The price is half what a fund managed by Morgan Stanley
paid for 66 percent of the building at the peak of the
market seven years ago.

Kenedix Inc, a Japanese property investor, and
other foreign investors invested in the deal, the sources said,
who asked not to be named because the transaction is not yet
public.

The transaction, which closed in April, is the latest
example of foreign investment funds tapping Tokyo’s resurgent
property market, which is expected to gain momentum under
stimulus measures introduced by Prime Minister Shinzo Abe.

Japan’s real estate market crashed in the wake of the 2008
global financial crisis and rents in Tokyo have fallen ever
since. But vacancy rates at the capital’s best buildings started
to drop last year and there are signs that tenants are now
willing to pay more to secure the most popular locations.

The property purchased by Westbrook, Akasaka Garden City,
was originally bought by a real estate fund managed by Morgan
Stanley in 2006 at the height of the property boom. The fund,
known as MSREF, bought a 66 percent stake in the property for 60
billion yen from Japanese home builder Sekisui House Ltd
.

MSREF raised 42.7 billion yen in debt, which was repackaged
as commercial mortgage-backed securities, to buy Akasaka Garden
City. The debt will mature in September 2014.

Westbrook and Kenedix bought a part of the debt from
creditors last year, while they arranged new loans to refinance
the remaining debt with other investors, the sources said.

Sekisui House, now a tenant in the building, sold the rest
of the property in 2007 to real estate trust Japan Excellent Inc
for 23.3 billion yen.

Japan’s real estate stock index has jumped almost
50 percent since the beginning of the year compared to a 42
percent gain in the benchmark Nikkei average.

In February, Sony Corp sold one of its Tokyo office
buildings to a Japanese real estate trust, Nippon Building Fund
Inc and another investor for 111 billion yen, taking
advantage of the appetite for property acquisitions.

Michio Yasuda, an executive director at ORENO Corporation,
which owns and runs 18 restaurants in Tokyo, hopes New Yorkers
who are happy to drink while standing at bars will also be happy
to eat while standing.

“Only a tiny portion of people can afford to eat at Michelin
starred restaurants but those who earn a modest income should
also be able to try high quality food,” said Yasuda.

In Tokyo’s standing restaurants, which include French and
Italian establishments in the posh Ginza district, diners can
enjoy dishes like tender beef tournedos with foie gras, with an
average meal costing about 4,000 yen ($39.30), around the cost
of drinks and snacks at a simple Japanese-style pub.

Now, ORENO Corporation plans to open a standing, gourmet
Japanese restaurant in New York, taking aim at diners who yearn
for sushi without the bill climbing into three figures or more.

“Japanese food at a top-rated place in New York is so
expensive. We want to completely change that,” said Hiroshi
Shimada, a chef who set up a gourmet standing Japanese
restaurant in the Ginza after leaving the Michelin three-starred
Japanese restaurant Azabu Yukimura.

Shimada said some modifications may be made to the food to
suit American tastes.

“For example, we might add just a tiny bit of butter to our
‘dashi’ soup stock. Or take Japanese simmered dishes like ‘niku
jaga’ – meat with potatoes – and serve them with bread, like a
stew,” he added.

Details remain to be worked out, with the company is looking
at sites in midtown Manhattan, with an eye to opening by the end
of the year. Despite the pricey real estate, a meal is likely to
cost $30 to $40. And there will be VIP seats, but at a cost.

(Reporting by Junko Fujita; Editing by Elaine Lies and Michael
Perry)

Critics argue the government largesse – the state funds
spending power has now gone up to some $34 billion – will crowd
out private equity in a country that desperately needs
risk-taking investors to revitalise a corporate sector
struggling to maintain its global competitive edge.

“What’s happening now is that state-backed funds are
investing in companies, which private funds are also willing to
invest in,” said Tomonori Ito, professor at graduate school of
international corporate strategy at Hitotsubashi University.

Last year, U.S. private equity firm KKR & Co was
edged out from taking control of struggling chipmaker Renesas
Electronics Corp by a group led by the state’s
Innovation Network Corporation of Japan (INCJ).

Adding credence to the concerns, Thomson Reuters data shows
that private equity investment in Japan of $94.85 million so far
this year is just one-sixth of the year-earlier amount and is at
the lowest level since 2006.

If the investment continued at the same pace for the rest of
2013, the year’s total would be just over $300 million, the
lowest by far in at least a decade. Last year’s total was $3.2
billion.

Scarcity of risk-taking investors has long been seen as a
weakness in Japan that explains why it has failed to produce a
Japanese Google or Facebook and the likes of electronics giant
Sony Corp are being overtaken by nimbler rivals such as
Apple Inc and Samsung Electronics.

