THE FOREIGN DOMINANCE

Times Real Estate Editor

Who owns downtown Los Angeles?

The Japanese, the British, the Canadians, the Chinese, the Germans, the Dutch . . .

If you "flagged" or identified all those familiar buildings in the central business district and heart of this metropolis, about two-thirds of the towers and office buildings would sport a foreign flag, indicating they are either owned or controlled by foreign investors.

In 1979, less than 25% were foreign-owned. Since then, the share of home-grown ownership downtown has diminished significantly.

Heavy investors from Asian and European nations, recognizing the Los Angeles area as the catalyst in the burgeoning development and progress of Pacific Rim nations, have placed their bets--their investments in the future--here, a place they firmly believe has a diverse and highly stable economy.

The most recent expression of that kind of confidence in this area by a foreign investor was in mid-March by Toronto-based Oxford Development Group. It announced the sale of almost every property it owned in the United States to another Canadian firm, BCE Development Corp. of Vancouver, for more than $1 billion.

What it did not sell was its considerable California holdings, one of which is its huge, new Citicorp Plaza project at 725 S. Figueroa St. The company intends to focus its future real estate activities in California, with strong emphasis hereabouts.

Currently, in the downtown market--bounded roughly by 1st Street to the north, Broadway to the east, Olympic Boulevard to the south and the Harbor Freeway to the west, the Japanese are the principal foreign landlords, known to own or control at least 14 buildings.

British interests own eight, and Canadians claim ownership of at least five. The Chinese have three, and two are German-owned. (See listing of owner nations with data from Julien J. Studley Inc. and Grubb & Ellis, commercial brokers.)

Outside the immediate downtown core are Chinatown and Little Tokyo, located to the north and northeast, respectively. Obviously, ownership there has a strong Asian flavor, while Broadway and Spring Street--once the parallel backbones of the "old downtown"--are still principally locally owned, according to John Curry, real estate economist of the Community Redevelopment Agency.

Thus, inclusion of those added properties, along with the Puerto Rican ownership of the Banco Popular--and headquarters, ironically, of the city's Community Redevelopment Agency at 354 S. Spring St., could mean, conservatively, that 70% of an extended downtown area is foreign-owned.

Research into ownership of many downtown structures shows the existence of many shell or "dummy" firm names, indicating usually that foreign ownership is involved and, for various reasons, a reluctance to identify themselves or their money sources.

The interest in the Los Angeles market is not waning either, according to real estate firms active in the downtown market.

"We believe that this is only the beginning of what will be a continual interest in purchasing real estate in downtown Los Angeles, certainly by the Japanese companies, but also by firms from other countries, including Canada, England and other European countries," said Howard D. Sadowsky, senior vice president here for Julien J. Studley Inc., national realty firm specializing in commercial properties and consulting.

Citing the ownership of at least 14 buildings by the Japanese, he said that Mitsui Fudosan, a major owner, is considering "building a major facility of about 900,000 square feet at Wilshire and Figueroa." Bank of Tokyo "recently purchased the 8th and Figueroa site and plans to build about 1 million square feet (there).

"Interestingly, once one or two of the Japanese companies expand their purchases of properties, it's only a matter of time until other companies will follow," Sadowsky said.

"Politically, the United States is the most stable in the world, and although you may not always get the best return, you know the money will be secure. While we in Southern California, especially in downtown Los Angeles, think the land and buildings are expensive, costs are cheap in comparison to world-class cities, such as London, Paris, Tokyo and New York.

"Investment in downtown Los Angeles is a good diversification of their money, and the overall returns of money in the United States on real estate deals over a long term still turn out to be an excellent investment.

"Since many foreign investors are publicity-shy, it is sometimes difficult to determine who the actual owners are on properties, since they may set up a dummy company. In fact, there may be additional properties that are foreign-owned but ownership is difficult to confirm."

David W. Ariss, managing director of the bustling California Commerce Center in Ontario, returned recently from a fortnight in the Orient as a participant and observer in a trade mission and conferences and is very enthused over the potential for business expansion and ownership in Southern California by companies from Japan, Taiwan, Korea and Hong Kong.

He represented the 1,350-acre mixed-use business park, Southern California's only foreign trade zone with land parcels available for sale. The center, officially opened a year ago as an extension of the Long Beach Foreign Trade Zone No. 50, adjoins Ontario International Airport, has as its basic purpose the encouragement of international commerce.

(Trade zones allow foreign firms to establish bases near ports of entry to load, unload, store and ship goods, as well as manufacturing and exhibiting them.)

"Rising protectionist pressures in the United States will have significant benefits for the real estate industry, particularly in Southern California," Arris said.

