U.S. firm American International Group will list an office REIT in Japan this year, the Nikkei business daily said on Thursday, a move analysts welcomed while questioning its timing amid the U.S. subprime mortgage crisis.

AIG, which will be the first foreign life insurer to list a real estate investment trust (REIT), plans to have an initial asset size of 100 billion yen ($897.3 million) in the REIT, making it the biggest offered so far this year, the newspaper said.

AIG was not available for comment.

AIG has been buying office buildings in the Tokyo central area and the REIT portfolio should include some large-scale portfolios and should be an attractive one, said Takashi Ishizawa, chief real estate analyst at Mizuho Securities.

But Ishizawa said that unlike some Japanese REITs that were able to buy property before prices took off in recent years, AIG may have paid dearly for real estate, pushing down its returns.

Furthermore, the timing may not be good as the market is still volatile with the Tokyo Stock Exchange REIT index down nearly 6 percent so far this year. That compared with more than a 10 percent drop in the MSCI U.S. REIT index.

It's not an ideal time to list REITs, said one official at a foreign brokerage firm who declined to be named.

The most recent listing, Industrial & Infrastructure Fund Investment Corp, dropped on its debut day last month and the stock price has stayed below the IPO price. Listings have also slowed down, with only two REITs going public this year, compared with 13 last year.

In addition, a number of foreign property firms have tapped the Japanese REIT market to secure an exit for their private funds and to take advantage of Japan's still-buoyant real estate market.

Rising office rents and dropping vacancy rates have helped the Japanese office market retain its allure, while low interest rates to finance propert projects have also drawn investors from outside Japan.

Global real estate investor LaSalle Investment Management last week said it would buy a 32.8 percent stake in eAsset Investment Corp for $133 million.

LaSalle also said it will buy out Asset Realty Managers, an asset management firm for the REIT. (Reporting by Eriko Amaha and Edwina Gibbs; Editing by Hugh Lawson)

Japan Nikkei 225 Aig