Still, the government faces a dilemma. While it wants more
venture capitalists, few have come knocking on Japan’s door. So
successive governments have felt compelled to fill the gap with
state-backed funds.

Since sweeping to power in December, Prime Minister Shinzo
Abe has pumped more money than ever into existing state-linked
funds while setting up new ones. Government-owned lender,
Development Bank of Japan, has created a 150 billion yen fund
and a 60-billion-yen “Cool Japan Fund” is under consideration to
invest in the clothing and animation sectors.

The risk in using public funds to invest in companies is
that they are less demanding than private equity, critics say.
They may be reluctant to make hard business decisions and so
could delay corporate restructuring, helping troubled firms stay
afloat at the expense of healthier rivals and ultimately
delaying the economic revival policymakers desire.

“I agree that risk money is not widely available in Japan,
so someone needs to inject cash into Japanese companies,” said
Shusaku Minoda, head of Japan Private Equity Association and
chairman of KKR Japan, the Japanese entity of KKR. “But if
whoever forms a fund to do it, it should be disciplined as
private funds are.”

CROWDING OUT

The association urged the government last month to set up a
monitoring system on the returns on government funds and to
limit the amount they invest and the period of their investment.

Without such discipline, these funds will be no more than
another channel for fiscal pump-priming, critics say.

“These are projects that have sprung up because fiscal
discipline was relaxed, under the mantra of economic stimulus,”
said Hideaki Tanaka, professor at Meiji University’s graduate
school of governance studies.

The Japanese public, who are ultimately on the hook if state
investments go bad, get little or no information on performance
targets, returns or how companies are selected.

In one example, the INCJ spent 200 billion yen to form Japan
Display, the world’s No.1 maker of small and medium-sized LCD
panels, out of struggling units of Sony, Toshiba Corp
and Hitachi Ltd.

Launched last year, the company is 70-percent owned by the
state and unlisted, so the public has no way of judging how the
investment is paying off.

INCJ, which under Abe received an injection of 124 billion
yen to boost its capital to 280 billion yen, has provided no
information about its performance.

An INCJ spokesman said it was “generally difficult to
answer” queries about the profit outlook for companies in its
portfolio, criteria on which investment decisions are based,
growth targets, capital costs and governance.

A notable exception to the information void was the 2010
bailout and last year’s flotation of Japan Airlines Co
by Enterprise Turnaround Initiative Corporation of Japan, which
last month was renamed the Regional Economy Vitalization
Corporation of Japan.

The entity cashed in 313 billion yen on the airline’s
turnaround. In most cases though, there is no clarity whether
the state is making or losing money.

Possible risks to Japanese taxpayers were on full display
last year when Elpida Memory Inc, a maker of DRAM chips, failed
only three years after it was saved with a 30 billion yen
investment from the DBJ and 110 billion yen in loans from DBJ
and other banks.

Yukio Noguchi, honorary professor at Hitotsubashi
University, who specialises in Japan’s economy and finance, said
it was not clear what purpose multiple state funds served
besides creating jobs for retiring officials.

“If the government keeps creating these funds, then there is
no hope,” he said.
($1=97.585 yen)

(Editing by Tomasz Janowski and Neil Fullick)

Intelligence Holdings now has equity value of 51 billion
yen, up from 32.5 billion yen at the time of KKR’s purchase, the
U.S. buyout firm said in a statement on Tuesday.

KKR’s exit from Intelligence coincides with a rise in
Japan’s contribution to overall private equity returns in Asia,
and follows Carlyle Group’s recent $214 million sale of
shares in auto parts supplier Broadleaf.

Japan accounted for 17 percent of capital that private
equity firms returned to investors from Asia in 2012, up from 11
percent in 2010, according to recent data from Asia Private
Equity Review (APER).

KKR bought Intelligence from Japan’s Usen Corp in
2010 for 35 billion yen as the struggling Japanese corporation
sought to sell off non-core assets.

Private equity firms, however, face potential competition
for such assets from government-backed funds.

Earlier this month, KKR, Bain, Carlyle and other private
equity firms urged Japan’s government to shrink the role of
these funds, saying they could squeeze out opportunities for
private capital and delay restructuring for troubled companies.

Seibu on Tuesday asked its shareholders not to sell their
shares to Cerberus.

Cerberus is trying to boost its stake in Seibu by four
percentage points to 36.44 percent, the level at which it could
veto major board decisions, through a tender offer.

The moves comes as Seibu, which also operates hotels and
department stores, is planning to go public again in a
multi-billion dollar stock market listing originally planned for
2012.

