Japanese Acquire Real Estate, Suspicion in U.S. : Investment: The brisk growth of property sales to firms and individuals has ignited fears that the Japanese will ‘buy up America.’
It was just after Mitsubishi Estate Co. of Tokyo purchased a controlling interest in Rockefeller Center that Stephen Miller first met with a negative reaction about his particular line of work.
“You’re one of the people helping the Japanese buy up America,” a person he had just met at nightclub remarked, only half in jest.
Helping the Japanese? Why not, asks Miller, executive vice president of FLIC (USA) Inc., a Japanese-owned firm that specializes in escorting middle-range Japanese investors into the U.S. real estate market.
Buying out America? Not at all, says the red-suspendered managing director of the firm’s New York branch, though FLIC’s deals, which don’t make front pages, are steadily adding to Japan’s U.S. property stake.
The exponential growth of Japanese direct investment in the United States--in real estate and other tangible assets as opposed to U.S. Treasury bonds and other financial instruments--is under scrutiny as never before.
The Commerce Department reported that Japanese commercial real estate acquisitions alone in the United States exceeded $10 billion in 1988--for an expansion of more than 1,000% since 1983.
Accounting firm Kenneth Leventhal CPA says Japanese acquisitions in 1988 came to $16.54 billion, including residential investments and joint venture shares. Its Los Angeles managing partner and Pacific Rim chief, Jack Rodman, said the cumulative total since 1985 is now around $54 billion.
Japan’s cash-laden Sony Corp. bruised American sensitivities in September when it bought Columbia Pictures, its library of Hollywood film classics and familiar trademark of a torch-bearing lady for $4.8 billion. Mitsubishi’s $846 million deal that gave it controlling interest in Rockefeller Center--Radio City and skating rink included--hit a raw nerve.
There were indications that Chicago’s Sears Tower, the tallest edifice in the country, was on the verge of being snapped up by a Japanese group as the grandest “trophy building” of them all until Tokyo government officials quashed the deal as likely to ignite American passions.
At a level far below such megadeals, Japanese investors are steadily sinking more modest but nonetheless substantial funds into office buildings, hotels and luxury condominiums across the country. FLIC, Miller says, is doing a land-office business steering them to attractive deals.
Miller says transactions now under negotiation by FLIC (short for Flexibility International Corp., though the name was chosen more to satisfy Japan’s taste for foreign-sounding acronyms) are worth more than $500 million.
“We represent a different category of Japanese investors than you typically hear about,” said the real estate attorney, who worked for Citibank, Smith Barney and E.F. Hutton before joining FLIC, founded in 1986 by its Japanese principal owner, accountant Shogo Fukuoka.
Clients are, for the most part, wealthy individuals or closely held corporations that feel ill-equipped to plunge alone into the far-off U.S. market. “We closed that distance for them,” Miller explains.
Typical first investments are in luxury condominiums, most often in New York, he says. “They prefer Manhattan. They prefer mid-town and better quality luxury buildings.” Clients see such properties, ranging in value from $400,000 to $2 million, as investments for the long term.
“It’s very satisfying for many Japanese to own quality real estate in the United States,” Miller said. “It’s a status symbol over there.”
Stratospheric Japanese real estate prices allow investors to borrow against domestic holdings to invest in U.S. properties, explains Kenji Sato, a Japanese-American FLIC vice president, who shuttles between New York, FLIC’s Los Angeles office, and Tokyo. “They can get much better returns on U.S. real estate than they can on Japanese real estate,” Sato said.
After gaining confidence, investors move into office buildings, hotels and joint venture developments. One FLIC client recently submitted a $130-million bid for a Manhattan office building, Miller says. The firm also was negotiating for a $170-million portfolio of hotel properties.
FLIC recently closed on a $70-million condominium property on behalf of a Japanese client, he adds, and another client has sunk $25 million in a parcel of Manhattan land for future development. But Miller declines to identify these properties, revealing a certain sensitivity.
“We don’t want it known that there’s a heavy Japanese involvement” in certain residential development projects, Miller said, explaining that divulging this “might affect marketing” of condominium units.
But he said FLIC clients hold about 40 units in Manhattan’s Metropolitan Towers, a luxury residential project, and 25% of 80th at Madison, a swank East Side high-rise. Western FLIC-brokered properties include the $6.8-million St. Tropez Apartments in Los Angeles and the $5-million Lake Meridian Shores and $7.5-million Thrashers Meadow condominiums near Seattle.
Sato says few clients have raised the question of potential hostility to their acquisitions. “I tell them that as long as they’re not going after name properties, they shouldn’t have to worry about it.”
