Feb. 19 (Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm by market value, bought Citigroup Inc.'s Tokyo headquarters, adding to more than $18 billion of property investments in Japan in the past decade.

A Morgan Stanley real estate fund purchased the 22-story building, said Natsuo Nishio, a Tokyo-based spokesman at Morgan Stanley. The fund paid 48 billion yen ($444 million), three people with knowledge of the matter said, declining to be identified because the price hasn't been publicly announced.

Citigroup, the U.S. bank that's cutting jobs and bonuses after posting a record loss in the fourth quarter, said it sold the Tokyo waterfront building to reduce risks associated with holding assets. That gave Morgan Stanley an opportunity in Tokyo, where office vacancies are close to a seven-year low, according to real estate broker Miki Shoji Co.

``Morgan Stanley has expertise in real estate, enabling it to turn a profit even if rents fall,'' said Daisuke Seki, chief executive officer of Tokyo-based IB Research and Consulting Inc. ``Citigroup probably needed to strengthen its capital.''

A shortage of Grade A office buildings cut the vacancy rate in Tokyo's five central districts to 2.55 percent last month from 2.65 percent in December, Miki Shoji said Feb. 7. Rents in those areas climbed 2 percent from the previous month, the report said.

Slowing Economy

Still, growth in rents may ease along with the rest of the Japanese economy, according to real estate brokers including Jones Lang LaSalle Inc. and CB Richard Ellis Group Inc. Goldman Sachs Group Inc. says Asia's largest economy has probably already entered a recession.

The prospect of a slowing economy hasn't deterred Morgan Stanley. The firm plans to boost real estate investment in Japan, even as it cuts as many as 40 jobs at its local securitization business, two people familiar with the matter said last week.

Morgan Stanley has invested more than 2 trillion yen in properties in Japan so far, including last year's purchase of 13 hotels from All Nippon Airways Co. for 281 billion yen. It began investing in real estate in the nation in the late 1990s.

The U.S. firm and Sapporo Holdings Ltd., Japan's third- largest brewer, agreed in October to form an alliance to manage and buy real estate. Morgan Stanley plans to buy a 15 percent stake in Sapporo's Yebisu Garden Place shopping and office complex in Tokyo for 50 billion yen.

Citigroup Job Cuts

Citigroup will sell and lease back its Tokyo headquarters, the New York-based company said today in an e-mailed statement. The bank has been considering a sale of the building since last year, the Nikkei newspaper reported earlier today.

The bank trimmed its dividend by 41 percent and said it will cut about 4,200 jobs globally and curb year-end executive bonuses after posting $18.1 billion in writedowns on subprime mortgages and bonds last month.

Citigroup is reviewing the size of its operations in Japan, where it employs about 16,000 people and operates a bank as well as consumer finance, asset management and principal investment units. Nikko Citigroup Ltd., the bank's local investment-banking arm, will cut as many as 170 of a total 1,700 jobs, two Citigroup officials said, declining to be identified before an announcement.

To contact the reporters on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net; Kathleen Chu in Tokyo at kchu2@bloomberg.net

Last Updated: February 18, 2008 23:46 EST