Japanese Yen for U.S. Real Estate Cools : Investment: Spending in this country plunged 85% to less than $1 billion in 1992. A survey sees the decline continuing in ’93.
Japanese investors, reeling from financial woes in Tokyo and skittish about the future in America, spent $807 million on U.S. real estate last year--a plunge of 85% from 1991. And they will probably spend even less in 1993, according to a survey released Thursday.
“The Japanese money has virtually dried up in the U.S., and it’s not going to come back anytime soon,” said Jack Rodman, a managing partner with Kenneth Leventhal & Co., the Los Angeles-based real estate consulting firm that released the survey.
Hawaii captured 41% of Japan’s U.S. property investments in 1992, while California accounted for 36%, the report said. The state of Washington was third with 8%.
In addition, new U.S. banking regulations may soon force some Japanese investors to unload some of their properties in Southern California--a move that some brokers say could further depress the value of office towers, hotels and a variety of other types of real estate on the West Coast.
The 1992 investment level marked the first time that Japanese investment has fallen below $1 billion since Leventhal started its annual survey in 1985--and a far cry from the record $16.5 billion spent in 1988.
In a telling sign of Japan’s concerns, Rodman noted, only $223 million--or 28%--of the money invested by the Japanese actually was for new properties. The remainder was spent on projects that were started or purchased in previous years, or to offset those buildings’ operating losses.
The Japanese also shifted their investment focus last year, according to the report. For the first time, most of the money invested--$462 million, or 57%--went into residential development. Previously, most Japanese preferred office buildings and hotels.
“There’s pretty good demand for new homes right now, but not a lot of demand for office space,” Rodman said. “The Japanese are just going to where the action is.”
Japanese investment in U.S. real estate peaked in the late 1980s, when low interest rates in Japan fueled a boom in its stock and real estate markets and U.S. properties offered returns about four times those offered by buildings in Tokyo.
Now, many of the properties that the Japanese bought for top-dollar in the late 1980s have fallen 20% to 30% in value, said Neal Roberts, who heads the West Coast real estate practice for accountants Coopers & Lybrand.
With regulators in the United States and Tokyo giving more scrutiny to the assets of Japanese banks, Roberts and some other analysts fret that some investors will be forced to sell their property in order to shore up their finances.
Commercial property values in Southern California have already been pushed down by overbuilding. In addition, the federal government through the Resolution Trust Corp. is trying to sell another $1 billion worth of Southland property from failed savings and loans for about 50 cents on the dollar.
“Prices are already soft, and you could really see them plunge if the Japanese decide to sell their buildings, take their money and go home,” Roberts said.
Eric W. Ek, managing director of the Los Angeles investment banking firm Takenaka & Co., said a handful of smaller Japanese investors have already begun selling their properties. However, most of them have been relatively small sales of $100 million or less.
“I don’t think you’ll see the Japanese sell any ‘trophy’ properties--like Arco Plaza or the Sanwa Bank building in downtown L.A.--because the bigger buildings are owned by companies with deep pockets who can afford to wait out the downturn,” Ek said.
Shrinking Investment
Japanese banks and investors spent only $807 million on American real estate last year, due largely to poor economic conditions in Japan and overbuilding in the United States. 1985: $1.86 billion 1988: $16.54 billion 1992: $0.81 billion
Source: Kenneth Leventhal & Co.
