SINGAPORE ING Real Estate is raising a $750 million fund for China and plans to launch a fund for Japan later this year, expecting troubled landlords and developers in both countries to offload bargain properties.
Richard Price, the firm's Asia head, said some of the best investment opportunities in Asia would be in Japan, where rising borrowing rates and a cut in bank lending for property could persuade some landlords to sell.
ING Real Estate, a unit of Dutch financial group ING (ING.AX), is looking to raise $300-500 million in the second half of this year to buy offices, industrial buildings and shopping centers in Japan, he said.
"Japan is the largest market in the region and there'll be very real opportunities over the coming year or 18 months," Richard Price, Asia chief executive for ING Real Estate, said at the Reuters Global Real Estate Summit in Singapore.
"It's a very highly leveraged market and probably the most severely affected by the credit crunch in this region."
Most transactions in Tokyo in the next year will probably be for buildings that are not quite top-notch, Price said.
Tokyo's office market is probably peaking, according to most analysts, having been popular with investors, who have typically borrowed heavily at Japan's rock-bottom interest rates to take advantage of a price recovery in the last five years.
The global crunch has made Japanese banks more conservative in their lending for property deals, threatening to soften prices of small and second-grade buildings.
Yields on Grade B office blocks have risen by 50-100 basis points in the last year, according to Nomura Securities senior analyst Daisuke Fukushima, while top-grade offices have held their values.
ING Real Estate, which has around 100 billion euros under management globally, is currently marketing a fund for China, which it hopes will bring in $750 million, mostly for building housing.
Many developers, struggling with a clampdown on bank lending and a dismal market for initial public offerings, lack the cash to finish projects and are expected to offload land and unfinished buildings.
"It's not for everybody," Price said of the China fund. "The risks are considerable and you have to be comfortable with those risks."
ING, which already runs a $500 million fund in China, plans to continue working on projects with Chinese developers Shanghai Forte Land 2337.HK, Gemdale Corp (600383.SS) and Longfor, which wants to launch a Hong Kong initial public offering in the next three months.
"You don't turn the tables on your partners when the market turns in your favor," said Richard van den Berg, head of China for ING Real Estate.
But ING's new fund, which should have up to $2 billion of spending power when boosted by borrowing, will look to pick up land, unfinished projects and from weaker developers, and even take stakes in companies.
The China fund would target internal rates of return (IRR) of over 20 percent, while the Japan fund would try to make returns in the "low teens", Price said.
(For summit blog: summitnotebook.reuters.com/)