Oct. 31 (Bloomberg) -- Some of Japan's biggest property investors, including KK DaVinci Holdings and Morgan Stanley, may have to sell some of their holdings because of the credit crunch, dragging commercial real estate prices lower, analysts said.

Property managers need to refinance as much as 1.8 trillion yen ($18 billion) in debt in the next two years, according to an estimate by Koji Kumamaru, managing director of structured finance at Moody's Japan KK.

Some of the banks that previously lent to these customers, such as Lehman Brothers Holdings Inc., are no longer in business. Those that remain have become more cautious due to the global financial crisis. New lending to Japan's real estate sector fell 19 percent in the three months ended June 30.

``Delinquencies and refinancing failures are rising, especially from this month,'' said Kumamaru, who said property managers may fail to refinance about 40 billion yen in loans this year because of tighter credit.

One upshot is likely to be further withering of Japan's commercial mortgage-backed securities market, where bankers bundle mortgages and then sell them to investors in the form of bonds. A total of just 209.4 billion yen in these securities was sold so far this year, compared with 1.36 trillion yen for all of 2007, according to Bloomberg data.

Moody's Japan forecast this year's total sales of the securities, known as CMBS, may amount to no more than 30 percent of what was sold last year after global financial firms recorded at least $680 billion in losses and writedowns related to the credit crisis.

`No Buyers'

The trend will also likely result in downward pressure on land prices, as property managers sell assets as financing dries up. In the CMBS market, delinquent loans are moved to a pool of debt to be redeemed after properties are sold off - possibly at a loss.

Some CMBS arrangers are having trouble finding investors in commercial-mortgage backed securities amid concern the financial turmoil will continue to push land prices lower, said Masahiro Mochizuki, an analyst at Credit Suisse.

``With no easing of the financial turmoil, there are no buyers for CMBS,'' he said.

Mochizuki estimates about 1 trillion yen of debt will come due next year. ``Sales pressures are expected in Japan's real estate market, which may push property prices lower,'' he said.

S&P Ratings

Standard & Poor's Ratings Services said in an Oct. 29 report it placed the ratings on 10 tranches of five CMBS transactions on ``negative'' review for possible downgrade because of the difficulty in refinancing. Among five CMBS transactions under review, three were part of the so-called JLOC series, sold by Morgan Stanley.

Natsuo Nishio, a spokesman at Morgan Stanley, declined to comment.

A spokesman at DaVinci declined to comment because it was prior to the company's earnings results on Nov. 7.

``Amid the prolonged turmoil in global financial markets, the number of lenders who will extend refinancing for loans and specified bonds backing CMBS transactions is decreasing, suggesting that borrowers are at risk of being unable to refinance their loans,'' Yuji Hashimoto and Hiroyuki Miyata, credit analysts at S&P, said in the report.

Among leading CMBS issuers last year, Morgan Stanley, which raised capital from Mitsubishi UFJ Financial Group Inc. on Oct. 13, has cut as many as 65 jobs in its Japan real estate securitization unit this year. Bear Stearns & Co., another big player, was sold to JPMorgan Chase & Co. earlier this year and Lehman Brothers filed for bankruptcy last month.

Property Financing

While CMBS financing accounts for only a fraction of real estate lending by Japanese banks, the outlook for real estate doesn't seem to be too bright as Japanese banks reduce exposure to real estate, said Yukio Egawa head of Japan securitization research at Deutsche Bank AG in Tokyo.

``It's a very difficult environment for real estate financing,'' said Egawa. ``It's unclear how long this tighter lending environment will persist.''

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.

Last Updated: October 30, 2008 20:43 EDT