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Property

US fund injects $539m in embattled Japanese builder Leopalace21

Fortress gets shares and reservation rights in future issuance

Leopalace21 is reeling from revelations that thousands of apartment buildings it constructed are not in compliance with building standards. (Photo by Toshiki Sasazu)

TOKYO -- U.S. investment fund Fortress Investment Group will invest around $539 million to turn around the fortunes of Leopalace21, a struggling Tokyo-based property developer reeling from revelations that thousands of apartment buildings it constructed do not comply with building standards.

With excess debt of 11.8 billion yen ($111.7 million) at the end of June, the company turned to investment funds with expertise in the real estate business to help turn around its business.

Leopalace21 announced Wednesday that it would obtain a total of around 57 billion yen from Fortress. The deal will take the form of an investment in common and preferred shares as well as loans with new share reservation rights.

Leopalace21 leases out the apartments it owns. It also rents out apartments owned by other landlords. Both businesses are struggling amid the deep recession caused by the coronavirus pandemic. Their occupancy rates are expected to remain low until the building defects have been rectified.

Fortress' investment is expected to lift Leopalace21 out of its excess debt and provide the liquidity necessary to ride out the slump.

Fortress is backed by SoftBank Group. But by U.S. regulations, SoftBank Group is prohibited from getting involved in Fortress' investment policies. The U.S. fund acquired a real estate subsidiary from Japan's Mitsubishi Materials in 2018 and operates a housing rental business in Japan.

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