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Japanese Getting Cold Feet About L.A.? : Investments: Inflation, stock market decline in Tokyo, poor returns may prompt Japanese to sell some of their real estate here.

October 21, 1990|RON GALPERIN

Whither Japanese investors in Los Angeles 1990?

That's the question real estate observers all over town are asking.

Price Waterhouse issued a press release this month predicting that the Japanese may soon begin selling some of their "trophy" office buildings in major U.S. cities.

"Japanese investment firms are looking for better economic returns on their investments than they've received in the past few years from their American real estate," noted Daniel S. Levitan, director of real estate consulting in Los Angeles for the accounting firm Price Waterhouse. And, he predicted, "if we have a recession, real estate will be hit hard."

At the core of this gloomy scenario are some major changes that have taken place in the Japanese economy. Interest rates have skyrocketed in Tokyo, with the prime lending rate now at 8.3%. That may not sound like much, but two years ago, the rate was closer to 3%.

Stocks in Japan have been hit hard in recent months. Also, banks in Japan are leery of lending funds for investments such as Los Angeles office buildings that will take years to turn a profit.

"There are going to be some sales by the Japanese companies under pressure," said David Hamamoto, vice president of real estate at Goldman, Sachs & Co. in Los Angeles. "We're starting to hear talk by Japanese companies of disposing of their real estate."

Such a movement, needless to say, would have a depressing effect on the local commercial scene.

The trend toward less Japanese investments in the office market has been evident for more than a year. In 1988, the Japanese invested $8.3 billion in U.S. office buildings. Last year that figure tumbled to $3 billion. And, in 1990, the number is expected to hover between $2 billion and $2.5 billion, said Jack R. Rodman, managing partner and director of Pacific Rim activities at Kenneth Leventhal & Co. in Century City.

Golf-related resorts are still very popular with the Japanese, however, and so are hotels. These investments in 1990 are expected to total $5 billion to $6 billion.

Expect a shift away from Los Angeles investments by the Japanese, though. Other areas of the country are currently offering more handsome returns, Rodman said.

Truly trophy properties--defined as unique assets not easily replaceable--won't be sold anytime soon, though. It's the more mediocre properties, Rodman said, that will get sold instead.

The concern over a sell-off persists. "High interest rates in Japan are a real problem for trophy properties," warned Asia watcher Christopher Mead, president of Mead Ventures Inc. in Phoenix.

The high rates are "going to make the Japanese more short-term like us," he predicted. "It's easy to be long-term when you're paying a 3% interest rate." But that is no longer the case.

"Los Angeles offices are clearly not favored today by the Japanese," said David Ash, senior vice president of Eastdil Realty Inc. in Los Angeles. Even so, "it wouldn't make sense now to turn around and sell."

The market for offices is depressed, so it's likely that Japanese investors will wait out the current downturn. Besides, Ash said, the Japanese aren't necessarily dissatisfied with poor returns on their local investments. Many of the hotels and offices were not bought to turn a profit, recalled Ash, but as a vehicle to maintain a presence in Los Angeles and create new business opportunities.

Just how many buildings go up for sale in the coming year is anybody's guess, Ash said. "It's dangerous to generalize."

SALES Glendale's 550 North Brand Building has been sold for $75 million to Los Angeles and New York-based pension fund representative the Yarmouth Group. Eastdil Realty represented the sellers Hillman Properties West Inc. of Newport Beach and Smith & Hricik of Los Angeles. Completed in 1987, the 21-story building totals 287,000 square feet.

Yet another building on Rodeo Drive in Beverly Hills has ben sold to the Japanese.

Rodeo Drive Properties Corp., an affiliate of a Japanese retailing corporation, has purchased 327-329 North Rodeo Drive from United Kingdom-based Austenpeter Inc. for about $12 million. Jones Lang Wooton USA represented the seller; Gilbert Dembo & Associates represented the buyer.

Other major Japanese acquisitions on Rodeo include Arai & Co.'s purchase of One Rodeo Drive in 1987; sale of the Ted/Lapidus Giorgio of Beverly Hills building to a Japanese retailing company this year; and the purchase of an interest in the new Two Rodeo Drive mall by Kowa Real Estate Investment Co. and Sogo Co.

DEVELOPMENTS

Honda Opens Complex Covering 101 Acres Honda Corporate Center opens this month in Torrance as the new home for American Honda. The $235-million development covers 101 acres and includes nine buildings, which will accommodate nearly 1,600 employees. The new campus was designed by architects Skidmore, Owings & Merrill of Los Angeles.

Construction is under way on two new San Diego-area hotels worth more than $340 million.

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