Shuwa Out for More U.S. Buys : Purchasers of Arco Plaza Reported Well Funded
Shuwa Investment Corp., the Japanese building behemoth whose plans to buy Los Angeles’ landmark Arco Plaza for an estimated $650 million were disclosed last week, is shopping for more Southland real estate and is ready to make at least one more major deal within the next few months.
Sources familiar with the company say that Shuwa’s management, at the start of this year, decided to spend at least $1 billion--and possibly more--on American property in 1986, in part because its already hefty spending power has been enhanced by about 40% through favorable currency exchange rates.
Management in Shuwa’s U.S. headquarters in Baldwin Park has repeatedly refused interviews, saying they won’t comment on the purchase of Arco Plaza or the company’s future plans until later this week--at the earliest.
However, Shuwa apparently has an offer pending for Chase Plaza, the $101-million development opened at the corner of 8th Street and Grand Avenue earlier this year.
An executive at Treptow Development Co., one of the three partners that own the building, said negotiations for Shuwa to purchase the project “are in the final stages of negotiation.” Several local brokers say a deal for the 435,000-square foot project could be made soon.
Shuwa is also reportedly considering the purchase of a few other Southland developments, including the old Gateway Towers, two of the first large buildings erected in Century City.
Like most foreign investors, Shuwa prefers to say nothing about its current dealings and little more after a transaction is completed. But Clifford Ujiie, a broker in Grubb & Ellis Co.’s West Los Angeles office who has represented Shuwa in the past, confirms that he is representing the company again in two potential deals.
“One is an office building in Orange County, and the other is an office building in Los Angeles,” Ujiie said. “I really can’t say anything else about it.”
Shuwa Investments shouldn’t have a problem financing any new purchases.
Its parent, Shuwa Co. Ltd., is the biggest condominium developer in Japan and also owns nearly two dozen buildings in downtown Tokyo. Broker Ujiie believes Shuwa’s equity in those downtown structures could be as much as $3 billion.
Whatever property Shuwa Investment eventually buys, it will be hard to top its purchase of Arco Plaza. Brokers say that despite the problems of its current owners--Arco and loss-plagued Bank of America--the plaza itself is in fine financial shape.
“The building is about 95% leased,” said Joseph Faulkner of the Faulkner Co., which is handling the subleasing for Arco. “It’s an outstanding building and a prestigious address.”
But although the vast majority of the plaza’s 2.2-million square feet of office space is leased , not all of that space is occupied .
Faulkner said Arco isn’t fully utilizing the 37 floors in its tower, and is willing to sublet as much as 400,000 of the 950,00 square feet it currently has the right to occupy. The oil giant plans to use only 20 floors of the tower after the sale to Shuwa is finished. Another 140,000 square feet is vacant in the Bank of America tower.
Still, the plaza is doing better then most other downtown buildings, many of which have vacancy rates in the teens.
“If you’re going to buy a building, it would be hard to buy a better one” than Arco Plaza, said Bill Thompson, a spokesman for commercial broker Coldwell Banker.
Brokers say that a key bargaining chip Shuwa used in negotiating the price it paid to the Bank of America-Arco partnership that owns Arco Plaza was the building’s high asbestos content. Another potential buyer of the development backed out in June, in part because it couldn’t reach an agreement with the partnership about how to deal with the asbestos.
Asbestos has been linked to cancer, and was used in most structures that were built between 1950 and the early ‘70s. Local brokers say removing or encapsulating the asbestos in Arco Plaza could cost between $30 million and $50 million.
“The biggest question mark in the whole transaction was the asbestos issue and who would have to take care of it,” said John Barganski, a broker in Grubb & Ellis’ downtown office. “I’ve heard the building sold for $600 million or $650 million, so I think the present owners kept most of the liability. The price would have been much lower if Shuwa had assumed the liability.”
Shuwa’s purchase of the towers climaxes--at least for now--the remarkable growth the company has achieved in America in less than a decade.
Although Shuwa Co. Ltd. was formed in Tokyo in 1899, it didn’t create its American subsidiary until 1978--long after other foreign investors had begun snapping up prime real estate in cities such as Los Angeles, San Francisco, Houston and New York. With only $1 million in capital, Shuwa Investment delved into the condominium business in the Southland and the San Francisco Bay Area, and later began building small office parks.
The company made its first major U.S. purchase last year, when it bought the 300,000-square-foot Mitsubishi Electric Sales America Inc. building and 15.3 acres of industrial land in Cypress from a McDonnell Douglas Co. subsidiary for $18.6 million.
Shuwa whipped out its pocketbook again earlier this year to buy the 12-story, 132,000-square-foot Figueroa Tower at 800 S. Figueroa.
All of this has been done while Shuwa has intentionally kept a low profile in Los Angeles’ business community. Rather than renting expensive offices downtown, Shuwa has remained in its modest, nondescript Baldwin Park headquarters and has no immediate plans to move.
When Shuwa’s purchase of Arco Plaza closes next month, foreign investors will own or control more than 70% of the towers and office buildings downtown. That figure stood around 66% before the acquisition, and was less than 25% only seven years ago.
