BT Alex. Brown last week won the bidding for a $2.2 billion portfolio of loans backed by distressed Japanese real estate assets-the largest sale of its kind.

Deutsche Morgan Grenfell, Lennar Corp., and General Motors Acceptance Corp. teamed up with the Bankers Trust unit to buy the portfolio, which includes office, multifamily, industrial, and retail properties. The group paid $220 million, or 10% of the loans' face value.

The seller is Crown Leasing, a Tokyo finance company that filed for bankruptcy last year. The transaction is expected to close in this quarter.

Japan, with the world's second-largest economy, is in its seventh year of economic decline. It is readying roughly $600 billion of distressed real estate for sale. That is double the amount handled by the Resolution Trust Corp., which liquidated bad U.S. real estate loans held by savings and loans in the 1980s.

As the distressed realty debt business has evolved into a whole loan and securitization business in the United States, opportunity funds have cast their eyes abroad for hefty returns. In markets like Mexico, France, and Japan, where major economic crunches have put financial institutions into distress, a backlog of nonperforming and subperforming loans has built up.

"It's a very exciting time," said Terry Esquivel, a managing director in international structured finance at Fitch IBCA. "The sales will be good for the overall market and great for yield seekers."

Bankers Trust has invested more than $6 billion in real estate and related assets worldwide during the 1990s. "We've all seen this movie before," said David Brush, a managing director of BT Alex. Brown, "and we're convinced that this story is going to play out over time."

But risks abound. While Bankers Trust, along with Goldman, Sachs & Co., Morgan Stanley, and Lehman Brothers Inc., have been slowly building their expertise in Asian real estate for two years, no one knows how prolonged the downturn will be. "We can learn from what we did in the U.S.," Ms. Esquivel said, "but we will also face new legal challenges that we didn't face in the U.S."

In Japan, where property prices are as much as 80% off their peak, the government is beginning programs to stimulate economic growth. That includes simplifying the tax structure and changing real estate zoning laws.

Investors hope that this will help expedite sales-and opportunities. "If you have capital like ours, coming in to reprice assets rebuilds transaction volume, which builds liquidity," Mr. Brush said. "That starts the value cycle back on the upswing."

Once large blocks of institutional capital come in, the market starts to revalue real estate and push prices up, he added.

BT Alex. Brown, which has created a special-purpose acquisition vehicle to buy this portfolio, plans to restructure and reorganize the debt and negotiate with borrowers for discounted payments. In addition, that involves managing the properties.

"We'll try different strategies to extract value from the portfolio," Mr. Brush said. "Down the road that may include securitization."

"We're using the first transaction as a tool to build the infrastructure around," Mr. Brush said.

Though there have been a few sales of smaller portfolios, future sales are bound to be in the $1 billion range, given that financial institutions are trying to get so much product off their balance sheets before the end of the fiscal year in Japan on March 31.

"They have a lot of product they need to move," Mr. Brush said. "There's enough capital that they can afford to put this big a portfolio into the market."

Size can be an advantage because it gives the investor less exposure to a single asset.

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