Brokers Flocking to Japan to Pitch U.S. Real Estate
No wonder the Japanese have a yen for American real estate: Real estate brokers from California to New York have been going all the way to Japan to ride the investment wave.
Fresh from speaking in Tokyo at a three-day conference sponsored by a daily Japanese newspaper “in response to the enormous Japanese interest and activity in the U.S. real estate market,” Julien Studley stopped last week in one of his Los Angeles offices before returning to his New York headquarters to say:
“That New York Times story the other day suggesting that the Japanese pace of investment in American real estate is slowing down is absolute hogwash.”
Of 19 Japanese companies his group of Americans visited there, he said, “every single one wanted to increase its real estate investments in the United States.”
And though the Japanese have preferred Manhattan, buying $4.2 billion in properties there from 1981-1987, he claims their favorite place to invest now is California, from San Francisco south.
The brokerage firm bearing Studley’s name focuses on commercial real estate, which the newest wave of Japanese investment certainly includes.
But talk in Hawaii over the past few months has been about Japanese purchases of residential properties--like billionaire Genshiro Kawamoto’s acquisition in April of the Kaiser Estate on Oahu for more than $40 million and his purchase, over several months before April, of at least 119 other houses or apartments there for a total of about $34 million.
One of the first Beverly Hills brokers to sniff the residential trend and get her passport in order was Joyce Rey, co-founder of Rodeo Realty, that Merrill Lynch Realty arm specializing in properties worth $1 million and more.
“I was there on St. Patrick’s Day,” she said. Why did she go? “Because I saw the Hawaiian flurry and realized that the next stop for the Japanese who are buying estates would be California.”
While in Japan, Rey met a billionaire “who likes to buy castles all over the world, sight unseen.”
She hasn’t sold him a house in Beverly Hills--yet, but she just put a $3.25-million Holmby Hills home in escrow for another man she met there: “the largest manufacturer of kimonos in Tokyo.”
Besides buying homes in Hawaii, and now California, as corporate and personal retreats, the Japanese are buying places where their employees can live for a couple of years while working in the United States and where their children can live while attending college here, said Gary More, international marketing director of Rodeo Realty.
More and Richard (Rick) Merrill, president of the Beverly Hills division of Merrill Lynch Realty, went to Tokyo in April, after they participated in a TV program that originated from a
Video Presentation
Merrill and More went to Japan to show a video at a six-day marketing conference sponsored by the Japanese company behind the TV show. The video featured 28 Merrill Lynch/Rodeo Realty listings on L.A.’s Westside, priced from $300,000 to $12.5 million. Merrill also worked with the Japanese firm on other techniques for marketing L.A. homes in Japan.
And what, so far, has been the outcome? A lot of seeds were planted. Not much yet has taken root.
Other Westside players have also gotten into the game.
Fred Sands sent two representatives to the conference where Studley spoke. “We were the only real estate brokerage firm from the western United States with a booth there,” Sands said.
‘Developing Relationships’
At the booth, his representatives showed a sample of Sands’ L.A. cable TV show “Preview of Homes” and distributed information about his company.
“We’re developing relationships with Japanese companies, and we’ll make an announcement in a couple of weeks that we will exclusively represent an international bank based in the Pacific Rim,” he said. “The bank will refer clients to us.”
He is also looking into Japanese television as a marketing tool.
Jon Douglas sent a representative from his realty firm to Japan, too, then followed up with a visit himself.
Douglas established an international division a year ago but went to Tokyo about three months ago and formed an agreement with one of Japan’s top residential leasing companies.
‘Sellers Can’t Sell’
“Normally, that’s not a hotshot connection,” he said, “but in Tokyo, buyers don’t have anything to buy. Sellers can’t sell because of the taxes. So a lot of leasing goes on.”
The leasing company handles about 600 deals a month, he figured, “and each one is a good prospect for us. Our program is to reach those landlords and tenants and get them interested in buying properties in Southern California.”
No sales yet, but he has buyers, he said, for a $10-million house as well as a $20-million retail project and “up to $50 million for office buildings.”
