September 2, 2016 / 8:40 AM / 3 years ago

Fortress, PAG show interest in Japan's public apartment sale: sources

TOKYO (Reuters) - Fortress Investment FIG.N and Hong Kong-based buyout firm PAG are among investors that took bidding papers for Japan’s biggest sale of public apartment blocks, according to sources, a deal for which government wants at least 64 billion yen ($618 million).

The logo of Goldman Sachs (GS) is seen on the clothing of a trader working at the Goldman Sachs stall on the floor of the New York Stock Exchange, United States April 16, 2012. REUTERS/Brendan McDermid/File Photo - RTSGB01

Goldman Sachs (GS.N) also took papers, the sources said, but a spokeswoman said on Friday it was not going to bid.

The Japanese government is selling about 1,000 buildings containing more than 100,000 apartments built mostly in the 1960s and 70s and owned by a health ministry organization catering to the elderly, disabled and unemployed.

The blocks, mainly in smaller cities with dwindling populations, drew initial interest from about 20 firms including Fortress, Goldman and PAG by close of applications on July 5, four sources with knowledge of the process said, though they cautioned that many may not bid by the Oct. 5 deadline.

Fortress and PAG declined to comment.

The buildings, which have an average occupancy rate of about 40 percent, are scattered all over Japan from the northern island of Hokkaido to the southern island of Kyushu, and only seven are in Tokyo, where population is growing, in contrast to the national trend.

Japan’s population started declining five years ago and is projected to fall around a third to 87 million by 2060.

The poor state of repair of many of the buildings and the demographic pressure make them a tough sell, said people who have seen the bidding papers.

“It will be difficult to flip these properties for profit because they are not just old but also in bad locations,” said one investor who took a look at details of the properties.

He said only foreign investors were likely to buy, as Japanese firms were too risk-averse.

Fortress has a track record in Japan, having bought hotels held by investment bank Lehman Brothers after it collapsed in 2008.

PAG bought an office tower in central Tokyo for 144 billion yen in 2009 and sold it in 2014 for about 170 billion yen.

Goldman also has a history of buying distressed assets in Japan, including a string of failed golf courses after the country’s economic bubble burst in the 1990s.

An official in charge of the apartments sale said the minimum selling price was justified and there were no plans to cut it, though it would have to reconsider the conditions if it failed to attract bids.

Bid conditions include a 10-year bar on buyers selling a block until the whole block is empty or from selling a tenanted unit, nor can they raise rents.

The sale is part of the government’s broader efforts to sell off assets and reduce Japan’s huge public debt, which is estimated at twice the size of its 500 trillion yen economy.

($1 = 102.2900 yen)

Reporting by Junko Fujita; Editing by Will Waterman

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