JAPAN’S ODD MAN OUT : Real estate magnate Shigeru Kobayashi has built a reputation as a shrewd entrepreneur, but at home he is the perennial outsider.
After pumping $2.7 billion into the United States over the past several years, Shigeru Kobayashi owns a large chunk of downtown Los Angeles and a string of landmark American office buildings. He hobnobs with presidents, dabbles in philanthropy and celebrates his achievements in a high-profile publicity campaign. But he has an image problem at home.
Kobayashi, 62, founder and president of the real estate giant Shuwa Corp., is a perennial outsider here, regarded with a degree of disdain in Japan’s staid business world because of his unorthodox style.
The son of a furniture maker, Kobayashi emerged from the unsavory demimonde of Tokyo real estate speculation to become one of the world’s richest men. He is a self-made man and a dynamic entrepreneur, but he concedes: “My image is decidedly bad.”
Now, the maverick landlord has acquired a dubious reputation as a corporate raider, a breed of investor that the Japanese derisively call nottori-ya , literally a hijacker. Last month, Kobayashi revealed himself as the leading shareholder in two medium-sized supermarket chains and rattled Establishment nerves with bold talk of merging them--against the wishes of their family managements.
Seeking Reform
Kobayashi says he challenged the sacrosanct rules of corporate ownership because he intends to help rationalize Japan’s arcane distribution system, which, he points out, has posed a “structural barrier” to foreign imports and so is a flash point in trade friction.
In justifying his stock market gambit, Kobayashi paints himself as an agent of internationalization who aims to repay a debt of gratitude to his American friends by promoting structural reform in his own country.
“No matter how hard America tries, there are a lot of old commercial practices among the causes of the trade imbalance,” Kobayashi said the other day during a rambling, two-hour interview at his Tokyo headquarters.
“It’s the same in the securities industry, the construction industry and the distribution industry,” he said. “There are many things Americans cannot understand.”
Such rhetoric comes as the governments of Japan and the United States are poised to begin consultations next month on a wide range of so-called structural impediments to free trade. After Texas oilman and corporate raider T. Boone Pickens Jr. clashed earlier this year with the management of an auto parts maker affiliated with Toyota Motor Co., the cross-holding of corporate equity promises to become a contentious issue. Pickens was denied a seat on the board of Koito Manufacturing Co., despite his status as its largest shareholder.
Although Kobayashi is adopting the tone of a Japan-basher these days, his motives remain even more opaque than the confidential balance sheets of his tightly held real estate empire.
Kobayashi has been the conspicuous symbol of Japan’s massive investment in the United States since 1986, when, enriched by the dramatic appreciation of the yen, he bought the Arco Plaza complex in Los Angeles for $620 million and paid a staggering $165 million for a single office tower, the ABC building in Manhattan. Amid rising anxiety about the sudden influx of Japanese capital, Kobayashi went on a phenomenal shopping spree.
In January, 1987, his Los Angeles-based subsidiary, Shuwa Investments Corp., trumpeted its debut as a major American landlord with a full-page ad in leading U.S. newspapers that teased: “If you followed the Shuwa Group’s 1986 acquisitions, stay tuned for future developments.”
Indeed, more acquisitions followed; Shuwa now owns 35 major U.S. office buildings. A blitz of publicity also followed. Kobayashi donated $1 million to the Ronald Reagan Presidential Library and attended a farewell banquet when the former President left the White House. He wrote $100,000 checks to the cities of Los Angeles and New York and made a substantial contribution to the Los Angeles Museum of Contemporary Art. In January, he attended President Bush’s inaugural ball.
Ambience of Ostentation
And earlier this year, he grabbed headlines by awarding building contracts in Tokyo to two separate joint ventures involving American firms, which U.S. officials hailed as an important step to loosen Japan’s closed construction market.
“He likes the limelight, but he has a relatively low reputation in Japan,” observed Tokunosuke Hasegawa, executive director of the Research Institute of Construction and Economy, a Tokyo think tank. “There is the perception that he’s buying social status in the United States and trying to bring it back home.”
