Japanese Broaden U.S. Realty Holdings

Evidence mounts here and across the land that the Japanese, who only 45 years ago were our mortal enemies in World War II, are increasing their commercial real estate investments in many of our 50 states.

On return from a recent trip to Japan to meet with potential investors, an official of the Federal Home Loan Mortgage Corp. commented that Japan “could be a very good market for Freddie Mac in the long run.”

Because of insufficient domestic investment opportunities and real estate rate differentials, a tremendous amount of Japanese capital is invested in the United States. “The size of the market is truly impressive,” added Dora Davey Brown, manager of capital markets for Freddie Mac.

It is estimated that more than 60% of all long-term Japanese capital--and that’s about $65 billion--was invested in dollar-denominated funds in 1985. And data also indicates that Japanese realty investments have continued in that strong proportion.

However, Brown noted that an education effort is the first step in getting Japanese investors to put their money into mortgage securities. “Investors need to know not only our name but also what our securities are, why they should buy them, and how to manage them once they have been purchased,” she added.

Another evidence of Japanese financial confidence in America came at a recent seminar in New York City where the Japan Society and the Urban Land Institute members got together. It was reliably reported that visitors from the Far East applauded loudly as American speakers described mutual benefits of Japanese investments in real properties in the U.S.A.

Why?

Well, some Japanese are increasingly aware of the advantages of reinvesting some of the money that they are making here--especially in the automobile field. Also, Japanese know the advantages in their favor in dealing with dollars whose values have declined, whereas investments in real properties continue to appreciate.

Veteran Washington realty observer Edwin L. Stoll commented that an examination of Japanese investments in U.S. real properties discloses a desire for capital preservation, protection against inflation, cash return and long-range appreciation. If those reasons ring a U.S. bell, it’s simply because they are also the top motivations of American investors--and the same reason that has prompted British, Dutch, Canadian and German investors to buy major properties in Washington.

One realty firm here estimated that an analysis of recent downtown transactions showed that 30 of 115 prime, privately owned office buildings are now owned by foreign investors.

To date, much of the Japanese investment in real U.S. properties has been in Southern California, San Francisco, Boston, New York City and Washington. The Urban Land Institute has noted that Japanese show a tendency to make joint investments that pool funds from insurance companies in both nations. But the Japanese Ministry of Finance reviews and approves each joint venture before the deal is made.

While it is significant that Japanese investors have a big stake in the recent $135-million purchase of the Crocker Center in San Francisco, it seems more notable that Kokusai Kogyo Co. Ltd. of Tokyo last year made a $25-million investment in a new building here at 1001 Pennsylvania Ave. (That “Avenue” investment is even more noteworthy because the site is on the famed presidential inaugural parade route from the U.S. Capitol to the White House.)

Stoll also pointed out that the surge of Japanese realty investment here is attributed to the appreciation of the yen versus the dollar and the easing on restrictions on overseas investors. But it is also known that U.S. Treasury officials are threatening to restrict activities of Japanese financial investors here unless their country opens up domestic markets to the United States.

Also, there is new concern that Japanese firms may enter the home building field here. Prof. Charles Graham of Texas A&M; fears that the Japanese might do to our residential housing market what they did to our auto industry. But Tetsuro Nagase, first secretary of the Japanese mission in Washington, countered: “We don’t see them (Japanese firms) coming to the U.S. for a while.”

Attention U.S. home builders: “For a while” doesn’t mean forever.