Cerberus’ attempt to increase its stake hinders Seibu’s
plans to go public at the earliest possible stage, Seibu
President Takashi Goto told a media briefing.

“I am afraid because of this tender offer our planned
initial public offering may be delayed,” Goto said.

The U.S. investment fund led a bailout of Seibu in 2005
after Seibu Railway, a predecessor to the current company, was
delisted in 2004 as a result of making a false entry in its
securities report.

The relationship between and Cerberus worsened late last
year over the discussion on how to proceed with the initial
public offering, Goto said, without elaborating.

Cerberus has made some requests that are against Seibu’s
management strategy, such as elimination of certain railways and
possible sale of a professional baseball team the Seibu Lions.

Goto said Seibu will continue to ask Cerberus to help Seibu
realise the initial public offering. Cerberus’ tender offer will
continue until April 23.

Japan’s two largest state-backed funds have the capacity to
raise up to $37 billion to inject money into Japanese companies.

The funds have edged out private equity in recent bailouts
of chipmaker Renesas Electronics Corp and Japan
Airlines Co, reflecting a policy favoring softer
restructuring than outside investors would pursue.

Without new controls, the government funding could allow
companies to “push back problems” and retain “idle assets,” the
Japan Private Equity Association said in a statement.

The association called on the administration of Prime
Minister Shinzo Abe to set up a monitoring system on the return
on government funds and to limit both the amount they invest and
the period of their investment.

“Policy-driven finance and government capital should be
supplied only to attract private-sector funds, and should be
invested with appropriate governance and accountability,” the
association said.

The statement was the first by the group representing
private equity firms, including Japanese firms Unison Capital
and Advantage Partners.

The move follows a failed attempt by KKR to buy troubled
Japanese chipmaker Renesas last year.

Japan’s taxpayer-funded Innovation Network Corporation of
Japan made a counter bid against KKR and succeeded in securing a
two-thirds stake with an investment of 138.4 billion yen ($1.5
billion) into Renesas. Eight clients of Renesas including Toyota
Motor Corp provided an additional 12 billion yen.

The Innovation Network Corporation has the ability to
provide 1.8 trillion yen ($19 billion) to Japanese companies in
government-guaranteed financing, the association said.

Japan’s other major government fund called the Enterprise
Turnaround Initiative Corporation of Japan, known as ETIC, has
the ability to secure 1.7 trillion yen ($17.96 billion) in
financing.

The ETIC bailed out Japan Airlines in 2010, brushing aside
an offer made by American Airlines which had teamed up with a
private equity firm TPG Capital.

Big downtown office buildings are coming up for sale as
Tokyo’s property market regains growth momentum for the first
time in almost five years, with plenty of interest among buyers,
particularly Japan’s public real estate trusts, experts said.

“Market sentiment is more positive now than at any time
since the Lehman crisis,” said Andy Hurfurt, executive director
at the Japanese unit of CBRE Group Inc, a global real
estate services company. “This reflects a widely held view that
the market has bottomed and will move to an upside cycle.”

Looking to cash in on that market recovery, Sony Corp
said on Thursday it sold its 25-floor Sony City Osaki
building near its central Tokyo headquarters for 111 billion yen
($1.12 billion) – the biggest deal of its kind in four years.
The company that gave the world the Trinitron TV
and Walkman music player is shedding non-core assets – it has
also offloaded its New York headquarters – as it
seeks to halt a slump in its TV fortunes from competition from
Samsung Electronics Co and others.

Osaka-based rival Panasonic Corp is also selling a
central Tokyo office it uses as its headquarters in the capital,
sources said, and has promised investors it will generate 130
billion yen from asset sales to underpin cash flow.
Sharp Corp has sold a 9-storey building
in Tokyo and is looking to sell more in the city, a spokeswoman
said.

ABE BOUNCE

Japan’s real estate market crashed in the wake of the global
financial crisis, and rents in Tokyo have fallen ever since. But
last year, vacancy rates in the city’s quality buildings slipped
for three straight quarters, according to CBRE. Monthly rents,
which have dropped since early 2008, were almost flat in 2012.

Central Tokyo office rents – measured in tsubo, equivalent
to 3.3 square meters or the size of two traditional tatami mats
- peaked in late 1991 at 44,193 yen ($480) as Japan’s bubble
economy burst. Rents in January were 16,554 yen, according to
Miki Shoji, a local real estate services firm.

Market sentiment – from real estate to shares – has been
buoyed by economic policies touted by the new administration of
Prime Minister Shinzo Abe, who came to power in December. The
benchmark Nikkei average this week hit a 4-year high and
has been rising since mid-November on hopes of aggressive moves
to tackle deflation in Asia’s second-largest economy.

