County Real Estate on List, Realtor Says : Japanese Buying Spree Moves Into the Suburbs

Japanese investors, moving beyond big cities and into suburban areas such as Orange County, are becoming a growing force in American real estate and are pricing some domestic players out of the market.

That is the assessment of Satoru Jo, a vice president of Cushman Realty in Los Angeles who was involved in the sale of several major Orange County office buildings to Japanese buyers last year.

Jo told several hundred executives attending a seminar sponsored by the Building Industry Assn. of Southern California in Anaheim Friday that a growing number of Japanese investors are buying residential property, hotels and shopping centers in the suburbs.

Jo said that only 15 years ago, most Japanese investments in the United States involved real estate holding companies that bought downtown office buildings in large cities.

These days, Japanese insurance companies, limited partnerships, wealthy individuals and firms such as Nissan and Toyota have joined the real estate companies in gobbling up prime U.S. office space.

Unexplored Territory

And Jo said they are moving into previously unexplored territory. “Next, they’re going to extend beyond New York, San Francisco, Hawaii and Southern California and go into Atlanta, Chicago and Dallas,” he said.

Jo said increased interest from Japan, combined with a shortage of buildings for sale in large downtown areas, is the biggest cause of the shift to smaller cities and suburban areas.

He said Japan’s presence in the U.S. real estate market has increased for several reasons, including a scarcity of available real estate in Tokyo and the relatively high value of the Japanese yen compared to the U.S. dollar.

Jo said owners of Tokyo office buildings receive a return of as little as 2% a year on their investments. In America, he said, comparable investments return about 7%.

“And they like the way markets here operate,” he said. “Here, we have escrow, but not there. They like a system that thinks.”

More liberal tax policies have added to the interest, he said.

“The real estate companies became interested in the early ‘70s, until the oil shortage made investment very unattractive. And now in the past few years, it’s become an option for many, many people,” said Jo, who until last year worked for Shuwa Investments in Los Angeles.

Shuwa Purchases

While he was at Shuwa, the real estate company paid more than $120 million for several office buildings in Orange County, including the Irvine headquarters of the restaurant chain Taco Bell. In addition, Shuwa paid $620 million for the Arco Plaza in downtown Los Angeles.

Jo and other speakers at Friday’s seminar said U.S. investors are being priced out of the market.

“With more foreign investor interest in shopping centers, the competition to buy existing centers will become even more intense,” said Harry Newman, chairman of Newman Brettin properties, a Long Beach developer of shopping centers.

While Jo said Japanese investors make investment decisions only after careful analysis, he noted that an increasing number of investors are eager to assume higher risks.

The amount of money Japanese investors are spending for some real estate seems outrageous to some observers, but “when you look at the structure of the deals, they’re quite attractive,” Jo said.

For instance, he said purchase agreements made by the Japanese frequently include lease guarantees that ensure a return to the buyer.

“You look closely, and they’re doing very well,” he said.