Japanese Investors Signal That They May Be Trying to Cut Losses in U.S. : Real estate: Two prominent San Diego complexes are on the sales block. Property values have plummeted.
At least two prominent Japanese-owned hotel and office building complexes in the San Diego area have been put up for sale, a further indication that Japanese investors are gearing up to liquidate their American holdings after seeing the value of their properties plummet.
The showcase Emerald-Shapery Center in downtown San Diego, a 30-story office and hotel complex completed in 1991 at a cost of $150 million, is close to being sold to Southwest Value Partners, an Arizona-based group of investors, by Tokyu Group, one of Japan’s largest conglomerates, a source close to the transaction said.
The sale price is estimated to be in the neighborhood of $75 million. At least two other bids have been submitted in that range, including one by San Diego developer Sandor Shapery, who was a partner in the property with Tokyu until he sold his interest in 1993.
Also for sale is the Aventine hotel and office complex, designed by architect Michael Graves, in the Golden Triangle section of northern San Diego. Its owners include units of Shimizu Construction of Tokyo and Nissho Iwai trading company.
The Aventine’s $126-million note, held by the Long-Term Credit Bank of Japan, was declared in default last year, and the bank would like to close a sale by the end of the fiscal year on March 31, sources said. Some real estate insiders said bids were being accepted this week.
If completed, the two sales would add evidence to speculation that the Japanese are finally looking to cut their losses in the United States.
Such speculation was given impetus this week by news that Japanese banking regulators had given approval for giant Sumitomo Bank to write off billions of dollars in loan losses, including those in its U.S. real estate portfolio, resulting in the first loss for any major Japanese bank since World War II.
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Sumitomo’s action is likely to set the stage for future write-offs, analysts said. “If you follow the U.S. model . . . the first step was the write-down of the assets, the second step was the sale,” said Steve Roth at Secured Capital in Santa Monica.
Jack Rodman, director of Kenneth Leventhal & Co.’s Pacific Rim practice, said he has recently received inquiries from a Japanese bank interested in selling assets on behalf of half a dozen clients.
Japanese investment in U.S. real estate has dropped dramatically from its peak in the mid-1980s. Since then, Leventhal estimates, the Japanese have invested nearly $78 billion in American real estate, including $15 billion in Southern California.
Japanese investors own such landmark Southland properties as the Riviera Country Club in Brentwood and Arco Plaza in Downtown Los Angeles.
A combination of factors is pushing the Japanese to sell, analysts said.
“I think a lot of the Japanese companies are having enough problems back home and need to liquidate foreign assets and consolidate back in Japan,” said Shapery, head of the development company that bears his name in San Diego. There’s a need “to focus on Japan, where there is so much opportunity now because of the earthquake and their economy returning to health.”
Analysts make distinctions about the types of deals going on.
There are Japanese banks that have loaned money to U.S. borrowers to build, develop or acquire property. When the borrowers default, the banks take control of the properties and are eager to get rid of them.
Then there are properties developed or acquired by Japanese construction firms or other investors, usually with financing from Japanese banks. Analysts say it is less likely that the banks or investors will rush to sell those properties, in part because of the need to preserve delicate business relationships back home.
In any case, the fall of commercial real estate values means that the Japanese are getting only 50 to 70 cents on the dollar, analysts said.
Dai-Ichi Kangyo Bank Ltd. took big hits in the sale of the Ritz-Carlton Huntington Hotel in Pasadena and the L’Auberge Del Mar Resort & Spa in Del Mar, said Ronald Silva, a partner at Lowe Enterprises Inc., which made bids on behalf of public pension plans.
The Ritz-Carlton Huntington, on which Dai-Ichi held a defaulted $113.8-million note, was sold to the Los Angeles County Employees Retirement Assn. for $42 million, Silva said.
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The L’Auberge Del Mar went to the Public Employees Retirement System of Ohio for $11.5 million. Dai-Ichi held a note for more than $22.5 million on that property.
Not everyone foresees a surge of Japanese real estate sales.
Neal Roberts, a partner at Coopers & Lybrand who heads the firm’s West Coast real estate practice in Los Angeles, said he had seen little movement by Japanese banks to unload investments, given the size of their portfolios.
Similarly, Yukuo Takenaka, a Los Angeles-based investment banker and adviser to several Japanese companies, said Japanese banks are not really rushing to sell, particularly because real estate values might be rising.
In San Diego, a source familiar with the Emerald-Shapery Center talks said Tokyu was selling because “they’re grouping their North American losses and writing them off against profits in Asia.”
A deal was supposed to have closed by the end of January, but talks continue, the source said. Tokyu officials declined to comment. Southwest Value Partners could not be reached.
Meanwhile, speculation on possible bidders for the Aventine center included the real estate division of New York-based Equitable Life Assurance Society of the United States. Officials there declined to comment.
Brian Kelley, vice president in charge of U.S. real estate in Long-Term Credit Bank’s Los Angeles office, confirmed that the Aventine property is for sale but declined to comment further.