Yes, the Japanese are still interested in buying office buildings, Howard Sadowsky, senior vice president in Studley’s West L.A. office, said, “but they’re looking more at the medium-sized buildings. They still like the trophy buildings, but there are only so many.”
Tax on Savings
Current Japanese investors are not the big firms of the past as much as small- and medium-sized companies and wealthy individuals, said Stan Ross of Kenneth Leventhal & Co., the Los Angeles-based accounting and consulting firm.
Ross noted that a tax imposed in April on Japanese savings accounts is another incentive for the Japanese to invest in real estate in the United States.
And investing doesn’t mean just buying existing buildings, said Sadowsky. “A number of Japanese companies can see that our residential product is limited, so they’re looking to buy land to build condos and apartments in the San Fernando Valley and the Westside,” he said.
“They’re also getting involved in joint-venture developments and financing.”
A meeting sponsored by The Times will be held Aug. 17-20 in Wailea, Maui, to bring together 100 American builders and developers and 100 Japanese investors for possible joint ventures.
Courting New Business
One Californian whose firm is already in a couple of joint-venture projects with the Japanese, was in Japan last week courting new business. Or, as George Uyesugi, president of the Los Angeles-based firm, the Mat West Co., explained it: “We’re hopeful that through this, we can be a conduit for investing in the U.S.”
William W. Matthews, senior vice president and chief executive officer of the construction and development company, spoke last week in Tokyo to the National Real Estate Assn. of Japan and in Osaka to the Junior Chamber of Commerce. The Mat West Co. is developing a couple of business parks in Upland with Japanese construction companies.
“At first, they didn’t understand business parks, because they don’t have them in Japan,” Uyesugi, who was born in Japan and speaks the language, said.
The new wave of investors is also interested in ski and other resorts, hotels and golf courses, judging particularly by the $108-million sale of the Riviera Country Club, due to close escrow this month.
It’s no secret that the Japanese love to play golf, and it, like homes and other real estate, is a bargain in the United States in contrast with what they pay in Japan.
Tokyo Rental Prices
Merrill, of Merrill Lynch Realty, was surprised to find that a 1,000-square-foot retail space in Tokyo leases for $12,000 a month and $2 million down and that a ‘reasonable rent’ for a modest two-bedroom apartment in Tokyo is $15,000 to $16,000 a month. “And it’s a size where you couldn’t even entertain.”
Long-term thinking by Japanese investors worries some American observers, because if the Japanese buy and hold properties in the United States as long as they do in Japan, real estate activity will slow down.
Otherwise, there appears to be little concern, except in Hawaii, over the new “Japanese invasion.” In Hawaii, where land is limited, some old-time residents have expressed fears that the current Japanese buying spree will inflate real estate prices.
But, except in some pockets like Oahu, the Japanese still own comparatively little American real estate. Studley estimated that they only own about 1% of the value of commercial properties in Manhattan, “and nationally, it’s not even 1/10th of 1%.” They might own as much as 25% now of the downtown L.A. office buildings, “but downtown is less than 1/5th of the L.A. market.”
Investment Prospects
Of the $23.5 billion of foreign investment in U.S. properties in 1987, Japan had a 28.9% share, or $6.8 billion, but this is expected to rise. How far? Some analysts predict that more than $20 billion in Japanese capital will be invested in U.S. real estate during the next 24 months.
Studley also expects the investment wave to continue. His firm has forecast an increase to $10 billion by the end of this year. Studley cautions, “It’s very dangerous to make long-term predictions.
“In time,” he continued, “our own pension funds will be their biggest competitors.”
Total Japanese Investment in United States Property (in billions of $)1988: $6.8 to 10.0 1987: $6.8 1986: $4.8 1985: $.7 1984: $.8 1983: $.1 SOURCE: Julien J. Studley Inc.
Geographic Distribution of Japanese Real Estate Investment Cumulative: 1981-1987 (in billions of $) Top 8 Locations Manhattan: $4.2 Los Angeles: $2.9 Hawaii: $2.1 San Francisco: $.5 Washington DC: $.4 Chicago: $.4 Dallas/Houston: $.4 Boston: $.2 SOURCE: Julien J. Studley Inc.
