Renthusiast

Osamu Tsukimori TOKYO,
Dec 20 (Reuters)
American International Group Inc is in talks with Japanese real estate developer Mori TrustCo. to buy a redevelopment property in central Tokyo in a deal reportedly worthsome $3.5 billion. Mori said on Tuesday that negotiations with AIG, the world's biggest insurancecompany by market value, involve the 19-storey Marunouchi Trust Tower North andan adjacent site where a 37-storey building is scheduled for completion in March2008.
A successful deal would be the world's largest property transaction since 1995, data firm Dealogic said, according to data it has compiled since that year. Itwould also underscore the improved outlook for the Japanese property marketafter more than a decade of falling prices. The potential mega-deal sparked a rally in Japanese property stocks such as Mitsui Fudosan Co., which jumped 7.4 percentto 2,310 yen, helping drive the real estate subindex up 6.8 percent, the top performer on the day."Real estate stocks are likely to draw more buyers as investors now preferdomestic-related stocks to technology stocks," which are susceptible to a strong yen, said Shinji Igarashi, equity manager in the sales department of ChuoSecurities. Commercial and residential land prices in Tokyo rose in the year to July for the first time in 15 years, while investment returns from Japanese commercial realestate have also improved after years of decline. The improvements, along with a recovery in the Japanese economy, have drawn the interest of foreign investors, who have been aggressively snapping up office buildings, hotels and hot spring resorts through private equity funds. An AIG source acknowledged it was in the talks but declined further comment. AIG has invested more than 500 billion yen of its own money and money from funds itoperates in properties in Japan.Mizuho Securities senior analyst Takeshi Saito said that because of the prime location of the property near Tokyo's main railway station, AIG would likely beable to charge a higher rent."Based on a rough calculation, the reported purchase figure looks fair," he said. A Mori Trust spokeswoman declined to comment on the potential price tag or thetiming for sealing any deal with AIG, but the Nihon Keizai business dailyreported earlier the deal is worth more than 400 billion yen ($3.45 billion).The spokeswoman also declined to comment on details of the negotiations. Mori Trust, which owns and operates about 60 office buildings in Japan, isexpected to make a profit of about 200 billion yen from a sale and would use theproceeds to raise its capital adequacy ratio and repay debt, the newspaper said. Mori Trust acquired the 12,000 square metre (three-acre) plot of land from theJapan National Railways Settlement Corp. in 1998.
(Additional reporting by Eriko Amaha)