Thursday, December 13, 2012

What Happened at Carval Investors Japan?

Following on from questions raised about governance issues at Carval Tokyo by Alchemy Japan in relation to the Cargill yakuza love hotel scandal - see: alchemy japan asks questions to cargill - we have been looking into some of the issues raised.

In true vulture fund style, in June 2011, Carval Investors announced that it was raising a US$500million Japan fund, to which its parent Cargill had already committed US$200m, to take advantage of "opportunities" and "distress" created by the Great Tohoku Earthquake and Tsunami of March 2011.

From Reuters
U.S. investment firm CarVal Investors is planning to launch its first Japan real estate fund in a few months to raise about $500 million as it sees growing distressed opportunities in property assets and non-performing loans, a company executive said.
Its parent company, agribusiness giant Cargill Inc CARG.UL, has already committed $200 million of seed money and the fund will have a life of total five years including two years of investment period, said Yojiro Koizumi, representative in Japan for CarVal Investors.
"I think there are opportunities in non-performing loans such as CMBS (commercial mortgage-backed securities) or non-recourse loans or those performing loans that cannot be refinanced," Koizumi told the Reuters Real Estate and Infrastructure Summit in Singapore on Tuesday.
"Distressed cases are increasing," said Koizumi, who is a senior partner at CarVal Investors.
He also said B-class or C-class assets might come onto the market while prime quality assets will likely be tightly held by local players.
The number of bankruptcies in Japan rose in May for the first time since July 2009, largely due to the massive quake in March, according to research firm Tokyo Shoko Research.
The Japanese property market also faces some debt refinancing issues. Property research firm DTZ estimates debt that cannot be funded in Japan is more than $80 billion.
CarVal Investors targets opportunistic property investments. It has invested nearly $10 billion globally, about 10 percent of which has been allocated in real estate, Koizumi said.
Koizumi said the fund will aim for a 15 percent internal rate of return (IRR) with a short investment period to boost returns.
"We usually buy assets which are at distressed prices for whatever the reason is and repair it and exit it in two years," Koizumi said.
Last year, CarVal Investors was one of the bidders to buy failed Japanese apartment developer Anabuki Construction Inc, according to sources.
Koizumi said despite some concerns about the economic prospects, Japan remains one of the world's largest creditors and should be able to bankroll the cost to rebuild after the quake.
"Not many people understand about Japan's net credit position," he said.
"The best time and interesting time to invest is when no one buys."
Cargill's Minnetonka investment subsidiary, CarVal Investors, is planning a $500 million Japanese real estate fund to buy distressed properties and underperforming loans in the wake of Japan's March earthquake.
Corporate bankruptcies in Japan increased last month, and many attribute it to the financial aftermath of the earthquake and tsunami. But even before the earthquake, Tokyo property values had been declining sharply for two years, leading to expectations that distressed property assets would become available at fire-sale prices.
Cargill has committed $200 million to the fund, which would focus on commercial mortgage-backed securities and loans that can't be refinanced, CarVal representatives said. The Japanese real estate market is ripe for this type of investment, CarVal said.
"The level of distress that hit Japan post-2008 in the real estate sector was as severe -- if not more so -- than what hit the U.S.," said Tim Clark, CarVal's CIO of Real Estate. "Since 2008, the Japanese property market has faced debt refinancing issues and there have been persistent capital vacuums."
Following the March earthquake, the real estate market was essentially frozen for six to eight weeks, but that problem has abated somewhat, Clark said. "Today, there are still volumes of assets which financial institutions need to purge from their balance sheets."
CarVal Investors has been investing in Tokyo since the mid-1990s, said spokeswoman Anna Lovely.
CarVal Investors, founded by Cargill in 1987, manages commercial credit and real estate investments and has 275 employees worldwide. It currently has $11 billion in assets under management. 
A little over 3 months after these announcements, according to publicly available corporate documents, on 30 September 2011, Mr Joe Koizumi was removed from his post as representative of Cargill and Carval group companies and made a "special advisor". According to sources close to Carval's Tokyo office; the fund was never funded by Cargill nor was any third party money raised due to serious issues with corporate governance and compliance in Carval's Tokyo office which led to a wholesale termination of Carval Japanese staff in September 2011 and liquidation of all Carval's Japanese assets. The Japanese office was originally established by Peter Vorbrich in 1998, and Peter Vorbrich went on to head Carval's real estate activities globally. Indeed, Peter Vorbrich and Yojiro Koizumi were the originators of Cargill's investment into Love Hotels while Peter Vorbrich is the only survivor of this investment decision.

