AIG sells Tokyo headquarters to Nippon Life

American International Group, the troubled US insurer, is selling its Tokyo headquarters to Nippon Life for $1.2bn in cash, in one of the most closely watched deals since Japan’s property market plunged on the back of the global financial crisis.

Nippon Life, Japan’s largest life insurance group, won the coveted site in the heart of Tokyo’s business district and adjacent to the inner moat of the Imperial Palace, after “a very competitive bidding process”, according to AIG.

The US insurance group – which is struggling to sell assets to repay $100bn in debt and equity to the US government – said the sale had generated substantial interest from both foreign and Japanese investors.

Earlier this year, AIG scrapped the sale of American International Assurance – its Asian subsidiary that boasts 20m policyholders – after it failed to attract high enough bids.

AIG said on Tuesday it had “reached agreement or closed over a dozen deals in the past several months” and was now “in various stages of discussions with respect to other potential transactions”.

Nippon Life has Y1,654bn ($17bn) in real estate assets, which represents just under 4 per cent of the company’s overall assets of Y46,000bn.

Analysts and industry executives said on Tuesday that Nippon Life appeared to have paid a high price for the Tokyo property.

“It’s not cheap, considering the current uncertain climate,” said Masato Nakagawa, real estate analyst at Daiwa Institute of Research in Tokyo.

The most recent real estate boom, which was supported by foreign investors and real estate investment trusts, turned to bust when those investors were hit by the global credit crisis.

Commercial real estate prices fell 2 per cent in the year to January 2009, after rising 1.8 per cent in 2006 and 2.7 per cent in 2007, the land ministry said.

Vacancy rates in central Tokyo’s large buildings have risen from under 3 per cent in December 2007 to 6.05 per cent at the end of March 2009, according to Miki Shoji, a real estate broker.

Mr Nakagawa said that Nippon Life was paying for the unique location of the property. But “deals involving A and B-class properties are not closing. When these deals start moving, it will clarify prices and that is when we will see the market’s bottom,” he said.