* New City fails to get creditor votes for Lone Star plan

* Another creditor meeting to be held Sept. 9

* New City would be liquidated if revised plans are rejected

* Daiwa House affiliate proposes counter bid for New City

U.S. investment fund Lone Star's planned takeover of failed Japanese real estate investment trust (REIT) New City Residence Investment Corp was blocked by creditors on Wednesday.

Lone Star had outbid Goldman Sachs (GS.N) and other investors for the right to take over New City Residence in April but it needed a majority of votes from debt holders to approve its restructuring plan. [ID:nT138224]

The failed REIT would ask Lone Star to boost interest payments to debt holders as part of a revised plan to be put to creditors at a meeting on Sept. 9, Jun Arai, New City's chief executive officer, said at a media briefing on Wednesday.

New City would go into liquidation proceedings if the new plan is rejected again, he said.

We believe Lone Star is positive about changing the plan. Lone Star was shocked that their plan was rejected, Arai said.

The creditors' rejection is a blow for Lone Star which is set to shop for distressed assets in Japan. Lone Star turned around a string of assets laid low after Japan's bubble economy burst in the early 1990s.

Separately BLife Investment Corp (8984.T), a REIT affiliated with house builder Daiwa House Industry Co (1925.T), said it wanted to step in as a new partner for New City, backed by some creditors unhappy with the terms offered by Lone Star.

BLife's proposals are not valid because Japanese law does not allow new bidders to jump into an ongoing restructuring process, said Makoto Tahira, a lawyer at law firm Hiiragi.

New City, which owns apartment buildings in Ginza, Harajuku and other up-market areas of Tokyo, became the first Japanese REIT to fail in October, after struggling to raise funds to service its $1.2 billion debt and finance the purchase of new assets to sustain growth. (Editing by Chris Gallagher and David Holmes) ($1=93.60 Yen)

Japan