With a financial typhoon swamping Asia, Los Angeles has been a safe harbor for foreign investors looking to park capital and make relatively worry-free real estate investments.
But there's a catch: Many Asian investors are in such dire financial straits that they are being forced to sell off assets here to keep the wolf from the door at home.
"As the Asian flu turns into the Asian pneumonia, we're seeing investments flow back to Asia, especially to Japan," said Christopher Leu, president and chief executive of United Pacific Bank, an Indonesian-owned bank based in City of Industry.
Leu said that while "everyone recognizes that the U.S. is a safe haven for foreign money," not everyone can afford to take advantage of that fact.
"The Japanese conglomerates that are still hurting continue to sell off their assets, which is mostly trophy real estate in L.A., and take the money back home," he said.
Japanese investors are expected to unload up to $750 million in L.A. property holdings this year, and up to $5 billion nationally, according to E & Y; Kenneth Leventhal Real Estate Group. Among the local properties on the block are the Century Plaza Hotel and the lease on the ABC Entertainment Center.
Despite that, economist George Huang with the Economic Development Corp. believes there will be more Asian investment here over the long term.
"The key is that L.A. has more connections here, more Asian banks and such, than any other area in the U.S.," Huang said. "This connection will pull more foreign investment to this area."
Leu noted that while the Japanese are selling, Taiwanese and Chinese investors are quietly buying real estate on a more modest scale.
"Ethnic Chinese investors are purchasing more and more property in the east San Gabriel Valley as the best investment bargain, either in commercial/retail space or even in the home market," Leu said. "These property deals are relatively small when compared to the trophy properties that the Asian conglomerates are selling off, but they constitute a steady and growing flow."
Al Brooks, vice president and Los Angeles regional manager for Union Bank of California, agrees that over the next several months, more small to mid-sized Chinese companies will invest actively in real estate.
But Eddy Chao, managing director of Alhambra-based Asia Pacific Capital Co., offers a dissent, saying he believes that Asian investment in the real estate market is slowing down.
"Investors want to keep their capital liquid right now amid the uncertainty," he said. "My assumption is that ... Asian investors are waiting to see how their economies progress before tying up their monies."
That wait-and-see approach may explain why many local banks with Asian ties say they have not seen a significant amount of new money being deposited into accounts here.
Others say that Japanese and Korean foreign investors have been pulling their money out of the United States in order to help bail out struggling businesses and families back home.
In other cases, the financial crisis hit so fast that investors simply did not have time to shift assets here, said Li-Pei Wu, chairman and chief executive of GBC Bancorp, whose clients are largely Taiwanese.
"The recent economic shake-up happened so rapidly, and the Taiwanese currency dropped in value so quickly, that investors from Taiwan lost their opportunity to safely move their money at an acceptable exchange rate," Wu said. "Unless they expect their currency to decline further, I don't expect to see more deposits coming from there."
Wu said that the same principle holds true for investors from Hong Kong, who suddenly found themselves cash poor, with no funds left to move to a safe harbor.
Julie Gouw, chief financial officer and executive vice president of East-West Bank, said most of her bank's Asian clients already had their money parked here in 1997, when the Japanese economy first showed some signs of trouble. Consequently, she said, the bank is not seeing an uptick in new deposits from abroad.
Sanwa Bank California, however, has seen double-digit growth in its core deposits (checking, savings and other accounts under $100,000) since the first quarter, said Doug Stewart, an executive vice president.
Steward said bank officials believe the increase stems in part from small companies and individuals moving their money from Asia to the United States.
"It is hard to tell exactly where the money is coming from and why, but there is definitely a ripple effect from the Asian countries," Stewart said. "The one explanation that we can offer is that people look to banks as safe havens, and Sanwa has a strong name recognition in the Asian communities."
All the banks expect to see an increase in deposit levels if the U.S. Federal Bank decides to lower interest rates. That would weaken the dollar and thus make exchange rates more advantageous for foreign investors.
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