Japanese Still Buying but in Subtler Ways : Investment: Foreign money is going past the ‘trophies’ in the United States and toward more sophisticated ventures.
Japanese purchases of U.S. “trophies” such as Rockefeller Center and Columbia Pictures had slacked off until a Tokyo tycoon bought Pebble Beach Co., with its exquisite golf courses and lone cypress tree.
But don’t be deceived by fewer high-profile deals. The Japanese appetite for U.S. investment remains powerful, despite Japanese government pressure to tone down purchases and a nearly 40% drop in the value of stocks in that country this year.
In fact, the Japanese are making more U.S. investments than ever, and more sophisticated ones, as they become confident enough to look past blue-chip targets.
“They’re becoming insiders in the United States,” said Jack Barthell, a managing partner of the Los Angeles accounting firm Kenneth Leventhal & Co., which closely tracks Japanese investment.
Nowhere is that more apparent than in real estate, Leventhal’s specialty. Having moved from office buildings to hotels to resorts and golf courses, the Japanese are now developing property, often in partnership with U.S. companies, here and abroad, Barthell said.
While their total real estate investment fell by 11% from 1988 to 1989, to $14.8 billion, “the volume of transactions was way up,” Barthell said.
The Japanese also are moving from primary investment areas, such as Honolulu, Los Angeles, San Francisco and New York, to other metro areas and the suburbs.
A Leventhal study showed that four-fifths of total investment was in the primary areas in 1985; by last year, the figure was about one-third.
“We’re finding the very distinct move from the archetypal downtown trophy office tower to developing single-family residential in the suburbs, or even apartments,” Barthell said.
Another new target zone is Europe, where Japanese real estate investment last year was twice the level of 1988 and nearly 4 1/2 times that of 1987, according to Clark Whitehill, a British accounting firm.
A prominent example of the trends is the Japanese subsidiary Shuwa Investments Corp., which owns $2.7 billion in U.S. real estate. Shuwa led the charge into office towers, buying the ITT Corp. headquarters in New York, the U.S. News and World Report building in Washington, the Arco Plaza in Los Angeles, and the Quaker Tower in Chicago.
But during the past year, Shuwa made different kinds of headlines: announcing plans to build luxury apartments in Los Angeles; forming a $154-million partnership with Los Angeles-based Tishman West Cos. in a London office building.
Many observers say the Japanese were surprised last year by the harshness of U.S. reaction to high-profile deals. Those included Mitsubishi Estate Co.’s $846-million purchase of a controlling stake in New York’s Rockefeller Center, and Sony Corp.’s $3.4-billion purchase of Columbia Pictures Entertainment Inc.
Despite the negative publicity, the Japanese still appear ready to buy U.S. landmarks if the circumstances are right.
Those acquainted with this month’s deal for Pebble Beach, where a round of golf can cost $175 and the scenic 17-Mile Drive winds past the often-photographed lone cypress, say competition was vicious between two final bidders, both Japanese.
Finally, businessman Minoru Isutani bought the Monterey property for more than $800 million from a partnership that included Beverly Hills billionaire Marvin Davis.
But Davis’ asking price was much higher, some say $1.2 billion. And Isutani is a special case. Because he owns an empire of golf clubs and sporting goods companies in Japan and abroad, he can exploit Pebble Beach with cross-memberships and marketing tie-ins of all sorts.
So even the top-dollar price for Pebble Beach is not interpreted as a sign of a new rush for mega-deals.
“The situations where a guy walked around Manhattan or Waikiki with a wad of money in his pocket and bought the first overpriced property are gone,” said Daniel Schwartz, managing director at Ulmer Brothers Inc., a New York investment bank specializing in deals involving the Japanese.
Research at Ulmer Brothers shows the trend extends beyond real estate to investing in and buying out U.S. businesses. In the first half of 1990, the company counted 103 such mergers and acquisitions. That compared with 74 in the first half of 1989 and 47 in the same period in 1988.
At the same time, the average deal size fell from $162 million in 1988 to $51 million this year. That reflects the fact that the Japanese increasingly are taking minority stakes in U.S. businesses, often to provide new capital, Schwartz said.
“A lot of U.S. companies have found themselves in trouble, and the ones with money are overseas, the Japanese and Europeans,” he said.
The Japanese also have become quicker to back away from overpriced deals, Schwartz noted. Whitman Corp. had hoped to get $700 million for its Hussmann Corp. commercial refrigerator unit in St. Louis, then pulled it off the market when Sanyo Electric Co.’s bid came in substantially lower, he said.
Similarly, Hilton Hotels Corp. removed its “for-sale” sign this year after bids came in far below the $120 per share some analysts expected. Several Japanese companies, including the leisure and real estate conglomerate EIE International, had been interested.
