Japan's DaVinci to set up $9 bln real estate fund

Here is more information on DaVinci's fund, about which I posted a few days back.

Japan's DaVinci to set up $9 bln real estate fund
Tuesday 30 August 2005, 5:10am EST

TOKYO, Aug 30 (Reuters) - Japanese real estate investment adviser K.K. DaVinci Advisors said on Tuesday it plans to launch next year the country's biggest privately placed real estate fund, with assets of 1 trillion yen ($9 billion).

The fund will be large enough to purchase profitable, large real estate assets in a rapidly growing market, President Osamu Kaneko said in a telephone interview with Reuters.

A growing number of real estate assets are available for investment in Japan as companies are seen eager to get rid of buildings and other property to minimise exposure to price risks and avoid becoming takeover targets, analysts say. Bidders often look for asset-rich companies.

"The bigger a fund is, the more flexibly we can buy larger properties," Kaneko said.

DaVinci will start soliciting 250 billion yen for the fund from corporate and institutional investors at home and abroad from November, while DaVinci itself will inject 50 billion yen into the fund.

The remaining 700 billion yen will be raised by non-recourse loans from financial institutions, Kaneko said.

Property-linked non-recourse loans are a type of asset financing business which Nomura Holdings Inc. (8604.T: Quote, Profile, Research) and other financial institutions in Tokyo see as having high growth potential.

"There is more money flowing into the debt market currently given that widening spreads make it more attractive than equities," Kaneko said.

DaVinci, given discretion by investors to make investment decisions for the fund, plans to purchase 70 to 80 office buildings, condominiums, commercial compounds and hotels, as well as shares of companies which operate such facilities.

DaVinci will manage the fund up to 10 years before it exits the fund by transferring the properties to the company's other real estate funds or to other investors, as well as by selling stock. It targets an internal rate of return (IRR) for the fund of 25 percent a year.

DaVinci currently manages some 200 billion yen in a fund investing in medium-sized buildings.

It is one of the few real estate management firms with the ability to create "blind-pool" funds, according to Daiwa Institute of Research

Blind-pool management allows a company to make decisions and act quickly on acquisitions and sales of properties, and to expand the scale of property investment, Daiwa said.

($1=110.73 Yen)