UPDATE 1-Singapore's GIC in talks to buy Tokyo building for $1.6 bln -sources

Mon Aug 25, 2014 7:59am EDT

(Adds details)

By Junko Fujita and Saeed Azhar

TOKYO/SINGAPORE Aug 25 (Reuters) - Singapore's sovereign wealth fund is in talks to buy a Tokyo office tower for about 170 billion yen ($1.6 billion), three people with knowledge of the deal said, in what would be Japan's biggest property transaction since the financial crisis.

Singapore's GIC Pte, which already has a large presence in Japan's property market, outbid the asset management unit of Goldman Sachs Group Inc, which also participated in the final bid for the property, which was put up for sale by Secured Capital, part of Asian private equity firm PAG.

GIC is in the final stages of talks over the 32-storey Pacific Century Place Marunouchi, located near Tokyo's main railway station.

GIC declined to comment. Officials at Secured Capital were unreachable.

Secured Capital put the property up for sale in May, seeking more than 180 billion yen. The final price will likely fall short of the target but the transaction would still likely be the biggest since Japan's Prime Minister Shinzo Abe took aggressive measures to end deflation.

Morgan Stanley MUFG analyst Tomoyoshi Omuro said that if Pacific Century Place was purchased at 165 billion yen, the price would yield an estimated 2.6 percent.

That would be the similar to the return on the Tiffany Buildings, housing the main store of U.S. jewellers Tiffany & Co , bought by Softbank Corp founder Masayoshi Son about a year ago.

Typically investors expect about 4 percent returns from Tokyo's prime office buildings. Returns on properties fall when investors pay higher prices.

GIC earlier this year agreed to buy Meguro Gajoen, a complex of office properties and retail facilities in Tokyo, but backed off from the deal due to a legal dispute.

Japanese property developer Mori Trust Co is in talks to buy Meguro Gajoen for more than 100 billion yen.

Pacific Century is located in Tokyo's Chiyoda area, where rents are the highest and vacancy rates remain the lowest in the capital. (1 US dollar = 103.9900 Japanese yen) (Reporting by Junko Fujita in Tokyo and Saeed Azhar in Singapore; Editing by Edmund Klamann and Louise Heavens)