INTERVIEW-Prospect sees more foreign funds buying J-REITs

TOKYO (Reuters) - U.S. investment firm Prospect Co said it expects foreign funds to launch more bids in the battered Japanese real estate investment trust (REIT) market as it considers selling part of its own struggling REIT.

Prospect Chairman Curtis Freeze said overseas investors are eager to snap up Japanese REITs, most of which are trading below the value of the property on their books due to weakness in the property market and the global credit crunch.

Prospect Residential shares today closed at 211,500 yen, or only about half the 461,000 yen that would represent the value of its total investments of 34.6 billion yen divided by the number of shares.

Freeze pointed to a bid last week by Oaktree Capital Management for a higher stake in Re-plus Residential Investment (8986.T) in the first tender offer for a REIT in Japan. Funds like Oaktree are likely to go after several deals, he said.

"If they decide to get involved in Japan, maybe they will do four or five REIT takeovers," given that each deal is small for the size of the fund, Freeze said in an interview.

Tokyo's REIT index .TREIT has lost more than half its value since a peak last May. The companies managing REIT assets are struggling to raise the funds they need to growth amid turbulance in the property sector and credit markets.

Prospect is also exploring two options in its efforts to exit a Japanese REIT -- the sale of its stake in the management company of a residential real estate trust Prospect Residential Investment Corp 8969.T, or assets held by the trust, Freeze said.

It is very difficult to restore the stock price, Freeze said.

A recovery in Prospect Residential's stock after a potential sale or better returns for investors from the sale of property may encourage investors to go back to the real estate investment trust market, he said.

Freeze also said major foreign funds are likely to purchase shares in Japanese REITs as prices have come down to attractive levels.

Most funds, however, prefer to have assets held by REITs, not holding direct control of management of the real estate trusts, he said.

Prospect holds about 35 billion yen ($323.2 million) worth of shares in 15 Japanese REITs, including FC Residential Investment Corp (8975.T) and Japan Single-residence REIT Inc 8970.T.

"It is important to buy REIT shares now when they are cheap because when the assets are sold, or REIT managers are sold, there is a good chance for capital gain," Freeze said.

Prospect is the parent of Hawaii-based Prospect Asset Management.