Japanese bankers who weathered the last L.A. real estate boom are back although this time, they appear to be taking a more cautious approach.
Two decades ago, Japanese banks plunged into the market for downtown L.A. office buildings, famously taking the brunt of the collapse that followed.
Then came a homegrown banking crisis from which Japan hasn’t yet fully recovered. The consolidation that followed has cut the presence of Japanese banks in L.A. to a handful, from nearly three dozen a decade ago.
But the players are larger, and they’re looking to grow. They do that by lending to businesses, but also for real estate deals such as bargain-priced hotels.
“Real estate is gradually coming back out of the crater,” said Carl-Eric Benzinger, senior vice president at Mizuho Corporate Bank Ltd. Earlier this year, the unit of Japan’s Mizuho Financial Group leapfrogged over Paris-based BNP Paribas to capture the top spot as the largest foreign bank in California, based on assets.
Mizuho was created in 2000 through the merger of three banks. Back home, it is the dominant player in Japanese securities markets. Now it’s expanding into cross-border loan syndication.
The Los Angeles offices of Japanese banks, typically referred to as agencies, have seen an upswing in both loans and assets in the past year.
The four largest locally-based agencies saw their combined loan portfolios rise 4.5 percent to $3.9 billion as of March 31, while combined assets rose 4.2 percent to $4.3 billion.
Mizuho accounted for most of that growth, reporting a 47 percent increase in its loan portfolio to $2.2 billion in the first quarter, compared with $1.5 billion a year earlier, according to the California Department of Financial Institutions.
Rather than limiting itself to lending to Japanese corporations with headquarters in Southern California, Mizuho has revamped its U.S. management team and is actively courting U.S. companies that want to diversify their lender base.
It’s been a long road back.
“The downturn that took place in the 1990s in Japan was more severe, per capita, than the Depression,” said Bob Munch, deputy general manager of corporate finance at Mizuho Bank in New York. Munch joined the bank in January from investment advisor CIBC Wood Gundy.
Meanwhile, there’s the pending merger of Mitsubishi Tokyo Financial Group Inc., Japan’s second-largest bank, with UFJ Holdings Inc., the fourth-largest, would create the largest bank in the world with $1.7 trillion in assets, outstripping Mizuho, currently Japan’s largest bank, and global financial giant Citigroup Inc.
Ron Husdon, a lawyer at Pillsbury Winthrop Shaw Pittman LLP, who has represented both Japanese buyers and sellers, said Japanese banks are financing the acquisition of modest hotels, which are generally viewed as cheaper than other real estate properties.
Husdon aided Shuwa Investment Corp. in the sale of Arco Towers, the anchor of downtown’s business district, in 2003. Thomas Properties Group, headed by real estate developer Jim Thomas, purchased the building in 2003 for $270 million, less than half of what the Japanese paid for it 16 years earlier.
He’s been leasing out space for less than other downtown landlords, drawing tenants to relocate from their buildings.
“The Japanese have right-sized their ship, there’s been consolidation and now they’re starting to make loans again in the U.S.,” said Husdon. “It’s not the 1980s by any means. It’s cautious and is initially targeted toward real estate, which is exactly where they were in the 1980s.”
