B of A Turns Up a Profit Center--High-Priced Property in Tokyo
Thirty years ago, when Bank of America bought a four-bedroom house in Tokyo for its chief executive in Asia, the property cost about $50,000. Today, with the giant bank reeling from losses and facing a takeover bid, the decision to buy the house in Tokyo looks like one of the best that the bank ever made.
According to Masao Yamamoto, a Bank of America vice president here, the property was sold in July for about 9 billion yen, or more than $58.4 million.
That resulted in a net gain of $25 million in the third quarter for Bank of America’s parent, BankAmerica Corp. Also, it represented 37% of the bank’s income from the sale of assets in that quarter.
Indeed, the $58.4-million figure was only slightly less than one-fifth of the bank’s $310-million pretax gain on the sale of its headquarters building in San Francisco. And it was one of the few positive notes in last Friday’s BankAmerica announcement of a quarterly loss of $23 million.
The house itself, which contains about 3,500 square feet of floor space, is worth virtually nothing, Yamamoto said. The Japanese real estate firm that bought it was interested only in the land it stands on, about 18,500 square feet.
“It’s hard for Americans to understand that a square foot of land in Tokyo is worth more than the $100 bills you could cover it with,” Yamamoto said.
Yamamoto would not identify the purchaser or say what it intended to do with the property after the bank turns it over at the end of the year. (A B of A spokesman in San Francisco on Friday erroneously identified the buyer as International Business Machines.)
The bank now leases the property, he said, so that Verone C. Gibb, an executive vice president who formerly headed the bank’s Asia division, can continue living there until Dec. 31.
The property assumed special value not only because of its location in the Ichigaya section of Tokyo, about 2 miles from the center of town, but also because of its size, Yamamoto said. “While you might be able to find a few plots of land 200 square yards or 400 square yards in size up for sale, there are never any plots as large as 2,000 square yards being sold nowadays,” he said.
“Even now, cranes fly into the garden and eat fish in the pond. There is no other place like it in Ichigaya.” (The cranes, he said, come from the forested area of the Imperial Palace grounds about a mile away.)
The desperate squeeze for undeveloped land in Tokyo boosted the property’s value in yen by more than 500 times over the years, Yamamoto said.
Although he refused to reveal the exact amount that the bank paid for the property 30 years ago, he said the purchase price “would not even buy one tsubo (35.5 square feet) of the land at the price we sold it for.” The property contains 520 tsubo, a traditional Japanese measuring unit for land.
The increase in land value was in turn multiplied by 2.3 times in dollar value by the yen’s appreciation since 1956. Thirty years ago, 360 yen were needed to buy $1, while only 154 yen are needed today. Without the change in exchange rates, the 9-billion-yen sale price would have been worth $25 million instead of $58.4 million.
Yamamoto said an impending change in a Tokyo metropolitan government ordinance regulating sales of large tracts of land had figured prominently in the bank’s decision to sell the property. The size of properties subject to government regulation will be reduced to cover tracts as large as the Ichigaya property. “That would have allowed a third party, the government, to set the price,” he said.
The executive said the purchase of the Ichigaya home enabled the bank to make “huge savings” over the years in the cost of providing housing. Even calculated at rent standards that prevailed in 1956, the property probably paid for itself in rent savings in the first 10 years that the bank owned it, he said.
Yamamoto did not say how much Gibb is paying in rent to live in the home. But rents for homes or apartments in the area, offering half the living space and no garden or yard, run from about $6,500 to $10,000 a month, he noted.
The Japan Times carried an ad on Monday for a four-bedroom home with slightly less living space and located about eight miles farther out at a monthly rent of $13,000. A four-bedroom apartment about the same distance from the center of Tokyo as Gibb’s was offered for rent at $13,720 a month.
