Aozora to raise 50b yen from Japan banks for real estate funds
The Tokyo bank, which targets 2-3% annual returns, says response from lenders is encouraging
Tokyo
AOZORA Bank Ltd will set up funds for Japanese regional lenders to invest as much as 50 billion yen (S$571.5 million) in real estate, offering potentially higher returns than loans and government bonds.
The Tokyo-based bank plans to establish the funds over the three years ending March 2018 and raise 10 billion yen in the first 12 months, Ichiro Naritomi, president of a newly formed real estate investment advisory unit, said.
Aozora is tapping demand from local banks that are looking to diversify assets as near record-low interest rates and a shrinking population hamper profit growth. As well as collect fees from clients, Aozora will also invest in the funds as Prime Minister Shinzo Abe's efforts to end deflation spark a property market revival.
"We'd like to be flexible so that we can offer investment products that meet demand from regional banks," Mr Naritomi, 44, said on Feb 20. Aozora approached about 30 regional banks, of which 30 per cent said they want to invest immediately, he said.
The bank will target annual returns of 2 per cent to 3 per cent, Mr Naritomi said. That compares with the 0.94 per cent average interest rate on new loans in Japan in December, central bank data show. Japan's benchmark 10-year government bond yield fell to an unprecedented 0.195 per cent in January. The new unit, Aozora Real Estate Investment Advisors Co, is scheduled to begin operating on April 1 to create financial products for regional lenders and other investors, the bank said in a statement on Feb 12.
The funds will consist of portfolios of real estate trust beneficiary rights for office buildings, rental condominiums and business facilities in big cities, according to Mr Naritomi. He expects each fund will total about 1.5 billion yen to three billion yen, with investors contributing 100 million yen to 500 million yen apiece.
Property demand has picked up in the world's third-largest economy amid monetary easing by the Bank of Japan and ahead of the 2020 Olympic Games in Tokyo. A Tokyo Stock Exchange index of real estate investment trusts has surged almost 70 per cent since Mr Abe took office in December 2012.
The bank, which Cerberus Capital Management sold two years ago, is scheduled to repay a taxpayer bailout by 2022. It forecasts net income will climb 1.6 per cent to 43 billion yen in the year ending March, its sixth straight year of profit.
"Expanding real estate finance is part of our effort to diversify and improve our business model as we strive to complete the repayment of public funds," Mr Naritomi said. BLOOMBERG
