UPDATE 1-Japan's first REIT fails, hit by credit crunch

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TOKYO, Oct 9 (Reuters) - New City Residence Investment Corp 8965.T said it filed for court protection from creditors with $1.1 billion in debt, the first Japanese real estate investment trust to fail as fallout from the credit crunch spreads.

A string of Japanese property developers and construction firms have failed in the past few months, hit by a tightening of credit to an industry struggling with high raw materials prices and weaker demand as the economy slows.

New City Residence, which owns apartment buildings in Ginza, Harajuku and other up-market areas of Tokyo, said in a statement that it was having difficulty raising money to repay its debts and finance the purchase of new assets to sustain growth.

New City becomes the 22nd listed Japanese company to fold so far this year and the 16th from the construction or real estate sectors, according to Tokyo Shoko Research.

Its failure could signal further trouble for the REIT sector. Tokyo's REIT index .TREIT has shed about two-thirds of its value since a peak last May, hit by a drying up of credit and weakness in Japan's property market.

“New City Residence is not the exception. There are other REITs that have similar problems,” said Masahiro Mochizuki, an analyst at Credit Suisse in Tokyo. “It is natural to think that we will see more REIT bankruptcies.”

Last month Re-Plus Inc 8396.T, a property fund manager and sponsor for Japanese REIT Re-Plus Residential Investment 8986.T, filed for bankruptcy protection with 32.6 billion yen ($325 million) in debts.

The troubles in the REIT market have ensnared U.S. investment firm Oaktree Capital, which had announced a tender offer to boost its stake in Re-Plus Residential to 48 percent just a few weeks before Re-Plus Inc went under.

New City is the second big failure in Japan in as many days, following construction company Araigumi Co's 1854.T filing for court protection on Wednesday with 45 billion yen in debt. (Reporting by Junko Fujita and Nathan Layne; Editing by Hugh Lawson, Paul Bolding)