Great Japanese Land Rush : Investment in U.S. real estate leaped 30% in ‘88; L.A. topped the shopping list.
Japanese investment in U.S. real estate rose 30% last year, with Los Angeles attracting more investment than any other metropolitan area for the first time, according to a study released Tuesday by an accounting firm.
The study said Japanese investors spent a record $16.54 billion on U.S. real estate in 1988, up nearly a third from the 1987 figure of $12.77 billion. Overall, the Japanese own $42.88 billion worth of U.S. real estate, more than two-thirds of it acquired in the last two years, the study said.
California topped the Japanese investors’ shopping list, with 1988 acquisitions here totaling $5.62 billion, or one-third of all Japanese spending. New York was second at $2.8 billion and Illinois was third at $1.87 billion, up a notch over Hawaii.
Los Angeles ranked first among metropolitan areas, with $3.05 billion, or 18% of total Japanese real estate purchases in the country.
Hotel Chain Top Purchase
Among the major acquisitions in 1988 by Japanese investors in Los Angeles were the former Wells Fargo office building at 444 S. Flower St. for $147 million, the Century City Marriott for $85 million and a 49% interest in the historic Riviera Country Club for $53 million.
Knocked from first place in 1987 to second last year was New York, where the Japanese spent $2.8 billion, according to the study.
The largest Japanese real estate purchase last year was the $2.27-billion acquisition of the Inter-Continental hotel chain by Seibu Saison Group. The chain includes hotels on several continents, including such landmarks as the Mark Hopkins in San Francisco and the Willard in Washington.
The study was prepared by Kenneth Leventhal & Co., an accounting firm with headquarters in Los Angeles that specializes in real estate. Leventhal has tracked Japanese investment for several years.
The figures were more than double the 1988 Japanese investment total of $7.1 billion reported last week by Salomon Bros., a New York investment bank.
Susan R. Jordan, an analyst at Salomon Bros., said its estimates were lower chiefly because the firm does not include projects under construction until they are completed. Leventhal counts them when ground is broken.
Buying, Building in Chicago
Both the studies, however, found that Japanese investors have expanded outside the Los Angeles-New York-Honolulu triangle, where they spent most of their money in previous years.
“The Japanese are becoming increasingly familiar with U.S. markets and expanding their investment horizons beyond trophy-type Class A office buildings,” said Jack R. Rodman, managing partner in Leventhal’s Los Angeles office.
As a result, Japanese investment in the core states of California, New York and Hawaii declined in 1988 to 62% of the total from 68% in 1987. Moving up, based on acquisitions and construction of major hotels and office buildings in Chicago, was Illinois.
While Japanese investors have snapped up major office buildings in New York and Los Angeles in previous years, they found happy hunting for this type of trophy in Chicago last year. Japanese investors acquired the Hyatt Regency hotel for $260 million, 3 First National Plaza for $254 million and Madison Plaza for $235 million.
Among the secondary cities where the study found active Japanese investment were Anaheim, Atlanta, Boston, Dallas, San Francisco, Seattle and Washington.
Office buildings remained the primary focus of Japanese investors, while spending for hotels and resorts declined from 1987, chiefly as a result of reduced buying in Hawaii, the study said.
Big Japanese life insurance and real estate companies have dominated buying in previous years, but the study said 1988 saw increased investments from smaller companies and non-real estate companies. As a result, there were a larger number of smaller transactions than in previous years.
The Japanese also showed a keen interest in joint ventures with U.S. development companies, said Jack Barthell, a Leventhal partner who worked on the study.
The study predicted that 1989 investment will be in the $16-billion to $19-billion range, with cash-rich Japanese pension funds entering the fray for the first time in a big way. Japan’s Ministry of Finance recently said the funds could invest up to 20% of their assets abroad. They had been restricted to 3%.
When it comes to buying U.S. companies, however, a study by another accounting firm says that the British were the largest purchasers in 1988. The Canadians were second and Japanese were third.
British companies bought 420 U.S. companies last year in deals valued at $32.7 billion, according to the survey by KPMG Peat Marwick.
After British firms, the second-largest purchaser of U.S. companies last year were Canadian interests, which spent $9.6 billion for 60 companies, including the Campeau Corp.’s $6.6-billion purchase of Federated Department Stores Inc.; Japanese companies, which spent $8.4 billion for 45 U.S. firms; French firms, which spent $7.3 billion for 41 companies, and Australian companies, which completed 16 deals valued at $4.2 billion.
JAPANESE INVESTMENT IN U.S. REAL ESTATE Billions of dollars 1985: 1.86 1986: 7.53 1987: 12.77 1988: 16.54 WHERE THE JAPANESE ARE INVESTING Percent of 1988 total investment of $16.54 billion
CALIFORNIA $5.62 billion 34% NEW YORK $2.80 billion 17% ILLINOIS $1.87 billion 11% HAWAII $1.83 billion 11% GEORGIA $718 million 4% TEXAS $690 million 4% MASSACHUSETTS $683 million 4% ARIZONA $140 million 1% OTHER $956 million 14%
Source: Kenneth Leventhal & Co. TYPES OF JAPANESE INVESTMENT
1987 1988 investment 1987 investment 1988 Property type ($ in millions) % of total ($ in millions) % of total Office $5,190 41% $8,310 50% Hotel/resort 4,570 36 3,577 22 Mixed use 740 6 2,416 15 Residential 1,300 10 702 4 Retail 460 4 644 4 Industrial 30 0 310 2 Land 470 4 302 2 Golf course 10 0 202 1 Other 0 0 81 0 TOTALS $12,770 100% $16,544 100%
Note: Totals may not add to 100% because of rounding
Source: Kenneth Leventhal & Co.
