Merrill Lynch & Co. will hire 15 or more bankers to finance and invest in Asian property as it seeks to double profits and catch rivals in a region where real estate prices are climbing.
"Opportunities for property-related business will increase faster than ever" in Japan, China, and elsewhere in Asia, Shinji Yoshikawa, the managing director in charge of Merrill's principal investments in Asia, said in an interview.
Japan's economy, the world's second-biggest, grew 2.8% last year. The expansion, the country's fastest since 2000, helped boost Tokyo land prices for the first time in 15 years.
Merrill trails Morgan Stanley and Goldman Sachs Group Inc. in trying to profit from a boom in Asia's property market.
"Investment banks are focusing on real estate to sustain the high profits they made buying bad loans from Japanese banks," said Yuichi Hiromoto, the president of Mitsubishi Corp.-UBS Realty Inc., a joint venture that manages 34 properties in Japan worth more than $2.6 billion. "The key to success is hiring experienced bankers who can bring in big deals in the markets where you want to expand."
Mr. Yoshikawa said Merrill aims to double returns on Asia principal investment within three years by buying property, corporate debt, and equity, and by handling asset-backed bonds. He would not give more specific figures, but he did say his firm may seek alliances to arrange more bonds backed by home and auto loans.
In January, Merrill hired Tim Grady from Morgan Stanley to direct principal investing in Asian property.
Merrill's global revenue from principal transactions - including trading for its own account - rose 59% last year, to $3.58 billion.
Rising demand for residential and commercial real estate is pushing prices higher in China and India, the world's fastest-growing major economies. Property prices in Shanghai almost tripled between 1999 and the first quarter of last year, and analysts say China's economy probably will grow about 8% this year.
In India, rising incomes and the lowest home-loan interest rates in more than three decades have spurred construction and home purchases in an economy that Rajeev Malik, a JPMorgan Chase & Co. economist, expects to expand 7% this year.
In January, Tokyo office vacancies fell for a seventh month, to the lowest level in four years, according to the brokerage Miki Shoji Co.
Foreign investors are already reaping profits in Japan. Goldman Sachs has spent more than $6 billion on Japanese real estate since 1997; last month it sold $387.5 million of shares in an initial public offering for the real estate investment trust Japan Hotel and Resort Inc.
Real estate investment trusts and closely held funds such as Aetos Capital LLC of New York are buying more property in Japan as interest rates remain at historic lows.
Investment banks are boosting sales of Japanese property-backed bonds there as they supply more funds to real estate investors.
Last year sales of commercial mortgage-backed bonds doubled, to a record $12.2 billion, according to Deutsche Bank.
