Angelo Gordon & Co., a New York-based manager with $24 billion in assets, is seeking to boost Japan property investments amid signs of a recovery, after acquiring about $650 million of real estate in the country the past two years.
Angelo Gordon, which manages fixed income, real estate, buyout and hedge funds, is interested in buying more office and commercial buildings in central Tokyo, said Jon Tanaka, managing director of Angelo Gordon International LLC, a unit of the U.S. manager. The company last month bought the 13-story Aoyama Bell Commons, a commercial building in the capital, he said.
“A major opportunity is in assets that banks don’t want to refinance,” Tanaka said in an interview in Tokyo. “That is where the bulk of opportunities will come from.”
Angelo Gordon is seeking bargains in Japan as the property market begins to show signs of a turnaround. Office buildings in Tokyo provided a 3.4 percent total return, including rental income and capital value, in 2011, after a 0.5 percent gain a year earlier, based on data compiled by RREEF, a property investment arm of Deutsche Bank AG. Before that, the market had three straight years of decline, the data showed.
Angelo Gordon has spent more than $1 billion in 37 deals in Asia since it started investing in the region in 2005. Four of the transactions were in Tokyo, eight in Korea and the rest in China, he said.
The Topix Real Estate Index, which tracks 44 property companies, had the biggest gain in more than two weeks, rising 2.1 percent to 791.05 in Tokyo. The Tokyo Stock Exchange REIT index rose to the highest level in more than a week.
The company’s AG Asia Realty Fund II, its second property fund in Asia, has the capacity to acquire as much as $1.23 billion of real estate in Japan, China and South Korea, he said.
Angelo Gordon’s investment strategy for Japan is to buy properties it can upgrade with improvements from the new design of a building’s surface to changing the entrance, and boosting occupancies and rents, Tanaka said. Logistics and hospitality properties in Japan are also attractive, he said.
Tokyo’s office vacancy rate rose to a record high of 9.43 percent in June from 9.4 percent a month earlier, according to Miki Shoji Co., a closely held office brokerage company. The average rent in the five wards climbed for the first time in about four years in May and increased to 16,763 yen ($210) per tsubo last month, it said. A tsubo, a standard measure of property area in Japan, is 3.3 square meters or 35.5 square feet.
“When a building starts losing tenants, the owners can become reluctant to invest in the building because they are losing cash flow and lenders can get very nervous.” Tanaka said. “That can create investment opportunities for us.”
The vacancy rate will start to recover in the second half and push up rents higher as early as next year, according to Koichiro Obu, RREEF’s research head for Japan and Korea.
“An increase in supply has lifted the office vacancy rate,” Obu said. “We have seen net absorption from tenants in the past two years. When supply levels become moderate toward the end of the year, it should help improve the vacancy rate.”
China, where the government imposed restrictions on home purchases and other curbs such as higher mortgage down payments in the past two years, may also offer investment opportunities for Angelo Gordon, Tanaka said.
“The government policies have a stronger impact and more immediate than what you might feel in the U.S or Japan,” said Tanaka. “The tightening actually helps us source opportunities because local developers may no longer have access to capital, so they need partners like us.”
Total return for properties in the U.K. rose to as high as 15 percent in 2010 and fell by half last year, while properties in the U.S. climbed for two straight years after posting two annual losses, based on data compiled by RREEF.
“Compared to major markets like New York and London, core asset prices in Tokyo have not appreciated very much,” Tanaka said. “We think there is upside potential as fundamentals improve.”
Angelo Gordon was founded in 1988 by Chief Executive Officer John Angelo and Chief Investment Officer Michael Gordon. Angelo Gordon began investing in commercial real estate in 1993 and has acquired more than $13 billion of properties, according to the company.