Goldman Sachs is returning to the Japanese property market after a four-year hiatus, looking to raise as much as 400 billion yen ($5 billion) over four years for a privately held real estate trust, a source said.
While the U.S. investment bank snapped up distressed properties from struggling golf courses to hot spring resorts when it was last active in Japan, the latest push will focus on lower risk, less flashy Tokyo office buildings, sources said.
The move comes at a time when Japan's property market has started showing signs of improvement, and is aimed at taking advantage of low-financing costs in yen and the prospect that office rents and vacancy rents are near bottom.
Goldman Sachs Asset Management plans to set up the real estate trust in July, seeking money from Japan's pension funds and other institutional investors, a person with direct knowledge of the situation said.
The trust will initially raise around 100 billion yen, with plans to seek more money from foreign investors who are keen to take a position in Japan's property markets, said the person, asking not to be identified because the plan is not public.
A Tokyo-based spokeswoman for Goldman Sachs declined to comment.
Foreign investors are reassessing Japan four years after the Lehman bankruptcy and global financial crisis drove many away.
Goldman Sachs was among investors such as Morgan Stanley and Aetos Capital that significantly scaled down investments in Japan after 2008.
CBRE, a global real estate research and advisory firm, expects vacancy rates for Tokyo's high quality office buildings will improve as rents bottom out in the third quarter of this year, according to its report for the first quarter of this year.
Japan's market size and its mature legal and political systems are attracting overseas investors who are looking to limit risks, said Andy Hurfurt, an executive director at CBRE.
"Also financing costs are low in Japan, largely due to the low interest rate policy, and this allows an attractive spread between the cost of debt and income return," he said.
Goldman had been an active investor in the Japanese property market until the early 2000s, snapping up mainly failed golf courses and troubled hotels by using its own cash after Japan's bubble economy burst some years earlier.
It was also among other foreign investors that used highly leveraged loans to boost returns on investments. One of Goldman's flagship investments was a building for a Tiffany and Co store in Tokyo's posh Ginza district.
Although Goldman's approach has changed, one key manager remains the same.
The push into real estate will be led by Shigeki Kiritani, who now heads Goldman Sachs Asset Management. Kiritani was the head of Goldman's investments in corporate and real estate when Goldman was active in Japan's distressed properties.