The Tokyo Stock Exchange REIT index has risen by a
fifth in three months on expectations that real estate trusts
will push up profits from rent increases. The higher REIT share
prices rise, the easier it is for them to raise money from
selling new shares – money to plough into more properties.

“As a sign of market improvement, property prices typically
go up before rent increases because investors try to buy real
estate assets in anticipation of higher rents,” said Takeshi
Akagi, head of research at Jones Lang LaSalle Japan.

Japan’s public real estate trusts have raised over $1.8
billion in cash so far this year, almost 70 percent of the total
they raised in the whole of last year, according to Thomson
Reuters data. That aggressive fund raising is a sign that REITs
will be strong potential buyers, experts said.

Nippon Building Fund, Japan’s largest REIT by
assets and the buyer of a 60 percent interest in the Sony
building, raised about 70 billion yen in January from selling
new shares. Kenichi Tanaka, CEO at Nippon Building Fund
Management, which manages the REIT, said then the trust could
afford to buy assets worth 100 billion yen, and was keen to
invest quickly as now is a good time to buy properties in Tokyo.

“Tokyo rents have fallen to a very low level and I don’t
expect rents will stay at this level,” he said at the time.
“That will give us upside potential if we buy properties now.”

MORE THAN JUST A ‘GARAGE’ SALE

That potential in Tokyo’s office and commercial property
market is also attracting foreign investors, said Ken Negishi,
representative director at Deka Real Estate Lending, the local
unit of a German bank. “Investors expect rental income will
rise, backed by economic growth. When companies see stronger
earnings, they can afford to pay higher rents and fulfill their
needs to use bigger space. We’re getting into that cycle now.”

CBRE’s Hurfurt expects more Japanese manufacturers to sell
real estate assets. “I know of other firms that are reviewing
their real estate holdings and examining more effective ways of
using capital,” he said.

Kirin Holdings Co, under pressure to expand abroad
as Japanese consume less alcohol, is looking to sell two
buildings in Tokyo, while moving into one of the city’s newest
offices where it can house group companies currently dotted
around the capital at several locations.

“Companies are offloading assets, and we see this trend as a
good opportunity for us to invest in new properties,” said
Tatekazu Nakamura, executive manager at Mitsui Fudosan Co Ltd
, one of Japan’s top real estate developers. “We have
been trying to source potential deals.”

The 25-storey Sony City Osaki building, completed in March 2011, houses 5,000 of its workers on a site once known as the “holy land” for Japan’s television manufacturing industry, where Sony’s Trinitron TV was launched in 1968.

Nippon Building Fund will take a 60 percent stake in the property, while another investor, which Sony did not name, will hold a 40 percent interest in the property, where Sony will continue to work for the next five years.

Last month Sony agreed to sell its U.S. headquarters building in New York City for $1.1 billion, the highest price paid for a single U.S. office property in two years.

It and other Japanese consumer electronics makers are selling assets to bring in cash as they fight to end losses at their television units, besieged by competition from South Korean rivals such as Samsung Electronics Co Ltd.

Sony City Osaki, near the firm’s Tokyo headquarters, is the nerve centre of its struggling TV and audio divisions.

The firm expects to report a gain on the sale of around 41 billion yen, to be recorded as operating income in the fourth quarter of the fiscal year that ends in March, it said in a statement.

Before the sale was announced, Sony had forecast net operating profit of 130 billion yen for the full year.

The transaction is the most expensive office property sale in Japan in almost four years, excluding a transfer of a property between two companies in the same group.

Japanese property fund manager Secured Capital bought an office building in central Tokyo’s Marunouchi district in 2009 for about 140 billion yen. ($1 = 91.6050 Japanese yen)

(Additional reporting by Tim Kelly; Editing by Daniel Magnowski)

Sony is trying to sell the 25-storey Sony City Osaki
building, in what would likely be the biggest office property
deal in more than three years in Japan’s property market, which
has been in the doldrums in the wake of the global financial
crisis.

The move underscores Sony’s efforts to sell non-core assets
to focus on reviving its consumer electronics business. Sony
last year sold a chemicals company and is currently considering
the sale of its battery business unit, Chief Executive Kazuo
Hirai said this week in Las Vegas.

The company is also trimming its headquarters staff by a
fifth and is trying to sell its U.S. headquarters, which is
expected to fetch up to $800 million. [IDn:nL3E8LJ2RP]

Sony City Osaki was completed in March 2011 after the
company renovated a building that produced the Trinitron
television set that Sony developed. The site was known as the
“holy land” in Japan for television sets.