Those he met with in the Far East "know that very soon they will have to have a physical presence in the United States," making solid investments in property and plants, if they want to continue to sell their exports to Americans, he said.

"If the Japanese, Taiwanese, Koreans and Chinese I talked with are any indication, California will be their favorite location. To them, there is a magic about California, and this is not hard to understand since it has been a mecca for Asian immigration, as well as being on the edge of the Pacific Rim and probably the country's best-publicized state.

"The real estate industry should be comfortable with increased participation from Japan and other Asian countries, having long dealt with joint ventures, investments and foreign ownership. Now we will be seeing the overseas firm more often as a user, a build-to-suit buyer or tenant, rather than just a money source.

"Now that Gramm-Rudman has set ground rules for the U. S. budget, the next target may logically be our balance of payments. Any legislation to correct the imbalance will quickly impact on the real estate industry as Asian businesses seek to establish plans and distribution facilities here," he said.

"While labor costs may be cheaper in the Orient, the trade-offs for Asian companies in the United States will be freight savings, an abundance of natural resources and accessibility of U. S. research and technology.

"I found that wherever we went--(Hong Kong, Taipei, Seoul and Tokyo)--interest was high and understanding was deep. The businessmen of the Orient know a good deal more about U. S. real estate--locations, values, potential--than we expected," Ariss added.

Los Angeles County, the largest among counties issuing tax-exempt municipal bonds, is also concerned with pending congressional legislation. Tax reform could limit or raise the cost of issuing tax-exempt municipal bonds.

Currently, it is considering raising as much as $500 million from European and Asian investors. If it is successful, the county would become the first such American entity to borrow from overseas sources.

Aware of those concerns, Sadowsky, commenting on local issues, warned that a proposed city referendum for the November ballot, reducing by 50% the amount of space allowed to be built in structures in certain areas outside the downtown district, "will ultimately force up the cost of office space throughout the city," adding to tenants' costs.

He also noted that downtown office space is "greatly influenced, and in many ways controlled, by New York-based tenants--"the banks, Chase Manhattan, Citicorp, Manufacturers Hanover; the law firms, Sherman & Sterling; the stock brokerage firms, Merrill Lynch, E. F. Hutton, Solomon Brothers.

"The market will continue to remain a tenants' market but the window of opportunity is limited and may last no longer than the end of the year," he said, "and 1987 might be the year that the landlords start making up for some of the more aggressive deals they have been making over the last 18 months."

Downtown Buildings and Their Foreign Owners

JAPAN: 550 S. Flower St., Mitsubishi. 833 Wilshire Blvd., Hinomaru International. 754 S. Hope St., Mitsui Fudosan. 600 S. Figueroa St., Mitsui Fudosan. 734 S. Figueroa St., Mitsui Fudosan. 827 S. Figueroa St. 845 S. Figueroa St. 735 S. Grand Ave., Mitsui Fudosan. 617 S. Olive St., Mitsui Fudosan. 611 West 6th St. 6th and Hope Streets, southeast corner. 605 W. Olympic Blvd., Japan/U.S. 404 S. Figueroa St., Japan/U.S. 445 S. Figueroa St., Japan/U.S.(Equitable).

GREAT BRITAIN: 713 S. Flower St., Hammerson. 818 West 7th St., Hammerson. 716 S. Figueroa St., Hammerson. 730 S. Grand Ave., British and Continental. 627 S. Olive St., British and Continental. 655 S. Hope St., Hammerson. 888 West 6th St. 510 West 6th St.

CANADA: 400 S. Hope St., Olympia & York. 515 S. Figueroa St., Manufacturers Life. 725 S. Figueroa St., Oxford Properties. 865 S. Figueroa St., Manufacturers Life. 300 S. Grand Ave., (California Plaza), Canada/U.S.

CHINA: 819 S. Flower St., Chung Sam Holdings USA. 1100 Wilshire Blvd. 426 S. Hill St.

GERMANY: 444 S. Flower St., Lehndorff and Great Britain. 609 S. Grand Ave., Lehndorff.

NETHERLANDS: 800 Wilshire Blvd.

IRAN: 5th Street and Broadway, northwest corner.

MIDEASTERN COUNTRIES, UNIDENTIFIED: 7th and Olive streets, southeast corner.

TURKEY:

7th and Hill streets., northeast corner.

PHILIPPINES:

888 S. Figueroa St.

SINGAPORE:

Proposed project, 600 block, St. Paul Street.

ISRAEL:

Proposed project, Figueroa Street, between 9th Street and Olympic Boulevard.

SOUTH AFRICA:

Proposed project, 8th Street and Grand Avenue, southeast corner.

DATA COMPLIED BY JULIEN J. STUDLEY INC. AND GRUBB & ELLIS

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