Sparx Group Co., Asia’s second-largest hedge fund, is starting a fund that will invest in building hotels in Japan’s earthquake-devastated areas.
Sparx tied up with Kachikaihatsu Co., a Tokyo-based property firm which operates the Best Western hotel brand in Japan, to build its first project in Natori city of Miyagi prefecture, northeast of Tokyo, said Chief Executive Officer Shuhei Abe. Sparx raised 1.1 billion yen ($14 million) for the project aimed at providing lodging for relief workers and volunteers following the March 11 disaster, he said.
Sparx is expanding its offerings from stocks as Abe aims to bring his firm back to profit and resume dividend payments this year. The 314-room hotel will be built in sections that are transported to the site, cutting costs by half and the length of construction by more than a year, according to Abe.
“There is a clear gap between supply and demand in the quake-stricken area when it comes to lodging,” said Abe, 57, in an interview in Tokyo today. “This presented an opportunity for an investor like us to participate in Japan’s reconstruction effort, while securing decent returns.”
Japan plans total spending of 19 trillion yen over five years for reconstruction after the magnitude-9 temblor and tsunami that devastated the northeast coast, leading to a nuclear crisis and leaving almost 20,000 people dead or missing. About 250 million people are expected to participate in the effort over the next decade, according to Abe, who first visited the disaster zones in Miyagi prefecture at the end of June.
Looking for Yield
As part of the project, Sparx teamed up with a real-estate financing company unit of Tokyo-based Logicom Inc., which provides property brokerage services. The two companies set up a special purpose company that issued senior and mezzanine bonds to investors, who are entitled to at least a 6 percent yield through hotel revenue, which Kachikaihatsu will manage, Abe said.
“In a world like today, what investors are looking for is a steady cash yield,” he said. “There is a clear and immediate need to provide such housing for people at a time when traditional financing from banks isn’t done quickly and government is faced with many issues to actually fund a project like this.”
The hotel will open in April, while the fund will last for six years, Abe said.
Sparx is also aiming to start a second project for which it aims to raise about 5 billion yen in the first quarter of 2012, Abe said. The second fund will be used to build two hotels also in Miyagi prefecture that will aim to have about 1,500 rooms using the same modular system, Abe said, adding that it may house other businesses such as medical-related services and convenience stores.
The Tokyo-based asset manager swung to a loss of 3.7 billion yen for the year ended March 31 as fee income declined. Earnings have been weighed down by charges to write off losses on the acquisition of its units in Asia. In June, as part of its efforts to expand its offerings beyond Japan, it started an Asian long-short equity fund using $10 million of the company’s own cash as seed capital.
The company’s shares declined 24 percent this year, compared with the 16 percent drop in the broader Topix index.