Japanese investors, who snapped up several office buildings in the county last year, are taking a breather while they wait to see whether October's stock market crash has permanently damaged the U.S. and Japanese economies.
So said an executive of Japan's biggest bank, Dai-Ichi Kangyo Bank. Because most economists expect both countries' economies to slow down but stay out of a recession this year, the Japanese should once again be beating the bushes for bargains in U.S. real estate by spring, according to Hisao Kobayashi, chairman of the bank's California subsidiary.
And Orange County, because of its strong economic growth and proximity to Los Angeles, will be high on the shopping list.
Kobayashi told 250 real estate executives Wednesday at a breakfast sponsored by accounting firm Deloitte Haskins & Sells: "The name of Orange County is amazingly familiar to us now."
4 of 5 Largest Sales
It should be. Four of the five largest office buildings sold last year in the county were bought by Japanese investors, three of them by one company alone: Shuwa Corp. The fourth, Hutton Centre 3 in Santa Ana, was bought by the Japanese developer Nansay America Inc.
The Japanese were by far the largest foreign investors in U.S. real estate in the last few years. But as they found fewer buildings to buy in Los Angeles, New York and a handful of the nation's other largest cities, they have moved out into what the real estate industry calls "secondary markets."
Of particular interest to the Japanese, Kobayashi said, are Sun Belt cities Phoenix and Atlanta.
And when they run out of first-class office buildings for sale in those smaller markets, they will begin looking for other types of buildings, said Michael Randall, a senior marketing consultant for real estate brokerage Grubb & Ellis Co.
Malls, Apartments Next
Next on the list, according to Randall: Shopping centers and apartments. But not just any apartment complex. The Japanese usually pay cash and want only the very best properties, partly because those are often the safest investments and partly because of "pride of ownership."
"They're not specifically looking at office buildings anymore," Randall said. "But they still want something they can show a picture of and say 'This is the best.' "
The Japanese pay top dollar for that privilege. Randall is not the only employee of a U.S. brokerage who professed astonishment at the prices the Japanese seem willing to pay.
But you have to look at it from the Japanese point of view, Kobayashi said. Because the dollar has fallen against the yen, the yen has more purchasing power in this country.
And contrasted with the legendary cost of Japanese real estate--considered the most expensive in the world--even blue-chip U.S. properties seem a real bargain.
One reason prices are so high is that the Japanese tend to hold onto real estate for a very long time. So there's little property for sale in a market such as Tokyo, another reason Japanese investors are here.
Heavy Investing Since 1970s
Japanese industrial companies have invested heavily in U.S. plants and equipment since the 1970s, including Orange County, where large corporations such as Toshiba and Mitsubishi have operations.
But it was in 1986, as the dollar continued its fall, that the Japanese began buying in earnest: That year they spent an estimated $8 billion on U.S. real estate; the best estimates are that they spent at least that much last year as well.
In downtown Los Angeles, foreign investors own 46% of the office space, according to a recent survey by Coldwell Banker Commercial Real Estate Services. The Japanese began to take on a high profile after Shuwa bought the towering Arco Plaza building for $620 million in 1986.
"They've picked off a lot of the trophy buildings," said Scott Perley, a Coldwell Banker vice president.
It wasn't until last year that Shuwa, something of an Orange County pioneer among Japanese, began buying property in the county in earnest.
11 Shuwa Buildings in County
Shuwa owns 11 buildings in the county, totaling 1.6 million square feet. The real estate investment company incorporated its U.S. subsidiary in Los Angeles only in 1978 and has been buying large amounts of property only in the last few years.
But now it is looking for a lot more, as well as taking a bigger role in developing its own buildings and managing them, a spokesman said.
The trend doesn't thrill everyone: The survey by Coldwell Banker found some members of the U.S. real estate industry worried about increased foreign ownership of real estate and a resulting outflow of profits from the United States. On a less public-spirited level, they also complained that foreign investors were driving the price of real estate up.
So Japanese companies buying real estate in this country tend to try to keep a low profile. "We are alert to the possibility of negative emotional reaction," Kobayashi said.
But the Japanese are in the market to stay and to hold on to property, much as they do in Japan, he said.
After all, the Japanese investor "cannot take his investment back to Japan with him," he said.
MAJOR OFFICE BUILDING SALES IN ORANGE COUNTY IN 1987 1. Property: Taco Bell Building
Address: 17001 Von Karman Ave., Irvine
Size: 12 stories; 277, 145 sq. ft.
Buyer: Shuwa Corp.
Seller: Koll Co.
2. Property: Griffin Towers
Address: 5 Hutton Centre Drive, Santa Ana
Size: 12 stories; 268,987 sq. ft.
Buyer: Heitman Financial (for 3 pension funds)
Seller: Metro Associates (Griffin Realty/Ahmanson Commercial Div.)
3. Property: Hutton Centre 3
Address: 3 Hutton Centre Drive, Santa Ana
Size: 9 stories; 180,502 sq. ft.
Seller: Schneider Pacific
4. Property: Westerly Place
Address: 1500 Quail St., Newport Beach
Size: 7 stories; 82,000 sq. ft.
Buyer: Shuwa Corporation
Seller: Emkay/Glndale Federal
5. Property: Bay Corporate Center
Address: 2000 Anaheim Blvd., Anaheim
Size: 2 stories; 129,246 sq. ft.
Buyer: Shuwa Corp.
Seller: Bay Development
Source: Coldwell Banker
Los Angees Times