Arcapita eyes property deals in smaller China cities

SINGAPORE May 19 (Reuters) - Bahrain investment bank Arcapita said on Tuesday it was eyeing property investments in smaller Chinese cities where growth is expected to be faster than in big cities like Shanghai and Beijing.

"The second-tier cities are growing at a much faster rate. They don't have the baggage of being an export economy like some of the coastal cities," said Blake Olafson, the head of the firm's Asia real estate group.

Chinese cities that Arcapita was looking at included Suzhou, Chongqing, Nanjing and Tianjin, he told Reuters on the sidelines of a conference in Singapore.

Olafson earlier told delegates it was difficult to get refinancing for investment properties in the United States but there was liquidity available in Asia excluding Japan.

"The Singapore banks are actually quite flush with liquidity (and) Stanchart (STAN.L) is also very active," he said.

But in Japan, banks are shunning residential developments and Arcapita encountered some difficult refinancing a project even though it was 97 percent occupied and could generate steady cash flows, he added.

Arcapita, which invests and manages assets on behalf on wealthy Middle East investors, focuses mostly on property and infrastructure such as utilities and power plants.

As most of the funds it manages are Islamic, its property investments tend to involve residential and industrial space rather than malls and that may house businesses that do not comply with Islamic principles.

Standard & Poor's last month downgraded Arcapita to BB from BB-plus, citing the weak investment climate that has decreased the value of the bank's assets. (Reporting by Kevin Lim; Editing by Lincoln Feast)