Real Estate Purchases Soaring : Japanese Investors Raise Profile, Eyebrows in U.S.
Long Beach building contractor Matt Larner was working on an apartment building the other day when a Japanese man drove up, asked who owned the property and if it was for sale.
He also asked about the owner of an apartment complex being built next door and wondered if that was for sale as well. “He just drove up out of the blue and wanted to buy these properties,” said Larner’s wife, Donna, who related the story. “That was pretty nervy of him, if you ask me.”
The nature of Japanese real estate investment in the United States is indeed changing and it is raising eyebrows. The examples range from the Larners’ story to the disclosure earlier this week that an unidentified Japanese real estate company plans to buy the landmark Riviera Country Club in Los Angeles for $108 million.
Once content to buy choice office buildings, known as “trophy properties,” in cities like Los Angeles, New York and Honolulu, Japanese investors are now cruising Main Street America, buying everything from shopping centers to residential property to golf, tennis and ski resorts.
Sports Shinko, an Osaka-based company that bought the La Costa resort in San Diego County last fall for $250 million, also owns a 1,000-acre resort near Orlando, Fla., that boasts three golf courses and a private lake.
Japanese firms already own several golf courses on the fringes of Los Angeles, including the Valencia Country Club and the Calabasas Golf & Country Club. Nitto America Ltd., which bought the Calabasas facility, also owns courses in Hawaii, Atlanta and near Riverside and San Bernardino.
A study by the consulting firm of Kenneth Leventhal & Co. in Los Angeles calculated that Japanese investors own more than $12 billion in American real estate other than office buildings.
The changing investment patterns are a natural result of Japan’s growing familiarity with U.S. real estate as well as the limited supply of blue-chip commercial properties on their traditional urban turf, real estate experts say. Japanese investors already own major portions of downtown Los Angeles and of the strip along Honolulu’s Waikiki Beach.
Japanese companies bought four of the five largest office buildings sold in Orange County last year. Three were bought by one company--the real estate investment firm Shuwa Corp., which also owns the towering Arco Plaza building in Los Angeles.
Shuwa spent more than $100 million on the three--the Taco Bell building in Irvine, Westerly Place in Newport Beach and Bay Corporate Center in Anaheim.
One of the Japanese pioneers in Orange County real estate, Shuwa owned 11 buildings in the county totaling 1.6 million square feet at the end of last year.
Real estate brokers say the Japanese are looking for still more property in the county because it is close to Los Angeles--a market they are familiar with--and the county’s economy is healthy.
The surge of buying by the Japanese is also fueled by international forces, including the high value of the Japanese yen in relation to the dollar and Japan’s large trade surplus with the United States, which has given Japanese investors many excess dollars to invest.
The move into recreational real estate reflects a Japanese love of golf that borders on rabid. Golf club memberships in Japan are prized possessions that sometimes cost millions of dollars.
“It may be cheaper for them to fly over to play golf at the Riviera than it is for them to play golf at home,” said David Shulman, director of real estate research for the Salomon Bros. investment banking firm in New York.
There are increasing indications, though, that some real estate investments by foreigners--particularly in homes and golf courses--are difficult for Americans to swallow. It’s one thing for outsiders to buy the Arco Plaza in downtown Los Angeles or Exxon’s headquarters in New York, but it is quite another to buy the Riviera club, a 61-year-old symbol of elegance that represents the best of Los Angeles-style glitz and grace.
“I’m an avid golfer, and all of us don’t like to see our national monuments sold to foreigners,” said Joseph Faulkner, a Los Angeles commercial real estate broker and consultant. “It’s strictly an emotional thing.”
“I think it’s sad,” echoed another golfer, Charles Ganssle, a Los Angeles building contractor. “That course has a lot of history and tradition.”
That uneasiness also extends to some insiders at the Riviera, a tennis and golf facility that has 160 acres and more than 1,500 members. “There is a certain fear of the unknown,” acknowledged Frank Hathaway, head of the investment partnership known as Laaco that has agreed to sell the club “ . . . This caught the members by surprise.”
On Wednesday, Hathaway sent a letter to members aimed at assuring them that the new owners intend to preserve the club’s status quo. Nevertheless, Hathaway will not identify the buyers, other than to call them “a well-established real estate company” from Japan.
“They have agreed to continue to maintain and operate Riviera as a private club and as a first-class facility,” Hathaway stated in his letter. “Further, they have said they plan no major changes to the golf course and they plan to upgrade certain clubhouse facilities.”
Honolulu has been shaken in the past year as Japanese investors have snapped up homes at an unprecedented pace, driving up prices and leading to calls for a ban on several types of foreign real estate investment, including homes and farmland.
“The Japanese can buy a thousand homes in California and a hundred homes in Honolulu and the impact here is going to be a hundred times greater,” Honolulu Mayor Frank F. Fasi complained in a recent interview.
No similar wave of home buying has yet emerged on the U.S. mainland, though there have been Japanese purchases of apartment houses and condominiums for investment and single-family homes for executive housing. For example, a home in Brentwood owned by muffler manufacturing executive Woody Harrah was recently sold to Mitsui Corp. for $1.2 million.
Long Beach has a natural attraction for Japanese buyers because of its large port complex and two major Japanese-sponsored building complexes going up downtown, said Jack Barthell, a managing partner for Kenneth Leventhal & Co.
To avoid publicity and keep their intentions as quiet as possible, Japanese buyers normally keep a low profile, real estate experts say. At the same time, though, they are concerned about the local impact of their investments.
“Whenever there’s a business meeting, the Japanese always ask about the reaction of the American public to all these purchases,” said Howard Sadowsky, senior vice president in Los Angeles for the Julien J. Studley Co., a national real estate brokerage and consulting firm. “They’re very concerned about their image, but they go ahead and buy the property anyway.”
Of course, foreign investors from all over the world have poured money into the United States at various times in recent decades. In the 1970s, for example, there was a wave of grass-roots American opposition to investments from the oil-rich Mideast.
The Japanese, even though their investments are growing far more quickly than those of other nations, still do not own as much U.S. property as do Dutch or British investors, Barthell said. Japanese buyers owned $26.3 billion of U.S. real estate at the end of 1987, the Leventhal firm said in a recent report.
At the end of 1985, the latest figures available showed the British owning $44 billion worth of U.S. real estate while the Dutch owned $38 billion. Barthell, however, expects the size of Japanese investments to surpass those of the Dutch by 1990.
Some real estate experts warn that Americans are in for a rude awakening if the present long-term investment trend continues. Some real estate brokers see the next wave of heavy foreign real estate investment coming from Europe.
“At the rate we’re going, we could all be foreign-owned by the year 2000,” Sadowsky said. “The public may wake up one day and wonder if anything left is owned by Americans.”
