GIC set for ¥130bn Meguro Gajoen deal

GIC has emerged in pole position to buy one of Tokyo’s largest assets in a transaction that would bring seller Lone Star’s 12-year ownership to a close.

GIC Private Limited, the sovereign wealth fund of the city-state of Singapore, is in pole position to complete one of the largest single asset real estate transactions in Japan since the global financial crisis.

PERE can reveal that following a two-round bidding process, GIC has entered into exclusivity to buy the Arco Tower and Meguro Gajoen complex, an office-led complex in the Meguro ward of Tokyo, from Dallas-based Lone Star Funds in a deal valued at approximately ¥130 billion ($1.25 billion; €912 million).

GIC’s bid is currently preferred to rival bids including partnerships between private equity real estate firm Aetos Capital Real Estate with Chinese sovereign wealth fund Chine Investment Corporation and private equity real estate firm Orange Grove with Australian bank Macquarie and Japanese financial services firm Daiwa Securities SMBC Principal Investments among others. Bids came in various formats and attached to various strategies but ranged in value from between ¥120 billion and ¥142 billion.

Should the sale crystallize, it would be one of the largest single asset property sales in Japan since the global financial crisis, sitting alongside transactions like the ¥150 billion sale of the Pacific Century Place office in 2010 or the ¥110 billion sale of the Shiba Park office building last year.

It would also bring to a close Lone Star’s 12-year ownership of Meguro Gajoen, which comprises the 560,000 square foot Arco Tower office, the 150,000 square foot Arco Tower Annex office and the popular Meguro Gajoen wedding venue. It is let to tenants including Amazon, Walt Disney, Shinsei Bank and Porsche.

Lone Star acquired the asset in 2002 after its prior owner filed for bankruptcy while owing lender Mizuho Financial Corporation ¥88.3 billion.

The firm’s acquisition was made through its Lone Star Fund IV opportunity fund which was closed in March 2002 with $4.2 billion in capital commitments. The fund ultimately was invested into 65 investments valued more than $13 billion, 80 percent of which were made in Japan and Korea.

A sale now would mean success at the third attempt as it has previously been marketed twice before but a transaction was not previously supported by Japanese market conditions. While its ownership has outlasted the fund’s life, Lone Star is thought to have been granted extensions to hold the asset for longer. Now, with Abenomics-fuelled enthusiasm resulting in cap rate compression and, in certain parts of the city, rental increases, its sale was considered more likely.

The deal comes at a particularly acquisitive period for GIC. In January, it purchased a 50 percent stake in London’s Broadgate office complex in a deal valued at £1.7 billion (€2.05 billion; $2.8 billion). In the same month it bought a majority stake in a A$150 million (€107 million; $139 million) student housing developer called Iglu in Sydney. Last year, it committed S$600 million (€346 million; $474 million) Singaporean developer-cum-fund manager Ascendas Group for an India-focused development venture and $350 million to an office in Jakarta.

Neither Lone Star, not GIC Private would comment.