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Investment Pluses Outweigh Minuses

Business communities are known to shun outsiders and make the newcomers unwelcome. Contrary to that short-sighted view, the welcome mat has long been out for foreign investors throughout the greater Los Angeles area.

Los Angeles County, to date, has been the most active area for headline-grabbing investments by the two leading buyers, the British and the Japanese.

But gradually such investment interest and opportunities have been extended throughout Orange, Ventura, Riverside and San Bernardino counties as well. The five-county area has become increasingly attractive and fertile ground for future development by seemingly countless Japanese investors, firms and consortiums.

Real estate especially has been the magnet for their interest since very little investment-quality real estate is available in Tokyo and the island nation. “For sale” and “bargain” are virtually synonymous to the Japanese buying property here.

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Headlines have carried the stories of major acquisitions of buildings of high quality and of proposed, major projects, principally in the commercial and industrial fields.

The Los Angeles Area Chamber of Commerce has taken a leading role in the “welcoming” process and its chief economist, Jack Kyser, coincident with the chamber’s 101st anniversary, has prepared an analysis of the continually increasing investment throughout the Southland by the Japanese.

He found far more positives than negatives in the expanding impact of Japanese-owned or controlled real estate, mixed with concerns that foreigners are buying up the place. But there can’t be a sale without a seller--an owner who has found that the price is right.

For those who decry the growing Japanese presence here, he notes that some “65,000 people are currently at work for Japanese-owned firms in the Los Angeles five-county area.

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“All this activity not only directly creates jobs for local residents but these jobs would also have a powerful multiplier impact due to the level of skills involved and the inputs required,” he reported.

Based on a 1987 impact study by the Japanese Business Assn., he estimated a job multiplier of 2.56. That study showed that only 5% of the all employees were Japanese and that there was an increase of 56% in other employees between 1983 and 1987.

Some politicians and public figures, including Los Angeles City Councilman Nate Holden, who has filed as a candidate for mayor, have expressed strong views on “selling America.” The mayor of Honolulu, Frank F. Fasi, recently reelected, has been very outspoken about Japanese investors, charging that they buy up property in the island but do not create jobs.

The local experience and Kyser’s data appear to refute such charges.

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“In the current debate in the U.S. over the pros and cons from the flood of foreign investment, one charge made is that foreign firms are buying buildings or existing firms and are thus not creating new jobs. However, in the chamber’s survey of Japanese firms doing business in the Los Angeles five-county area, it was found that 95.8% had started their local operation from scratch.”

Contrarily, Western Europe firms are more disposed to buying an existing local business, Kyser added.

Historically, his report notes that there has been a Japanese presence here since 1885 when a former seaman named Kama opened a restaurant at 1st and Spring streets, now part of Little Tokyo.

Later, two famed products of the Massachusetts Institute of Technology, the Greene brothers, became enamored with Japanese culture and design philosophy during their studies there and that influence was reflected in their ensuing architecture of their now-revered homes in this area, some 60 of which remain as treasured dwellings. Even for Southern California, those homes are probably worth more today than the site they occupy.

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Other items cited by Kyser:

There are 425 headquarter firms of American subsidiaries of Japanese-owned firms within the five-county area.

A first-line Hollywood studio is a “buy” target.

In 1988, a Los Angeles subsidiary of the Honda firm exported an estimated $250 million in American products, including cars, cattle, lumber and agricultural commodities.

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From other sources, there are also strong data describing the impact of Japanese investment.

Through mid-1988, Japanese investors had purchased properties valued at $6.9 billion in Los Angeles, Orange, Riverside and San Bernardino counties, according to the accounting firm of Kenneth Leventhal & Co. and the tax bite had to be about $68.8 million.

At the recent annul convention of the National Assn. of Realtors, the trade group heard a lengthy report declaring that “foreign investment will be critical to this country and to our business in the years ahead and contrary to some thinking, purchases of U.S. real estate present no national security threat . . . foreign investors are in real estate for investment return, not political power.”

John Mann, senior vice president and executive director of the Pacific Rim region for Stewart Title Insurance Co., predicted recently that the number of Japanese-based realty firms doing business in the Southland will double by the end of 1990. As an example, he cited the formation of a consortium of about 600 small, privately held firms in the Shizuoka prefecture in order to buy properties in California, Oregon and Nevada.

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Both Japanese individual investors and small companies also seek to form joint ventures with local firms, he said, to take advantage of local expertise.

But they experience some difficulty in finding U.S. partners who share the same outlook on long-term investments.

“To most Americans, ‘long term’ means about 7 years; to the Japanese, it may mean 20 years to a lifetime,” he said.

As to land, it is perceived by them as most precious since most Japanese cannot afford to buy homes because the purchase price would require about 16 times the amount of their yearly income.

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That’s might explain their penchant for American bargains.


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