Fortress Japan Opportunity Domestic Fund at its cap of $800 million. Through year-end 2011, the fund had invested over 81.1 billion in commitments and recalled capital, while generating over ¥46.1 billion of proceeds to the fund. The fund has invested primarily in real estate-related debt and other assets in Japan.

According to the firm, "The opportunity set remains robust." Thomas Pulley, co-chief investment officer of Fortress Japan, notes that it continues to benefit from its partnership with Nomura Real Estate Asset Management Co. Fortress isn't the only one eying Japan. Goldman Sachs Group is looking at office, retail and some residential properties mainly in the Tokyo metropolitan area, according to reports. In July, according to Shigeki Kiritani, the president of Goldman Sachs Asset Management, Goldman secured three Tokyo properties for $313 million.

Kelly Miyashita, formerly VP of Kirkwood Capital Advisors in Tokyo and currently a principal of his own firm in Los Angeles, tells Real Estate Forum that "resetting of pricing resulting from the 2008 global meltdown will definitely present non-institutional investors with numerous opportunities."

But the biggest opportunity, he says, will be in the financing portion of the capital stack, not in the equity. "A major policy shift by Japanese banks following the crisis was to reduce exposure to real estate by scaling back LTVs from 80-85% to 55-65%," he says. "That decrease in leverage capacity of 20%-25% is creating a need for gap/mezzanine funding as loans mature."

As borrowers face loan maturities, there will be a huge demand to put money to work by recapitalizing the debt/equity stack, he explains. "Japan is an attractive market for this type of funding opportunity," he notes.

Patrick Crandall, a senior managing director in the Los Angeles office of Cushman & Wakefield—who spent time in Tokyo after the last downturn—says that although investment opportunities are hot in Japan, it will be very difficult for non-institutional players to compete for class A assets. He cites the need for "boots on the ground, a local partner, or both." Crandall also points out that class A properties in Japan tend to be very large, making it "harder for non-institutional players to take down deals of scale." The currency risk is another hurdle.

With all that said, it's still an interesting time to look at investment in Japan, according to Crandall. "While the risks are significant and need to be very carefully analyzed, the opportunities there may be especially compelling given potentially less competition from both domestic and foreign investors who don't want to take the time to understand the risks," he says.