U.S. Spending Spree by Japanese Slowing

After a buying spree for U.S. real estate ranging from prime office buildings to luxury Manhattan apartments in the past few years, Japanese investment appears to have reached a plateau.

“Tremendous amounts of money flew in in 1986 and 1987, and in 1988 from smaller Japanese life insurers, but I doubt that pace will continue in 1989,” said Hisato Doi, senior vice president of Sumitomo Life Insurance Co.

Japanese life insurers, a driving force of the investment drive, say they are finding fewer attractive, top-notch properties.

“It is becoming much, much harder to find properties which satisfy us. Owners of nice buildings won’t sell them,” said Masanori Yamauchi of Meiji Life Mutual Life Insurance Co.

“The growth of Japanese overall investments in the U.S. has reached a plateau,” said James Mooney, managing director of Landauer Associates Inc, a real estate consulting firm.

There are no accurate statistics, but Japanese investment in 1988 is likely to match the $20 billion to $30 billion in 1987, Mooney said.

Mooney said one reason for the slower pace of Japanese investment is that the return for New York property, a prime market, has been lower than they had expected.

Slow rent rises followed the 1987 stock market crash, he said. This, coupled with the high cost of doing business in downtown areas and computer-based communications systems that do not require a company’s staff to be located in one place, has cut the projected yields for the buildings, he said.

Mooney said the United States is regarded as the best international market to learn the ropes, and experienced investors are now going on to other markets. The Japanese insurers are now looking at Canada, Australia and Europe as alternatives to U.S. investment, he said.