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).

We are honored to be have been granted a transaction license for brokerage of real estate trust beneficiary interests under the Financial Instruments and Exchange Law, Category 2 Financial Products, regulated by the Financial Services Agency and issued by the Kanto Finance Bureau as an extension of our Financial Products License #1712 and effective as of today. We look forward to serving our clients with the need to make transactions of larger and institutionally investable real estate through the form of real estate trust beneficiary interests under this license.

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).

Japan inbound travel took another year-on-year hit for October, 3rd month in a row now at -5.9% compared to October 2007 but year to date figures were still up 4.3% at 300,700 more visitors than 2007 and figures from four countries were at an all-time high.

See JNTO report here.

Main reasons for the decline were strong yen (especially vs the Korean won), fewer flights from many countries, continued high fuel charges, and a general slump in consumption due to global financial situation.   Visitors from Korea (-15%), USA (-14%), Australia (-10%), Canada (-8%), and UK (-8%) were affected strongest, again the rapidly strengthened yen was the most major factor.

Growth continued from Hong Kong (+42%), Singapore (+10%), Thailand (+10%), and France (+6%) inbound visitors due to the Visit Japan campaign efforts and promotion, various events, and the continued Okinawa boom.   The number of visitors from all of these countries were at all-time highs.

We expect to see increased demand from the now declining fuel charges shortly but the cost of going to Japan (due to exchange rate) from particularly Korea and Australia / NZ has risen rapidly so we expect that it may take more time for across the board growth to recover.   In the short term, growth from short-haul countries will probably increase pushing demand from Hong Kong and Singapore, and in the mid-term we expect more demand from China mainland.

JREI just published its most recent investor survey showing expected cap rates as of October 1.

There has been some upward movement but surprisingly little compared to the distress discounts expected by many new opportunistic funds coming into the market.   Marunouchi Offices are 4%, Ginza Retail is 4.2%, Quality Central Tokyo Residential is in the mid 5% range.

Actual trades are still showing about the same levels as in this survey although trades have slowed significantly this year.   We are beginning to see some distressed trades now but again, the level of discount is 20-30% above these levels and the discount is exactly correlated with the quality level of the asset.

We would reiterate the mantra that poor quality assets and non-income producing assets will continue to receive downward pricing pressure, but quality assets will not excepting in dire situations but there is an increasing demand for prime, institutionally investable assets.