Japanese Deal-Making Lessons
Southern California builders and developers, long established as leaders and innovators in real estate, met here for four days to talk and deal with their money-laden Japanese counterparts and investors, dominant figures in purchases of prime American properties.
The second annual Pacific Basin Development Conference, limited to 100 participants and billed as a business and cultural exchange, provided lively and frank lessons on how the less-patient Americans can best deal with the more-patient Japanese in the ancient art of business matchmaking.
It also turned out to be a paradise for potential joint ventures in a locale where the Japanese have already established themselves as major investors of prime Hawaiian hotels, residences and commercial properties.
Principal suggestions that evolved from the various business sessions zeroed in on mutual trust, avoiding confrontation by endless concern for details and disdain for lawyers.
Speakers representing the Japanese point of view favored across-the-table dealing between principals of the two negotiating firms, said American and Japanese representatives should first establish an understanding of their respective goals and then proceed to examine minutely all facets of a proposed purchase or joint venture.
In their view, “details, details, details” would match the real estate industry’s traditional concern for “location, location, location.”
By repeatedly discussing every detail and phase of a proposed development--initial and projected plans, construction time table, financing and management--both sides can eliminate any misunderstanding of the pending deal.
Very pointedly, they said a qualified interpreter from each side--rather than attorneys--should always be present during the matchmaking meetings.
Once agreement is reached on all possible facets of the deal, lawyers may then enter the picture and legally define the agreement, the adamant Japanese panelists said.
Japanese speakers and panelists agreed that Southern California is the prime location for their intended future developments, and a panel of California builder/developers who are among the first to joint venture with top-ranking Japanese investment firms described case studies involving residential and commercial projects--housing, hotels, business centers and office towers.
Taizo Watanabe, deputy chief of mission in Japan’s Washington embassy, delivering the keynote address, said:
“The present globalizaton of Japanese business mirrors the multinationalization of U.S. business which began in the 1950s and accelerated thereafter.
“In both cases, it is the natural result of businessmen pursuing attractive investment opportunities that will allow them to better serve expanding markets as well as to realize a decent return on their investment.”
The high cost of real estate in Japan has been the major force in directing Japanese investors to U.S. markets, the minister said.
“The extraordinary scarcity of developable land in Japan, and the astronomical prices charged for what little land is available, compel Japanese real estate investors to look elsewhere,” he said. “A large (by Japanese standards) 2,200-square-foot condominium in a fashionable Tokyo district sold for $13 million in the middle of last year, more than 10 times the price per square foot of a similar luxury apartment in Manhattan.”
But he noted that Japan’s direct investment in U.S. real estate ranks third, behind properties owned in the U.S. by the British and the Dutch, even though direct Japanese investments in American properties doubled between 1986 and 1987, totaling $13.2 billion.
Quoting Washington-based Urban Land Institute data, Watanabe said Japanese interests in U.S. real estate will continue and will expand because of the high level of Japanese personal savings (about four times the American equivalent), a truly long-term investment outlook, the lack of comparable and affordable investment alternatives in Japan, a flexible, diversified and relatively stable U.S. real estate market and Japanese government policies that promote sustained investment in the United States.
Looking at global politics, Watanabe, who served as consul general of Japan in Los Angeles from November, 1984, through October, 1987, said the United States has been the most powerful nation and has helped bring the “economies of Western Europe and Asia out of the misery of the immediate postwar era into the present prosperity.
That has resulted, he said, in increased economic power for them and “a narrowing gap of national power between the United States and these same nations.
“But in terms of perception and psychology, this means that all of us have to adjust our way of thinking and change to a situation in which the United States is not going to remain as a lone superpower but will continue as a leader among the powerful and industrialized democracies.”
In his prospective, there are too many resentments and grievances emanating from “this false notion in which the culprit is sometimes assumed to be Japan.
“What is happening and what is actually true is that no one is taking over, and more importantly, no one will be able to assume the formidable tasks inherent in the No. 1 position, except the United States, for many, many years to come.”
The unique pluralism of American society remains as a source of strong hope and dreams to many people in the world, he added. Pluralism is a source of American strength rather than a weakness, he said.
“Many people still want to immigrate into this country where they can make their dreams into reality. Many nations want to work closer with this nation, rather than other nations, as the United States in turn is expected to play the role of guardian to them.”
The Los Angeles Times sponsored the conference, hosted by the Wailea Development Co. at the Stouffer Wailea Beach Resort. Representing The Times were Don Clark, executive vice president of marketing; Larry Kline, director of classified advertising, and Joan Heid, classified retail and display sales manager. Bryan Hardwick served as conference chairman.
NEXT SUNDAY: Do’s and don’ts of dealing with the Japanese in real estate projects.
