Japanese Make Themselves at Home in U.S. Residential Market : Investment: Disappointed with commercial real estate, Japan developers are increasingly turning to home building in the Southland.

On a recent afternoon in Century City, Kazumi Okajima, president of Asahi Jyuken (U.S.A.) Inc., talked about his dream to build a cultural bridge between the United States and Japan.

But California home buyers may be more interested in his business blueprints: Japan’s second-largest condominium developer has opened shop here and is about to launch test projects in West Hollywood, Beverly Hills and San Francisco.

In doing so, the Osaka-based firm represents the newest wave of Japanese investors in the U.S. real estate market. Once characterized by big institutional players with trillions of yen and a taste for office buildings, a growing number of Japanese investors today are smaller firms charging into the residential market.

Analysts say the shift reflects some Japanese disappointment with the commercial real estate market, where the average 3% rate of return has been only half what investors expected. At the same time, the residential market has offered tantalizing profits as high as 20% in Southern California in the past two years.

And the demise of the savings and loan industry, as well as stricter federal regulations on S&L; lending practices, has left local home builders scrambling for new sources of money.

“Japan took a number of years, but now they’re beginning to understand the U.S. home-buying market and they’re ready to jump into it after years of being exclusively interested in commercial development,” said Dan Levitan, director of real estate consulting for Price Waterhouse in Los Angeles. “At the same time, we’re having a capital squeeze on traditional sources of capital, so it’s an opportune time for the offshore investors to make up the shortfall.”

In addition, Japanese banks began leaning on investors about a year ago to move into residential and resort development to stem the growing U.S. outcry over acquisitions of landmark buildings, said Masaru Seido, representative for Fukuyama International Inc., a construction firm.

Just as Japanese investors paid premium prices for office buildings, they may pay more for residential property, thus bidding up prices in the more well-heeled neighborhoods. The Japanese capital, however, will allow U.S. developers to build projects that might otherwise not get financed, thereby increasing the housing supply.

“Consumers should be delighted because it’s very likely that the houses wouldn’t get produced otherwise,” said Terry Tornek, a vice president of Haseko (California) Inc., whose parent company is one of Japan’s largest condominium developers. “We have a series of developers out there who are looking for money and they don’t care if it’s from Japan or the moon. And after the house is built and up, and Mr. and Mrs. Smith are living there, I’m not sure it’s pertinent if the loan came from Mr. Watanabe in Osaka or Security Pacific Bank.”

Asahi Jyuken’s initial entry into California is extremely modest. The firm began investing overseas in the past few years after explosive condominium sales in Japan’s superheated property market sent its revenues soaring to $1 billion last year from $511 million in 1986, based on the 1989 median exchange rate of 134 yen to the dollar. Sales of condominium units, mainly in the outlying areas outside Tokyo, quadrupled to 10,000 in 1989 from 2,402 in 1986.

Flush with yen, the privately held firm began scouring the globe for investment opportunities. After making stops in Bangkok and Honolulu for major resort development deals, Okajima landed in California last year and decided to experiment with luxury condos.

The firm last year bought small parcels on Cynthia Street in West Hollywood for a 12-unit project and on Oakhurst Drive in Beverly Hills for a 28-unit development. A subsequent deal to buy 159 acres owned by Merv Griffin in Beverly Hills fell through. As a limited partner, Asahi Jyuken will provide the financing and the local developer, whose name the firm prefers to withhold, will provide the construction know-how, Okajima said.

In San Francisco, the firm has entered into a similar venture with Seido’s U.S. company, Urban Symphony, to build a 40-unit condominium project.

“We’re in the process of learning many things about development in California through these small projects, which we hope to expand to a larger scale,” Okajima said. “California is natural for us. The living style and business environment is very attractive. Many people feel comfortable here.”

The California test projects are part of the company’s broader diversification strategy. With net population increases close to zero in Japan, Japanese developers are looking overseas for growth opportunities. Asahi Jyuken, which began as a home builder in 1968, is branching out into resorts, hotels, golf courses, restaurants, interior design and other activities in Europe, Guam and the United States.

In its biggest overseas project so far, the firm plans to invest $1.5 billion in a sprawling resort complex on Oahu featuring six hotels, 1,000 condos, a golf course, tennis academy and shopping center. It is also developing a $450-million, twin-tower condominium project in downtown Honolulu.

In Bangkok, Thailand, Asahi Jyuken is planning a high-rise complex with a hotel, condos, office space and retail shops. The company is also looking at properties in Palm Springs and Florida.

But Okajima, acutely conscious of worsening U.S.-Japan relations, took pains to point out that the firm’s interests aren’t just business. In an effort to promote cultural understanding, Asahi Jyuken is negotiating with a private California university to open a branch campus in the Kansai area of Japan. In addition, Okajima said the firm hoped that its Hawaiian resorts could draw free-spending Japanese tourists to the United States.

“By investing in these buildings, we can make some contribution to the trade imbalance,” Okajima said. “There is not much difference if Japanese spend money on U.S. goods in their own country or in America.”

The move into residential development was one of the most striking trends reported last month by Kenneth Leventhal & Co. in its annual report on Japanese investment in the United States. In California, Japanese investors plowed more money into residential properties than any other type last year. New construction in joint ventures with local partners accounted for 41% of the investment, while acquisitions of existing properties made up 25%.

Overall, the report found that investment in U.S. office properties dropped to 23% of the total in 1989 from 50% in 1988, while residential grew to 15% of the total from 4% during the same period. Total spending on residential development reached $2.2 billion.

Some of the more flamboyant purchases in California have been made by Genshiro Kawamoto, the iconoclastic land baron whose pricey acquisitions in Hawaii helped drive up prices so high that Honolulu’s mayor urged restrictions on foreign investment. In late 1988, Kawamoto bought more than 400 homes in five subdivisions in Sacramento, as well as a 190-acre ranch in Loomis for a total estimated price of $60 million. He has also struck deals to develop two projects in Santa Rosa.

Haseko, which incorporated in California in 1982, is believed to be the state’s largest player. Teaming up with local developers, Haseko is constructing 1,700 residential units, ranging from $2-million penthouses in Santa Monica to $300,000 homes in Santa Clarita.

Running against the tide, Haseko is diversifying into land development and retail because of California’s slowing property market.

“Residential opportunities aren’t as attractive as they have been,” Tornek said. “Land prices are too high, the absorption rate has slowed down and the rate of appreciation has flattened.”

Others say they still see plenty of interest. Yasuda Trust & Banking Co. Ltd. has completed four joint ventures between Japanese investors and local developers in the past year and is working on several others, said Kevin Thang, vice president of the real estate group in Los Angeles. The deals to construct apartment buildings in Los Angeles, San Diego, Calabasas and the Silicon Valley town of Sunnyvale involve sums ranging from $10 million to $25 million. The Japanese say they hope that building housing for Americans will evoke a more welcoming reaction than the outcry over investments in Rockefeller Center and other U.S. icons.

“Sentimentwise, they’ll be more accepting of residential development because they need it,” said Toshio Maehara, a Los Angeles consultant to Asahi Jyuken. “Buildings are a symbol of the United States, a symbol of Los Angeles. So attachment to them is natural.”