U.S. investment fund Lone Star LS.UL has been unable to get the green light from creditors for its planned acquisition of a failed Japanese real estate investment trust (REIT), the second time the deal has been blocked, rival bidder BLife Investment said.

BLife Investment Corp, a REIT affiliated with house builder Daiwa House Industry Co, said it plans to step in as a new investor for New City. BLife is backed by some creditors unhappy with the terms offered by Lone Star.

The head of the failed REIT, called New City Residence Investment Corp, said in July it would start liquidation proceedings if creditors rejected Lone Star's terms a second time.

Creditors have been seeking higher interest payments for their debt.

New City, which owns apartment buildings in Ginza and other up-market areas of Tokyo, became in October the first Japanese REIT to fail. It had struggled to service its 112 billion yen ($1.2 billion) debt and finance the purchase of new assets to sustain growth.

Lone Star won the right in April to take over New City subject to agreement from creditors, outbidding Goldman Sachs, Oaktree Capital Management and others.

(Reporting by Junko Fujita; Editing by Edwina Gibbs)