GlobeSt.com EXCLUSIVE: International Insurer Buys Tokyo Office Project

"Coupled with the recent closing of the sale of the Rihga Royal Hotel Narita, this transaction represents the second Tokyo area disposition we have arranged in less than 30 days--both to international investors," says Stiles, declining to name the most recent buyer. "While there is significant debt and equity capital focused on Japanese investment-grade real estate, there has been a dearth of quality assets. This year is expected to be a turning point with more product likely to come to market in the coming months."

In the most recent deal, Sonnenblick, acting as the exclusive advisor to the Revlon group of companies, arranged the sale of what will be the 2-11-16 Minami Aoyama, an 11-story office building located in Minato-ku, an attractive and fashionable part of the city. Scheduled for completion in November, the building has been master-leased for 10 years by one of Japan's largest owners of commercial office property.

Last month, in what was billed as the first arms-length internationally transacted hotel sale in Japan, Royal Hotel Ltd. of Osaka shed its Rihga Royal lodging asset in Narita. Ishin Hospitality Group, a joint venture of Soros Real Estate Partners and Westmont Hospitality, paid between $70 million and $75 million for the 548-key deluxe hotel, adjacent to the new Tokyo International Airport. Sonnenblick co-represented Royal Hotel with Arthur Andersen.

In selling the office product, Revlon was able to achieve its objective of liquidating its long-term investment in Tokyo real estate. There were numerous bidders for the office project, including offshore investment funds and domestic Japanese buyers looking for an owner-occupier situation. "The opportunity generated significant interest among both Japanese and foreign buyers, despite the complexity of the transaction structure," says Roger Griffen, executive vice president of Sonnenblick's Tokyo office. "With few, if any, good-quality, large-scale office buildings available, this transaction illustrates the high level of buyer interest in mid-size buildings, particularly new product."

Adds Stiles: "There is an enormous amount of equity available for international purchases, but in Japan recently there hasn't been a lot of large buildings available in the $25-$100 million range, only extremely large and securitized buildings or B-class structures that aren't investment grade. So when there's good product available, there is a very large appetite for it."

Stiles tells GlobeSt.com he expects to see more good product hitting the market because the country's new prime minister is reform-minded and all his cabinet appointments share the same philosophy. Part of the reform philosophy rides heavily on a reformation of the banking system, says Stiles, which means increased pressure on banks to move bad loans, most of which relate to real estate problems.

"So we're not going to see a rush of buildings coming to the market," cautions Stiles, "but things are starting to align themselves for more activity, and the capital is certainly available to take advantage."