Secured Capital targets record $1bn for fifth fund

The Tokyo-based firm is going for its biggest fundraising yet for its Secured Capital Real Estate Partners V real estate opportunity fund. The firm, formerly known as Secured Capital Japan, could spend up to 40% of the vehicle’s equity in China.

Tokyo-based private equity real estate firm, Secured Capital has started marketing its fifth opportunity fund targeting $1 billion for the first time.

A successful fundraising for the incoming Secured Capital Real Estate Partners V (SCREPV) fund would see the firm almost double the $525 million raised for its predecessor Secured Capital Japan Real Estate Partners IV, which closed in August 2009.

J-P Toppino, president and chief investment officer of the firm said it the firm was aiming predominantly to capitalising on distressed real estate and debt opportunities in Japan. He told PERE: “Potentially there’s a large distressed debt opportunity. There’s a lot of maturing CMBS out there but, more interesting than that, the impairment ratio of the banks is currently 3 percent and yet their target is 1 percent. That could lead to a $70 billion to $80 billion opportunity.”

Secured Capital has become one of the larger players in the Japanese private equity real estate market in recent times following the scaling back or departure of some of its bigger rivals. According to research by property services firm Jones Lang LaSalle, transaction volumes in Japan plunged 74.6 percent in the second quarter as sellers remained cautiously evaluating their investments, avoiding panic sales. That has led to some firms questioning whether there was the scope for investing large amounts of equity into the market.

Toppino said: “Deal flow has certainly reduced but there’s an implicit moratorium on bank foreclosures that appears to be in effect until 2012 so it is not really surprising the banks haven’t sold a tonne of assets. My view is that next year there could be pretty good plays to be done.”

While 60 percent of the fund’s capital is expected to be deployed in Japan, the remaining 40 percent could be invested in China where the firm believes an opportunistic strategy is also viable. Toppino said: “It’s all about flexibility. Tight monetary policy in China at the moment had created, if not distress, then some trouble among the country’s developers.” However, he said Secured Capital was not obliged to meet its predicted weightings.

SCREPV is expected to run for eight years with options for two one-year extensions. Its investments are expected to generate an internal rate of return of between 17 percent and 20 percent and a 2x equity multiple. A first capital closing is expected in the fourth quarter ahead of a final closing before the end of 2012. The fund has been initially marketed to Secured Capital’s existing investor base including institutional investors from Europe, the US and parts of Asia.

Secured Capital changed its name from Secured Capital Japan which it used before its merger with Hong Kong-based alternative investments firm Pacific Alliance Group last December which saw the 100-plus staff firm de-listed from the Tokyo stock exchange.