Aviva Investors has held a second close at $212 million for its Tokyo Recovery Fund, which will take advantage of capital-lending constraints in Japan to acquire prime office properties.

The UK asset manager, raising the fund in partnership with Japanese property-investment firm Secured Capital, is targeting a final close at $250 million by October.

The vehicle will invest in office properties in central Tokyo's prime locations, with the aim of building a $500 million portfolio of assets, using leverage.

An internal rate of return of 10-12% is targeted for the fund, which held a first close in November at $122 million, says Ian Hally, Asia-Pacific chief executive of real estate at Aviva Investors.                   

There have been few sources of capital – in particular the Japanese securitisation market – for the acquisition of investment-grade property in Tokyo, says Hally. “What we’ve seen over the last two years or so is that equity investors are not being particularly active.”

In the aftermath of last year’s catastrophic earthquake and tsunami in Japan, capital-markets lending has fallen. Additionally, the appeal of office property has cooled, with vacancy rates at a 20-year high, according to a recent Nomura Research Institute report.

However, the country’s property market and general economy have been showing signs of recovery, providing a tangible investment angle, says Hally. He manages the fund out of Aviva Investors' Singapore office, with Secured Capital helping source investment opportunities from Tokyo, where it oversees the portfolio’s assets.

Tokyo Recovery Fund made its first investment in April, paying an undisclosed sum for Meguro Place Tower, a 14-storey building in the capital.

The fund has a lifecycle of about five years, with exits expected to come from sales to local Japanese and offshore real-estate investment trusts, and from private individuals and institutional investors.  

“[They] are not particularly active just now,” says Hally. “We think that market will improve over the next three to four years and the assets we’ll be acquiring and owning will be very much in demand from those sorts of buyers.”

Interest for the Tokyo Recovery Fund has largely come from non-Japanese investors in Europe, and US and European institutions with a presence in Asia, says Hally.

Aviva Investors manages about $400 billion in AUM globally across a range of assets, with property representing about 10% of the total.