Lone Star thwarted in second attempt to buy Japan’s New City

Lone Star Funds has been blocked by creditors for the second time in its attempt to take control of Japan’s first failed REIT, New City Residence Investment Corp (NCRI), opening the door to rival bids.

Dallas-based Lone Star had agreed to pay $130 million for New City in April but saw a deal thwarted by creditors who wanted higher interest payments than those offered.

The firm remained in exclusivity to buy the REIT until today’s creditors meeting, but despite offering to raise interest payments and to bring the debt repayments forward, the deal was blocked again.

Lenders to New City include Norinchukin Bank, Mizuho Bank, Resona Bank and Aozora Bank, according to a report by Reuters.

New City could now become subject to a rival bid from Japanese firm Daiwa House to become the J-REIT’s sponsoring manager and for it to be merged with Daiwa House’s affiliate J-REIT BLife Investment Corporation.

In an announcement made today, New City said it hoped to restart proceedings to find another investor and avoid liquidation.

The company said: “NCRI expresses its deepest regrets and sincere apologies for this outcome resulting from failing to meet with the approval of rehabilitation from creditors despite having received the support and cooperation from numerous parties concerned for NCRI’s rehabilitation. Expressions of interest for NCRI to file another petition for commencement of rehabilitation proceedings have already been made by several major rehabilitation creditors.”

It added: “It is also the view of NCRI that it would like to avoid bankruptcy and there is also a consensus among many parties concerned on the point that the hopes are for a recommencement of rehabilitation proceedings.”

New City owns 105 apartments across Tokyo comprising approximately three million square feet of residential space.

Despite the setback, Lone Star Funds, which employs about a third of its 1,000 strong staff in Japan, has been an active investor the country already this year. Earlier this week, PERE revealed that the firm, led by president Takehisa Takamatsu in Japan, had agreed the purchase of approximately $10 billion of non-performing and performing loans in Japan from lending units of collapsed Wall Street bank Lehman Brothers.