Nov. 13 (Bloomberg) -- Oaktree Group, the U.S. private- equity fund that manages $55 billion in assets, plans to increase its stake in Japanese real estate investment trusts after their share prices dropped almost 50 percent in the past year.

Oaktree controls and manages Re-Plus Residential Investment Inc., a Tokyo-based REIT that aims to acquire homes and may acquire other investment trusts, according to the head of Asian real estate at Oaktree's asset management unit.

``Even before the current global economic crisis, the REIT market in Japan had reached a point where there should be active consolidation,'' Robert Zulkoski of Oaktree Capital Management LP said in a telephone interview yesterday. ``We have ample capital to make attractive and compelling investment.''

Oaktree, a company that buys distressed assets, invested 16 billion yen ($163 million) in Re-Plus and owns about 48 percent of the trust. Thirty-four out of 40 REITs listed on the Tokyo Stock Exchange trade below their initial public offering price, according to Bloomberg data, after the Tokyo Stock Exchange REIT Index fell 69 percent since a record high in May 2007.

``The share price dramatically undervalues the underlying real estate,'' Zulkoski said.

No Consolidation

Since Japan introduced REITs in 2001, no companies in the industry have merged or have been acquired. Regulators should create rules to spur mergers of investment trusts to help them survive, investors including Prospect Asset Management Inc., a Honolulu-based fund with $2 billion invested in Japan, and Mitsubishi UBS Realty Inc. said last month.

On Oct. 11, New City Residence Investment Corp. became the first Japanese REIT to be declared bankrupt. The Tokyo-based company failed because it couldn't refinance existing loans or raise funds to pay for properties it had agreed to buy.

``The government and the stock exchange recognized that the difficult financial time is taking its toll on the REIT industry,'' said Zulkoski.

In the past year, Japanese REITs fell more than those in other markets. The 49 percent decline in Japan compares with a 34 percent drop in the U.S. and a 33 percent slide in the U.K., according to AME Global REIT indexes.

Oaktree said on Nov. 11 that it increased its stake in Re- Plus to 48.4 percent. Under Japanese law, Oaktree can own as much as 49 percent of the REIT without losing tax breaks.

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

Last Updated: November 12, 2008 10:01 EST