GIC Private Limited, the sovereign wealth fund of Singapore, has withdrawn from what would have been one of Japan’s largest single asset real estate deals since the global financial crisis.
Two months after entering into exclusive negotiations to buy the Arco Tower and Meguro Gajoen complex in the Megruo ward of Tokyo from Dallas-based Lone Star Funds for approximately ¥130 billion (€941 million; $1.27 billion), GIC is understood to have withdrawn its bid amid concerns of inheriting litigation related to historical land ownership. The litigation involves a dispute between other parties over a proportion of the land at the complex.
GIC had beaten out bids from rivals including private equity real estate firms Aetos Capital Real Estate and Orange Grove as well as Japanese institutions including Daiwa Securities SMBC Principal Investments. According to one source PERE spoke to familiar with the bidding process, looking ahead, it is likely that should Lone Star continue to pursue a sale of the asset in its current circumstances then domestic buyers better versed in Japanese litigation would be the more likely source of bidder. “They’ll be talking to Japanese guys now who are willing to deal with the litigation issues,” he said.
The withdrawal of GIC’s bid is the latest chapter in Lone Star’s long-dated ownership of the complex. The firm acquired it in 2002 after its prior owner filed for bankruptcy while owing lender Mizuho Financial Corporation ¥88.3 billion. Lone Star acquired the asset via its Lone Star Fund IV opportunity fund which closed also in 2002 on $4.2 billion of capital commitments.
The asset was twice before marketed for sale, but Lone Star’s efforts to offload it were thwarted on each occasion by unsupportive market conditions. While Lone Star Fund IV has since matured, the firm has twice been granted extensions to hold the asset for longer. However, according to PERE’s source, another extension seems unlikely. He said: “At some point, they’ll need to pull the trigger, whether it is a fire sale or not. The date must be approaching.”
The sale of the asset, which comprises the 560,000 square foot Arco Tower, the 150,000 square foot Arco Tower Annex office and the Meguro Gajoen wedding venue, would have been one of the biggest in terms of value to have occurred in the country since the global financial crisis, sitting alongside the¥150 billion sale of Pacific Century Place in 2010 or the ¥110 billion sale of Shiba Park last year.
But with this deal now off, all eyes will switch to the next sale of Pacific Century Place in Marunouchi, the first bids for which are understood to be expected this week. Secured Capital acquired the asset from its lenders after previous owner daVinci defaulted on its debt. Via an auction run by property services firm Jones Lang LaSalle, Secured Capital is understood to want as much as ¥200 billion for the property.