Added Incentive : Japanese Have the Yen for United States Real Estate

Japanese investors, attracted by real estate in the United States and the prospect that yields may triple, are looking toward greater acquisition of prime property, particularly in Southern California’s desirable “cluster” areas.

An added incentive for the Japanese corporate investor today is the currency situation.

“The yen is the highest it has ever been against the U. S. dollar,” said Gary Fowler, president of Chesshire Gibson Fowler, a Beverly Hills-based real investment consulting firm, in an interview.

Fowler’s firm has created a local link to Japanese investors through its recent affiliation with Hasegawa Komuten Co. Ltd., a major Japanese real estate developer which reported $844 million in gross sales in fiscal year 1984-85.

From 1979 to 1981, foreign investment in U. S. real estate was between $14 billion and $16 billion, Fowler noted; in 1983 and 1984, a strong American currency brought it down to $5 billion. This year, with foreign investment in U. S. real estate expected to reach $10 billion to $11 billion, Japan’s investment could amount to $5 billion.

(The American Institute of Real Estate Appraisers estimates that the Japanese investment in the U. S. this year will be more than $3 billion.)

Sitting across from Fowler at the New Otani Hotel in Little Tokyo, Bruce T. Kaji agreed. The president and managing officer of Merit Savings Bank in Little Tokyo deals almost exclusively with Japanese investments.

“Like many foreign groups, the Japanese are looking outside of their country to invest a portion of their assets,” Kaji said. “With the ever-present possibility that the Japanese ruling party could be swept away if the three other minority parties were to form a coalition, this degree of minor political uncertainty, in itself, creates a climate that is conducive to diversification of capital.”

Yields on prime property in Tokyo are now averaging 2% to 3% and Japanese investors are very much attracted to United States yields of 7% to 9% for prime investments or developments that are three to four times higher than in Japan.

Harder to Find Land

As the population of Japan increases, the amount of available land for development decreases, Fowler said. “Developers are finding it more difficult to obtain suitable locations, given the shortages of land and increases in government controls and regulations,” he added. “This has been the major preoccupation for the Japanese investor.”

Fowler noted that a recent purchase in the Ginza (Tokyo’s main business street) netted sellers in excess of $16,000 a square foot, and that top clubs along the Ginza are charging their customers between $150 and $200 cover charge an hour per person before even consuming beverages or food. A night in the Ginza can easily cost a Japanese executive $750 to $1,000 a person, he said.

The Japanese, previously overshadowed by Canadian, British, West German, Dutch and Middle Eastern interests, are now the top foreign players in the U. S. real estate market. About 50 of Japan’s top construction, trading and life insurance companies are currently investing in U. S. real estate.

In conjunction with the British parent company, Chesshire, Gibson & Co., Chesshire Gibson Fowler has entered into an agreement with Hasegawa Komuten’s Haseko Realty for mutual representation in the United States, the United Kingdom and Japan.

Seek Prime Properties

“Our experience with the Japanese is relatively new,” Fowler observed, “but I have noticed that the Japanese are far more comfortable getting involved in areas where other Japanese firms have already invested and paved the way, like in Little Tokyo. But, more importantly, they stick to prime, prime real estate.

“If they can invest here, as opposed to only leasing facilities, and in the process increase the employment base for U. S. citizens, it not only helps offset the tremendous deficits but, politically, they get a lot of points,” Fowler added.

From his banking perspective, Kaji observed that until 10 years ago all major Japanese firms were exporting finished products into other countries. “Now they are making major acquisitions and building hundreds of thousands of square feet of space abroad, some of which are targeted for assembly work, manufacture and distribution facilities for Japanese-originated products.”

Historically, outside of the Sumitomo and Mitsui developments, he added, Japanese real estate investors have focused almost exclusively on properties that are already built and leased. “It’s the old adage at work, a bird in hand. . . .

Assembly Production

“But we have noticed that there has been a noticeable shift, especially in Southern California, in the production and assemblage of Japanese products here.”

Kaji cited Sony in southern Alabama and Kawasaki and Honda, which are having success in assembling their motorcycles here; also, Toyota Motors and Honda Motors, which have bought large tracts in Torrance, and Nissan Motors, in Carson, with the idea of expanding their West Coast assembly operations.

In its new alliance with Hasegawa Komuten, Fowler expects to develop increased response by Japanese investors to other types of real estate development, besides their traditional preference for industrial and manufacturing businesses. The trend is seen in more recent acquisition and/or development of office buildings, shopping malls and hotels.

The Japanese, Kaji noted, already have responded with such projects as the New Otani Hotel, built by East West Development, basically a Japanese corporation; the Sumitomo Bank building was built by Kajima, one of the largest construction companies in Japan; Weller Court was also built by East West Development.

Surplus Returns Here

“And we have the California First Bank building in Little Tokyo, which is buying land and developing, and that is 51% Japanese-owned and controlled by Japan,” Kaji said.

The Japanese economy’s huge dollar surpluses earned in export trade have definitely found their way to American shores, Fowler indicated.

“Hasegawa first began developing condominium and residential projects in Hawaii, he said. “Then they realized they could best market their own product if they had a brokerage arm. Haseko Realty is that entity and its Real Estate Showcase is located in the Royal Hawaiian Shopping Center in Waikiki.

“In Los Angeles, outside of Little Tokyo, we have found that the big attraction for Japanese investors is still to be close to where Mitsui and others have put their money down. In other words, we still find them wanting to be in clusters, but again, it’s all in the prime, prime sectors.

Location Conscious

“I believe the Japanese are far more location-conscious than American investors. We tend to be a little more adventurous, while the Japanese will sometimes settle for less of a return in deference to location.

“And as we show them properties in downtown Los Angeles and particularly in Little Tokyo, for the most part they may still be telling us: ‘When it’s built we’ll buy,’ ” Fowler predicted.

“The reason being that they’d rather fix their yield and know their costs, rather than be at the mercy of currency fluctuations and get into a development where they may have ongoing demands for cash for the next two years.

“Quite frankly, the Japanese are worth watching. They seem to gravitate to safe investments with good returns.”