A visitor to Shuwa’s head office in the fashionable Akasaka section of Tokyo is struck by an ambience of ostentation. A large porcelain Dalmatian guards the entrance to the executive suit, while more dog statues and a row of colorful paintings in gilt frames line the long hallway. Kobayashi’s office is cavernous, with a white marble floor and a wall covered with a patchwork of commendations, mounted keys to several cities and clocks set to times in California, Chicago, New York, London and Paris.
Kobayashi stopped the interview at one point to illustrate his commitment to U.S.-Japan good will by conducting a guided tour of a row of blown-up photographs, prominently displayed on easels, depicting himself in a tuxedo next to U.S. Commerce Secretary Robert A. Mosbacher and John H. Sununu, the White House chief of staff. The three were among those honored with a “golden plate” award by the American Academy of Achievement in June.
Asked which Americans he admires most, he named Pickens, the corporate raider, who he has never met but regards as a “very important person.” Likewise, he feels an affinity for New York real estate czar Donald J. Trump, who embodies a “fighting spirit” that he lamentably finds missing in many Americans.
Disdains U.S. Work Habits
In Kobayashi, there is a paradox of emotions about America, a blend of humility and arrogance sometimes seen in Japanese men of his generation.
He recalled being strafed by U.S. warplanes when he was a private in the Imperial Japanese Army operating a locomotive near the end of World War II. He said he was awed by the wonders of American Cadillacs and Lucky Strike cigarettes during the impoverished Occupation Era. He also expressed contempt for the American work habits that he has encountered since taking his real estate business across the Pacific.
“Go to an American company after noon on a Friday, and there’s hardly anybody around--they go to lunch and don’t come back,” Kobayashi said. “You can’t win when you do that sort of thing. The Americans of old have disappeared. They’ve stopped working and lost their fighting spirit.”
After discharge from the army at age 18, Kobayashi suffered briefly from tuberculosis, dropped out of Meiji University, went to work with his father building furniture, then struck out on his own with a shipping business.
At the time, Japan was a supply and repair center supporting U.S. combat troops in the Korean War, and Kobayashi made a killing. Once the war ended, the company went bankrupt. But Kobayashi discovered that the value of its land had ballooned, and he plunged into real estate during Tokyo’s postwar redevelopment boom.
His Shuwa Corp. introduced the concept of “social buildings,” or integrated rental space for bars, restaurants and galleries, in Tokyo’s Ginza district. Starting in 1965, he pioneered the market for Western-style condominiums, catering to what Hasegawa of the construction think tank called the “Japanese Western complex.” His timing was impeccable: The new middle class was ready to start moving off traditional tatami mat floors and onto the carpets, chairs and beds of his “Shuwa residences.”
The Move to America
A decade later, when the housing market sagged, Kobayashi branched into Tokyo commercial real estate. Today, after a dizzying price spiral that saw Tokyo land prices double and triple during the mid-1980s, Shuwa’s 54 office buildings in Japan are valued at about $7 billion.
Meanwhile, Kobayashi dispatched his only son, Takaji, to the United States in 1978 to head a subsidiary that for many years floundered, losing millions of dollars developing apartment complexes in California. But when the yen nearly doubled in value against the dollar after 1985, Kobayashi made a bold move into U.S. commercial real estate, using his hyper-inflated Japanese holdings as collateral to leverage financing from an array of banks.
“He literally took half his fortune and staked it all on No. 7 red,” said Alan Woodhull, a real estate analyst for Merrill Lynch Japan Inc. “He’s one of the entrepreneurs who grew up in the postwar period when tremendous opportunities were available to people with bold spirits. The guy has a lot of guts.”
Kobayashi attributes his success to his freedom from the constraints that bog down decision making at most Japanese corporations.
“I’ve always done things that no one else is doing,” Kobayashi said. “I don’t imitate people, I do it myself. You also have to work 10 to 20 times harder than anyone else. But as an outsider, you can do things very freely. It’s outsiders who bring about revolution.”
