After buying $626 million worth of Orange County real estate in 1990, the Japanese virtually pulled out in 1991--spending only $32 million here.
According to a survey released Thursday by the Newport Beach office of Kenneth Leventhal & Co., Japanese real estate investment plunged 95% last year from the previous year--Orange County's biggest ever for Japanese activity. In 1990, Orange County ranked fifth nationally in Japanese investment; in 1991, it didn't even make the charts.
"The drop here was much more dramatic than in other parts of the country because Orange County was emerging as one of the more popular places for Japanese real estate development," said Michael Meyer, managing partner of the accounting firm's Newport Beach office.
Orange County accounted for 5% of total Japanese investment in U.S. real estate in 1990--a percentage that had steadily climbed since 1987, when it held just 1% of the total.
Most of the nation suffered a drop in Japanese investment last year, so Orange County was not singled out as an undesirable. But New York City, which placed first in 1991 with $859 million, had the benefit of two large office building sales. Japanese investors continued to snatch up resort hotels in Hawaii, which was No. 2 at $662 million. And Los Angeles, No. 3 at $590 million, gained much of its showing from Matsushita's acquisition of the entertainment conglomerate MCA, which has numerous real estate holdings in the city.
Like most other areas, Orange County enjoyed no such windfall. The Japanese did not buy a single office building, hotel or retail center here in 1991. Rather, 69% of the Japanese money that was spent went toward industrial buildings, and the other 31% toward vacant land.
"The average size of a transaction (by Japanese in Orange County) was $4.6 million," Meyer said. "In 1990, it was $36.8 million. Last year, the Japanese focused on small, leased-up industrial buildings rather than office buildings."
Negative publicity about the California real estate market in general further hurt Orange County's standing with the Japanese, Meyer said. "Any investor who went into commercial property is realizing that, because of the overbuilt situation in California, the cash flow is not what was originally anticipated," he said.
Meyer noted that this is a particularly painful time for Orange County to lose foreign funds. "It's very unfortunate that this Japanese retreat came on the heels of the savings and loan industry ceasing to provide capital, and banks substantially reducing loans for real estate," he said. "The Japanese withdrawal exacerbates the impact of the credit crunch on real estate and the overall economy."