By ELIZABETH HAYES
The long-anticipated sell-off of Japanese-owned real estate in Los Angeles has begun in earnest, with the Century Plaza Hotel and much of Shuwa Corp.'s big L.A. portfolio up for sale, and a leasehold on the ABC Entertainment Center already in escrow, according to real estate sources.
The sell-off stems from the Asian financial crisis and the need for cash by Asian investors. Other factors include more attractive investment opportunities in Asia and a strong U.S. dollar, which makes the sale of U.S. assets more attractive.
Still another catalyst is a recent upswing in L.A. property values, which has erased at least some of the paper losses the Asians suffered after buying L.A. properties at or near their late-1980s peaks.
All told, the Japanese are expected to unload between $3 billion and $5 billion nationwide in U.S. real estate assets this year, according to E & Y; Kenneth Leventhal Real Estate Group. If the divestiture of L.A.-area properties is proportional with the amount of L.A. holdings in Japan's overall U.S. property portfolio, Japanese investors would unload between $450 million and $750 million in L.A. properties this year.
In keeping with Japanese investors' tendency to conduct business discreetly, officials at Shuwa and Nippon Life, which is selling the Century Plaza Hotel, declined comment. Officials of Japan Leasing, which is selling its leasehold on the ABC Entertainment Center, were unavailable for comment.
Especially notable is the selling going on by Shuwa, a huge Tokyo-based real estate investment company that went on an aggressive buying spree from 1985 through 1988, paying top dollar for trophy L.A.-area properties.
"Their assets are all top quality," Michael Zietsman, senior director of investment sales and finance at Jones Lang Wootton, said of Shuwa's portfolio.
Its highest-profile buy was Arco Plaza, the landmark twin 52-story towers in the heart of downtown's financial core. The towers were Southern California's tallest buildings and most prestigious addresses when they opened in 1972.
Shuwa bought Arco Plaza from Atlantic Richfield Co. and BankAmerica Corp. in late 1986 for more than $600 million at the time the biggest real estate deal ever transacted in Southern California.
Real estate sources said Arco Plaza would likely fetch $300 million to $350 million today.
When asked how much Shuwa might get for its downtown properties, veteran downtown broker Stephen Bay of Julien J. Studley Inc. said, "If they get 50 cents on the dollar, that would be exceeding my expectations."
Shuwa's other downtown properties are 800 S. Figueroa St., 801 S. Grand Ave., and 810 S. Flower St.
Buildings that Shuwa owns in other parts of town are 505 N. Brand in Glendale, 1900 and 1901 Avenue of the Stars in Century City, 201 Santa Monica Blvd. in Santa Monica and 6222 Wilshire Blvd. in the Miracle Mile district.
Shuwa owns about 25 office buildings nationwide and in London, including nine in Los Angeles and others in Orange County, Boston, Philadelphia, New York and Chicago. The current market value of those buildings is estimated at about $2 billion, of which roughly half is in the L.A. area.
One real estate source said Shuwa initially approached a select group of buyers, but wasn't able to elicit the desired price, so it opted to go forward with a formal marketing process for much or all of its U.S. portfolio.
Eastdil Realty, an investment-banking firm based in New York with offices in L.A., is representing Shuwa in the sell-off. Eastdil was also the firm that several years ago handled Shuwa's acquisition of 505 Brand and Arco Plaza.
Eastdil has also been retained to find a buyer for the Century Plaza in Century City, one of L.A.'s largest and most prestigious hotels. Nippon Life is the mortgage holder for the property, which is owned by a partnership led by Chicago-based JMB Realty Corp.
"It's a fabulous time to be looking to get value for a trophy asset like this," said Jeff Weber, a managing director with Eastdil.
To help fetch top dollar for the 1,046-room Century Plaza, an extensive $25 million upgrade has been undertaken on the hotel's guest rooms, suites, entry area and fa & #231;ade facing Avenue of the Stars in Century City.
Major metro-area luxury hotels can sell for anywhere from $190,000 to $250,000 per room, although there are many variables, said Chuck Nester, president of Westlake Village-based Brown Hotel Group Inc. Real estate sources said likely candidates to buy the hotel would be Starwood Lodging Trust or Marriott International.
"It's a strong buyers' market. They have a lot of money to spend," said Nester, referring to offshore and U.S. investors, pension funds, mutual funds and real estate investment trusts. "What's helped fuel it is the Wall Street money and availability of financing."
Across the street from the hotel, a fund represented by J.P. Morgan Investment Management has agreed to acquire the leasehold interest in the ABC Entertainment Center from Japan Leasing, sources said. The price is in the low $30 million range and escrow is anticipated to close Aug. 6.
The J.P. Morgan & Co. fund owns the ABC Entertainment Center, but had leased it to Japan Leasing several years ago. It is now buying out that lease, which is said to run through November 2002. The Morgan Fund also owns the parking garage and prestigious twin Century Plaza Towers adjacent to the 580,000-square-foot ABC Entertainment Center. The ABC center which is anchored by ABC, the Shubert Theater and Cineplex Odeon's Century Plaza Cinemas has been financially troubled for years. Morgan is said to be planning a major renovation of the center.
Last year, Japanese investors unloaded several high-profile L.A. properties, including 550 S. Hope downtown, the Ritz Carlton Hotel in Marina del Rey and University Center downtown.
Japanese investors still own one-third of all the class-A buildings downtown, according to Cushman Realty Corp., so the process is still considered in its early stages.
It's not just trophy buildings that are going on the market. Investors from Japan and other Asian countries have also been selling their L.A.-area residences and are moving to sell their manufacturing and distribution facilities and owner-occupied offices, real estate observers said.
Korean investors are also aggressively moving to sell their L.A. real estate assets, which have an estimated total value of about $200 million.
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