In management style, Kobayashi has a reputation as an autocrat, who calls all the shots on U.S. operations in frequent transpacific telephone calls with Takaji, 35. Stories circulate in Los Angeles alleging that the elder Kobayashi has been arrogant and vindictive in his dealings with business associates and former employees, in some cases blackballing those who fell from his favor.
In the recent interview with The Times, Kobayashi did display signs of a short temper. When documents were not immediately available, he snapped at his aides--five of whom were on hand to pipe in with names, dates and details. Kobayashi frequently rolled his head and squinted at the ceiling through his large, horn-rimmed glasses, as though exasperated with some of those in his presence.
Alarm Unwarranted
But as the interview proceeded through the lunch hour, Kobayashi gradually displayed warmth and courtesy, and spoke with animation about his business philosophy.
The recent backlash against Japanese investment in the United States, known in Japan as “investment friction,” is of particular concern to him. Japanese invested $16.54 billion in U.S. real estate last year, for a cumulative total of $42.9 billion, according to a recent study by Kenneth Leventhal & Co., a Los Angeles accounting firm that specializes in real estate. Kobayashi protests that alarm is totally unwarranted.
“I trust America that much, that I’d invest my capital and leave it there. It’s a permanent investment,” he said, denying that Shuwa repatriates rents or profits. “Rather than creating investment friction, this should be seen as a plus in the trade imbalance.”
Moreover, Shuwa’s activities are fostering the redevelopment of American cities and creating jobs, he said.
“On the emotional level, there seems to be a lot of problems, but economics is not emotional,” he said. “In reality, we can’t bring home the buildings we’ve constructed in America. We leave the benefits behind in many ways.”
Kobayashi rejected criticism that Shuwa paid too much for some of its U.S. acquisitions and drove up prices in otherwise stable markets. Prices may well have been too low to begin with simply because of a lack of demand, he said.
“There were a lot of buildings (on the market) in Los Angeles, and nobody was buying them. But when I bought Arco Plaza, that sparked demand in the transactions,” Kobayashi said. “They say it was a problem because I was a Japanese. But what if it was a Frenchman or an American or an Englishman? I don’t think they would have said much. The buyer just happened to be from Japan, so it stood out.”
SHUWA PROPERTES
IN LOS ANGELES COUNTY
Arco Plaza, Los Angeles
1900 and 1901 Ave. of the Stars, Century City
Chase Plaza, Los Angeles
Southern California Gas Co. Building, Los Angeles
655 South Hope St., Los Angeles
800 Figueroa Building, Los Angeles
6222 Wilshire Building, Los Angeles
Hughes Building, El Segundo (sold in July)
Baldwin Industrial Park Office, Baldwin Park
ADDITIONAL SHUWA PROPERTIESOrange County
Mitsubishi Electric Sales of America Building, Cypress
Taco Bell Building, Irvine
Downey Savings Building,
Costa Mesa
19000 MacArthur Building, Irvine
Bay Corporate Center, Anaheim
Doelz Building, Irvine
Fitch Building, Irvine
Ultimate Building, Irvine
Anaheim Office Park Building, Irvine
Rolm Building, Irvine
Westerly Place Building, Newport Beach
Northern California
500 Washington Building, San Francisco
Xidex Building, Fremont
Boschert Building, Milpitas
Air Park Plaza, Oakland
New York/New Jersey
ITT Building, formerly ABC Building, New York
Mellon Financial Center,
New York
Mitsubishi Electric Sales of America (East Coast Headquarters), New Jersey
Boston
Paine Webber Building
Chicago
123 North Wacker
Quaker Tower
Washington
Embassy Suites (50% interest)
U.S. News & World Report Building
Residential
Alameda HUD Apartments, Alameda
Castro Valley Condos, Hayward
Altadena Condominium, Altadena
Canyon Terrace Townhouses, Anaheim Hills
Canyon Terrace Estates, Anaheim Hills
Golf Course
Seven Hills Country Club, Hemet
