The most recent survey of Japan land prices for 4th quarter 2008 in the “Land Price LOOK Report“, issued Feb 24th by the Japan Ministry of Land, Infrastructure, Transport and Tourism (MLIT) shows how how far things have turned downward for the last half of 2008 after a flat start to correction during the first half.

Both 3rd and 4th quarter 2008 results were down generally across the country, with particularly bad news in Sendai, Nagoya, Osaka, and Naha, central area land prices all down 9%+ for the 4th quarter, following 3rd quarter news which was nearly as bad.

The results for Tokyo were also poor in the -3 to -9% range with bright spots in Marunouchi, Bancho, and Shibuya (0 to -3% range) and negative spots in Ikebukuro and Shinagawa (-9%+).   The popular area of west tokyo down to Yokohama including Kawasaki was generally much better than the north and east side of the city out toward Saitama and Chiba.   That being said, the whole Greater Tokyo area was down for 2 consecutive quarters.   The number of transactions are also down significantly as developers go bust and banks refuse to lend to new projects.   We expect this abrupt slowing of new supply starting in 2008 and continuing for the time being will have a very positive impact on central area condominium prices 2-3 yrs down the road.

Surprising spots where land prices remained robust although not moving upward were right in front of Niigata and Kagoshima Chuo main stations.  Assumedly the major redevelopment of these stations including preparation for the new bullet train access to Kagoshima have held the land prices.

The MLIT official land prices `kojikakaku` for 2008 will come out later this month giving another indication.    For now, the debt liquidity pressure remains but in most cases existing real estate loans to property in private funds and JREITS seem to be working out solutions with lenders to extend financing periods at reasonable terms.   We hope that government measures and new financing sources will ease the market pressure more starting in April.

Creed Office REIT (TSE ticker #8983), after receiving a business improvement order from the FSA on Friday of last week regarding managing conflicts of interests and appraisal processes, announced yesterday (announced in Japanese only for some reason) that its shareholders had agreed to sell 100% of the REIT management company, Creed Investment Trust Management, to Ichigo Asset Management.   Ichigo is currently is the largest shareholder in the REIT itself with a 20.37% stake.   Creed Corp`s announcement said that the transaction is scheduled for this Friday the 12th.   Creed Corp holds 80% of the REIT management, with the other shareholders (Itochu, Chuo Mitsui, Mitsui Sumitomo Bank, and Morgan Stanley Capital, respectively holding 5% stakes).

The REIT manager made clear that the information sharing contracts with the major current REIT management shareholders: Creed Corp, Itochu Corp, and Chuo Mitsui Trust Bank, are to be severed immediately, clearing ties with the current sponsors.  Focus is on the economic issue to be dealt with immediately – refinancing of a JPY 10.5 billion tranche of corporate debt due to Shinsei Bank in March.  They noted they are working full force on potential sponsor tie-ups to help deal with this and the financing issue in general going forward.

Creed is also giving a quick, strong indication to the market that they are taking responsibility for any mismanagement and helping the REIT to move on.   Mr. Hasegawa, the co-president of Creed Corp announced at the same time he is leaving his post to focus on the private fund business arm as new president of subsidiary Creed Real Estate Investment KK (JPY 178 Billion in AUM as of May).   The market seemed to pick up on this with a 16% share price gain today and stop limit up on the REIT`s shares with 7%+ gain.   Granted these are both still at near all-time lows, but some very good news moving to stabilize the market – hopefully there is more of this (at least indirect) takeover activity to come.

They keyword spoken by many fund managers at the ULI Japan conference looking into 2009 was SURVIVAL.

So I think it`s time for us to all get prepared by dancing the TRF survival dance :  `no no cry more`

Opportunities will increase moving toward the fiscal year end and as some of these bankrupted and stressed real estate companies find sponsors and legal trustees work through others including the potential sale of assets.  But lenders/issuers of the majority of CMBS with terms ending in 2009 are much more likely to work with borrowers to restructure rather than resolve to a sale in this environment.  We have seen recent cases of lenders stepping back into a solution creating approach after checking the market, and working with owners to find a resolution – generally involving some sort of restructuring of terms, beneficial to both parties.   Excepting event driven cases (both on the borrower and on the lender side), this should be a theme for 2009.

Tokyo`s real estate supply / demand situation is very robust – compared to the rest of the developed world: supply is stagnant and new supply decreasing, rents are not really moving except for some strain at the top end of A class, occupancies continue to be very high, and recovery is generally expected to be much quicker than the US.  The continued risk is that strong government measures are not taken to begin healing the real estate debt liquidity crisis.

The Chinese are coming!!!   We are now seeing investors from the only major country relatively unaffected by the recent strengthening of the JPY arrive for bargain sales in the real estate equity markets.

Pacific Holdings (8902) was up 18% today (Website Here) on the announcement of a financial and management tie-up effectively giving management control to a group of unnamed major Chinese real estate companies and investors.  The market cap still JPY 1.8 Billion (USD 18 Million) – down 98% to date!!

Details of the proposed deal involve the group, represented by a Japanese investment platform KK Chuhaku Japan, a wholly owned subsidiary of Industrial Growth Platform Inc (IGPI), taking a 29% stake in common shares on the 19th of December, investing in 47 billion yen of class A preferred shares to be newly issued on the 26th of December and taking an issuance of new short-term (1 yr) nonguaranteed, uncollateralized corporate debt in the amount of 27 billion yen at the end of February.

Chuhaku Japan will effectively be given control of the board of directors and the right to select the new representative director and president of the company.   They are beginning discussions to create a new private real estate fund and retool the company management.

The Nippon Residential REIT (8962) stock price responded quickly to the news at 9% up but Nippon Commercial REIT (3229) did not respond as much up 1.6% today. (click for stock prices).