Mr Joe Koizumi was replaced as representative of Carval Tokyo by Mr Takashi Nishiki a former partner of colorful Singaporean businessman, Mr Adrian Chua, in Round Hill Capital.

Mr Takashi Nishiki was, 11 months later, on 31 August 2012, removed as representative of Carval Tokyo and also joined Mr Joe Koizumi as a "special advisor". UPDATE Jan 15 2013 - Yojiro Koizumi and Takashi Nishiki no longer appear on Carval's website as "Special Advisors"

Mr Takashi Nishiki was replaced by 2 representatives - which in itself is unusual in Japan - Mr Michio Izawa and Ms Nozomi Kaneko.

UPDATE - 9th September 2012 - very soon as after his removal as Carval Tokyo Managing Director, Takashi Nishiki and Adrian Chua registered a branch office of APAC CAPITAL PARTNERS PTE LTD in Tokyo with Takashi Nishiki as the head. Adrian Chua and Takashi Nishiki are offering investors 5-6% yields with no acquisition or disposal fees and minimal ongoing asset management fees and raising money based on their previous record. Although this may be a tough sell after Takashi Nishiki sold Carval's Love Hotel assets, acquired for a total equity investment of overJPY6billion (US$60m) for an amount of JPY500m (US$5m), after repayment of debt, leaving Carval Investors facing massive claims from its asset manager for breach of contract and other allegations of misconduct covered in the New York Times  New York Times Article  Japanese - NYT Article - Japanese Translation

More recently, Takashi Nishiki joined  GMCM, founded in 2009 by Gabriel Moey, GMCM as a Registered Fund Management Company, as defined by the Securities & Futures Act issued by the Monetary Authority of Singapore (MAS). Takashi Nishiki also is involved in real estate through West Wood Capital KK.
 GMCM - Our Team 

So, Peter Vorbrich, Joe Koizumi and Takashi Nishiki overtake Seth FIscher as setting a record for the worst investment decision in this asset class and certainly set the record for the biggest single loss of equity:- Japan Leisure Hotels Investment  Minority Investor Appalled at Seth Fischer Investment Decision - this all despite, in the case of Cargill's love hotels, the fact that Alchemy Japan had achieved rising revenues and cash flow and so had successfully turned around Cargill's love hotels after taking over from Cargill's original manager:- Alchemy Japan Q1 2012 Revenue and Earning Growth Alchemy Japan 2011 Revenue and Earnings Growth

UPDATE Jan 30 2013 - some interesting posts by whistleblower with documents which cover the dispute between Alchemy Japan and Carval Investors in detail. We also understand that Alchemy Japan and Carval Investors are now involved in litigation resulting from this dispute; we shall attempt to obtain further documents and post those when available- 
Carval Japan Report on Cargill Japanese Love Hotel Investment
Alchemy Japan Letter to Carval Investors Attempting to Avoid Dispute
アルケミージャパンからのカーバルインベスターズ宛て書簡 – カーバルのレジャーホテル投資

UPDATE Jan 10 2014 - Alchemy Japan commenced legal proceedings in the Tokyo District Court against Carval Investors, and its shell companies, seeking to recover almost JPY300 million (US$3million) in damages resulting from Carval's sale of Cargill's Love Hotels to entities and persons suspected by Kroll Advisory Solutions of ties to Japanese organized crime, the yakuza.

An English translation of the Japanese Statement of Claim can be found at -
Alchemy Japan vs Carval Investors - English Translation of Japanese Law Suit

UPDATE May 2015 - Kato Pleasure Group (KPG) is leaving the Love Hotel industry having placed all of its love hotels on the market. The portfolio includes the Cargill Love Hotels which KPG acquired from Cargill for ¥1.5bn; which now KPG is selling for ¥4bn; or looking to almost triple the money he paid to Cargill.

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