The 124,000 square-metre building houses 5,000 Sony
employees, most of whom are involved in making television sets
and audio equipment. The employees will remain at the site as
the company will lease back the space from the future owner, one
of the people said.

A Sony spokeswoman declined to comment.

Foreign and domestic investment funds have been notified
about the sale of the building located near Sony’s headquarters.

A sale would likely be Japan’s biggest office property
transaction since two large deals in central Tokyo 2009. More
recently real estate asset manager Kenedix Inc last
month bought an office building in central Tokyo for 51 billion
yen together with state-owned lender Development Bank of Japan
and developer Tokyu Land Corp.

($1 = 87.1300 Japanese yen)

(Reporting by Junko Fujita and Reiji Murai; Editing by Matt
Driskill and Richard Pullin)

Volunteers and donations had poured in after the magnitude 9.0 quake off the northeast coast of Japan’s main island Honshu unleashed a deadly tsunami that killed nearly 19,000 and triggered reactor meltdowns at the Fukushima nuclear plant.

But 20 months later, residents of towns and cities ravaged by the country’s worst disaster in generations say the nation’s biggest rebuilding effort since the aftermath of the World War Two has slipped off the political agenda.

“I am not expecting anything from the election results,” said Akio Ono, president of seafood processing firm Ono Foods Co, in Kamaishi, a port with a population of 38,000, where more than 1,000 residents were killed by the tsunami.

“None of the politicians seem to be thinking about Japan seriously, they are not paying attention to the disaster-hit areas.”

In Kamaishi, like many communities along the coast, scars of the disaster are still visible — gaping empty lots left after buildings swept away by the tsunami side-by-side with prefabricated temporary buildings hosting shops and eateries.

The December 16 vote pits Prime Minister Yoshihiko Noda’s Democrats against the Liberal Democratic Party, led by former Prime Minister Shinzo Abe, and a clutch of smaller parties.

LOW EXPECTATIONS

Polls show Abe’s LDP in pole position with about 23-25 percent, not enough to form a government without an alliance with one of its rivals. About 40 percent of voters are reluctant to back any party.

A common thread of some dozen interviews with residents of the disaster-hit region is their low expectations that any party has much to offer to an ageing region that was already struggling to stem its economic decline before March 11, 2011.

Those who plan to vote seem to accept that the election will be fought over other issues, such as national security, the stagnant economy or the role of nuclear power after the world’s worst nuclear disaster since Chernobyl in 1986.

“Since this is going to be a national election, diplomacy and security should be the primary focus,” said a 56-year-old civil servant in Iwaki, a city of 337,000 people just outside the 30-km (18.5 miles) evacuation zone around the Fukushima Daiichi nuclear plant.

The man, who declined to be named, backed the LDP, accusing the ruling Democrats of alienating the bureaucracy during their three-year rule and allowing the recent flare-up in tensions with China by weakening Japan’s alliance with Washington.

LEFT BEHIND

Lawmakers have signed off 19 trillion yen ($230 billion) in public funds to cope with the aftermath of the world’s costliest natural disaster and the fallout of the Fukushima crisis.

But an audit last month showed only about half has been spent because of bureaucratic inertia and bottlenecks. Some of those funds have also been funnelled to other parts of Japan and projects at best loosely related to reconstruction.

Besides the slow trickle of funds a lack of comprehensive rebuilding plans is another source of frustration. While the second anniversary of the disaster is fast approaching, many businesses operate in provisional facilities and thousands live in temporary housing not knowing whether they will be able to rebuild their homes or have to relocate elsewhere.

Managers such as Masahiko Numari, who runs a fish processing company in Miyako, who were able to rebuild their factories with government help, say they need more financial aid to expand.

The region, long dependent on fishing and farming, also craves new investment that would bring permanent jobs and stop the exodus of young people.

“I would like to vote for someone who would help improve the employment situation for young people like me,” said Ryuhei Toubai, 23, who works nights as a bartender in Kamaishi but is looking for a day job that would pay his healthcare and pension benefits. “I want a stable job when I think about my future.”

Many of those in towns and cities hit by the tsunami and the radiation crisis who are still in a limbo feel ignored.

“I am not going to vote this time,” said Megumi Kinno, 40, who owns a pub operating in a government-run food complex in the coastal town of Ofunato and lives in temporary housing with her 16-year-old son and a seven-year-old daughter.

“I don’t know how much of what we want will be heard,” she said, adding that too much aid money was caught up somewhere in the bureaucracy. “I wish all the politicians were washed away by the tsunami.”

($1 = 82.3700 Japanese yen)

(Additional reporting by Mari Saito; Writing by Tomasz Janowski; Editing by Alex Richardson)