Bank Write-Off Could Spur Japanese Sale of Property

The decision by Sumitomo Bank this week to write off billions in real estate losses could spur a general selloff of U.S. property by Japanese investors, a well-known Southern California property consultant said Tuesday.

“Japanese banks at last have been authorized by (their) government to take losses on bad loans,” said Jack Rodman, director of the Pacific Rim practice at the accounting firm Kenneth Leventhal & Co. in Los Angeles. “This in turn will allow borrowers from Japanese banks to restructure or sell their assets.”

Leventhal estimates that the Japanese have invested $78 billion in real estate in the United States, including $15 billion in Southern California alone, since the mid-1980s. Beginning in 1993, however, the inflow turned into a net outflow after real estate values plunged during the recession of the early 1990s.

The outflow should accelerate with the Japanese government’s willingness to allow the write-down of real estate losses, as well as the desire by investors to focus on major construction projects expected in the wake of the Kobe earthquake, Rodman forecasts.

In the case of Sumitomo, Japan’s largest commercial bank, write-offs will result in a loss of $2.8 billion in the current business year, making it the first Japanese bank to report a loss in 50 years.

Rodman predicted that the Japanese will first unload office buildings, hotels and land after the end of the fiscal year on March 31.