Oct. 5 (Bloomberg) -- Goldman Sachs Group Inc., the most profitable securities firm, plans to buy Japanese property company Simplex Investment Advisors Inc. for 124.7 billion yen ($1.1 billion) as land prices in the world's second-largest economy rise for the first time since 1991.

Goldman, in a joint venture with New York-based Aetos Capital LLC, offered 215,000 yen a share for Simplex, the owner of 179 properties in Japan, according to the statement. Nikko Cordial Corp., Japan's third-largest brokerage, agreed to sell its 42.5 percent stake.

Investment banks, real estate investment trusts and private equity firms are acquiring assets in Japan as real estate prices recover. New York-based Goldman has spent 2 trillion yen since 1998 on office buildings, golf courses, spa resorts and cinemas. Morgan Stanley, the biggest owner of real estate among Wall Street firms, has acquired offices and hotels in the country.

``The dynamics of a healthy market are in place,'' said Steve Sperber, director of international client services for CB Richard Ellis Group Inc., the world's largest commercial real estate broker. ``The demand is there and tenants are trying to grow.''

Vacancy Rates

In Tokyo's best buildings in the central business district, the vacancy rate is less than 0.3 percent, Sperber said. Citywide, it's about 1.4 percent and 85 percent of new space being developed is filled before it's finished, according to CB Richard Ellis.

Commercial land prices rose 1 percent in the 12 months ended June 30, the first advance in 16 years, Japan's Ministry of Land, Infrastructure and Transport said on Sept. 19. Land in Tokyo's central Ginza district costs as much as 25.3 million yen per square meter ($2,365 a square foot). That is still 31 percent lower than in 1991, when prices peaked.

Simplex, founded in 2002 and based in Tokyo, operates real estate funds in the capital and other cities in Japan, according to its Web site. Its profit rose 34 percent in the year ended March 31, to 6.2 billion yen. The company had 622.2 billion yen of assets under management at March 31.

Goldman and its partner are purchasing 80 percent of the company. Simplex shares surged 20,000 yen, or 15 percent, to 150,000 yen today. The stock is up 29 percent since Oct. 2. Goldman rose $2.55 to $228.50 at 4:22 p.m. in New York Stock Exchange composite trading.

Recovering Market

Aetos is a private equity firm founded in 1999 by James Allwin, the former head of Morgan Stanley's investment management business. The company has two funds to invest in Japanese real estate, according to its Web site.

In an interview earlier this week, Toshinobu Kasai, Goldman's managing director of local real estate investments, said the company planned to invest about 200 billion yen this year in Japanese property, betting real estate is short of its peak after a two-year rally.

``As the market recovers, we see price hikes of some assets,'' said Kasai. ``We need to be more selective in terms of future growth potential, location and quality of tenants when we assess investing targets.''

Goldman in August won an auction for the flagship Japanese jewelry store of Tiffany & Co. in Ginza, the central Tokyo district with Japan's priciest real estate. Goldman paid 38 billion yen, more than twice what the world's second-largest seller of luxury jewelry had paid for the Ginza store in 2003. A unit of Goldman Sachs bought an office building in the same month from confectioner Fujiya Co. for 9.33 billion yen.

Goldman Acquisitions

In September, Goldman bought a 993-square-meter site in Osaka, previously used as a movie theater, for 6.46 billion yen from Toei Co., Japan's third-largest movie company.

REITs bought 1.51 trillion yen in property in the 12 months ended June 30, with 52 percent of the purchases in Japan's three largest cities, according to STB Research Institute.

Goldman raised $4.07 billion for a new property fund in June, twice as much as investors said the firm originally sought. Morgan Stanley has also been on an acquisition spree spanning offices and hotels. In April, Morgan Stanley agreed to buy 13 hotels in Japan from All Nippon Airways Co. for 281.3 billion yen in what was Japan's largest real estate purchase by an overseas investor.

Goldman plans to purchase Simplex shares through a tender offer from Oct. 12 to Nov. 8, the statement said. Nikko Cordial, which was bought by Citigroup Inc. in April, will book a 44 billion yen gain this fiscal year from selling its stake to Goldman, the Japanese company said.

``Capital inflows will likely increase as various funds continue to be attracted to the Japanese property market,'' Kasai said. ``As competition intensifies for these funds, some will enter and some will have to retreat.''

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net.

Last Updated: October 5, 2007 17:12 EDT