Oaktree, Daiwa bid for failed Japan REIT - sources

By Junko Fujita

TOKYO, Dec 12 (Reuters) - Oaktree Capital Management and the principal investment arm of Daiwa Securities (8601.T) are among the bidders for failed Japanese real estate investment trust New City Residence Investment Corp, three people familiar with the transaction said.

New City Residence filed for court protection from creditors in October with $1.1 billion in debt, becoming Japan's first real estate investment trust to fold, hit by a weak property market and tighter credit conditions.

Oaktree and Daiwa Securities SMBC Principal, which were shortlisted from an initial pool of 10 bidders, will submit a second bid next month in a deal that could be worth as much as $1 billion, the three people told Reuters.

The sources spoke on condition of anonymity because the sale process is not public.

Nikko Citigroup Ltd, Citigroup Inc's (C.N) Japanese investment banking unit, is arranging the sale, the people said.

New City Residence, which owns apartment buildings in Ginza, Harajuku and other up-market areas of Tokyo, could not raise money to repay its debts and finance the purchase of new assets to sustain growth.

Japan's REIT index .TREIT has shed about two-thirds of its value since peaking last May as many of them struggle to raise money amid the credit crisis.

U.S. investment firm Oaktree Capital has been aiming to take advantage of the REIT market downturn, taking a 48 percent stake in Re-Plus Residential Investment (8986.T), a residential real estate trust. (Editing by Hugh Lawson)