Aetos to Raise $1 Billion to Invest in Japan, China Assets

Aetos Capital LLC, which has acquired $10 billion of assets in Japan and China, plans to raise $1 billion to invest in the two countries as it bets on distressed opportunities in Japan and housing demand in China.

New York-based Aetos plans to buy distressed debt and assets including office, residential and retail properties in Japan from banks that are seeking to recover their loan value, Managing Director Scott Kelley said in an interview in Tokyo. The fund will also develop apartments in second-tier cities in China, he said.

Aetos and its competitor Fortress Investment Group LLC (FIG), which is also raising a fund to buy real estate debt, are seeking bargains in Japan’s property market following a record amount of defaulted debt from lending extended prior to the 2008 global financial crisis. As much as 700 billion yen ($9 billion) of commercial buildings are set to be sold over the next three years, according to an estimate by Moody’s Investors Service.

“Because there are so many over-levered properties, our best value purchases are going to be in the distressed area,” Kelley said. “We really think the bulk of this distressed activity is going to happen in the next couple of years.”

About 364.6 billion yen worth of properties will be offered by next year with the rest sold through 2014 as special servicers that oversee properties tied to defaulted loans sell buildings to repay lenders, according to Moody’s.

Rate of Return

The investment management company has acquired 15 billion yen of office and residential properties over the past six months in Japan, he said.

Aetos may also invest in other countries in north Asia, Kelley said. The fund will target an internal rate of return of about 20 percent and has an investing period of eight years, he said.

China’s new home prices rose for a third month in August, SouFun Holdings Ltd., the country’s biggest real estate website owner, said in a statement based on a survey of 100 cities.

“There is a systemic under supply of residential housing in an urbanizing China,” said Kelley. “That’s really what we are trying to take the advantage of.”

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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