ELIZABETH HAYES

Staff Reporter

An army of American investors has descended on Asia to take advantage of huge real estate opportunities created as a result of the Asian economic crisis.

And lots of L.A. firms are getting into the act.

"Every hotel I stay at, the lobby is full of investment bankers," said Goodwin Gaw, president of Pioneer (USA) Holdings Inc., an L.A. real estate investment firm.

Last year, more than $6 billion was invested in property and distressed loans in Asia. This year, American investors with a total of $20 billion are chasing deals there, according to Jack Rodman, director of the E & Y; Kenneth Leventhal Real Estate Group practice in Asia.

It remains to be seen how much, and how quickly, property will be snatched up as Asia continues to recover. Prices have bottomed out in some countries and even started to rebound in others. More importantly, previously restrictive real estate markets are becoming more open to outside investors.

But the perception that Asia may be recovering has slowed the pace of transactions in some countries, where sellers "are holding on and thinking the economy is going to recover," Rodman said.

Each country has its own dynamics in the foreign rush for real estate opportunities. Here is a breakdown:

Japan

One of the most active markets, with investors targeting property held by distressed companies and non-performing loans secured by real estate.

"Two years ago, there was very little (activity). Now there are a lot of people kicking the tires and making transactions aggressively on the ground, and others who are waiting and looking for the right moment," said John Tofflemire, general manager of research and consulting for the Japanese arm of Los Angeles brokerage CB Richard Ellis.

Much of the targeted property is owned by Japanese life insurance companies struggling with obligations that exceed their earnings on real estate investments. In addition, many construction companies are insolvent and willing to unload property.

Meanwhile, Japanese financial institutions hold up to $1.2 trillion worth of non-performing loans that are being slowly disposed of. "Japan is moving at a glacial speed to stimulate its real estate market," Rodman said.

In anticipation of a more favorable market, several L.A. firms have ramped up their real estate investment and brokerage activities in the past year. Along with CB, Kennedy-Wilson Inc. and Colony Capital are in search of acquisitions.

"Our perception is that Japan is at or near the bottom of the (real estate cycle). We're not seeing the rapidly declining prices we were having a few months ago," said Freeman Lyle, Kennedy-Wilson's chief financial officer. "Vacancies for commercial properties are tight, but rental rates have declined."

Meanwhile, the L.A. unit of DLJ Real Estate Capital Partners has acquired $500 million worth of Japanese property that was worth as much as $4 billion at its peak, said Barry Sholem, the group's co-chairman.

Kennedy-Wilson and Colony expect to jointly buy $1 billion in Japanese real estate and loans over the next 12 months. Together, the firms already have acquired a $100 million office building in the Tokyo metropolitan area for about a third of the replacement cost, according to Lyle.

In all, Kennedy-Wilson has closed about $200 million in transactions in Japan.

"There's growing pressure on Japanese financial institutions to clean up their balance sheets and we're seeing them do just that," Lyle said. "As there's more of a pattern, and procedures are built up, you'll see a gradual increase (in transactions). No one is expecting the floodgates to open and see a surge, but since the volume of their troubles is still quite large, you're going to have to see an increase."

Hong Kong

The market has shown nascent signs of a comeback after falling as much as 40 percent from its highs of two years ago.

"It's not that bad compared to the rest of Asia," Gaw said. "Over the past two to three months, it has rebounded significantly because the stock market has rebounded."

Several American investment banks have offices in Hong Kong. But the barriers to entering the market are steep. Gaw said most property is concentrated in the hands of 10 to 15 developers who are cash-rich.

"They don't sell. They hold on," Gaw said. "It's a difficult market to crack and local companies are so well connected and have so much capital."

Though property prices have started to rebound, no one is expecting a surge to past levels.

"We're going into a lower-growth scenario," said David Runciman, chairman of CB's Asia Pacific region. "You won't see the rapid price escalation of the past two years, when they went up like a roller coaster. It's strictly for the longer-term investor."

South Korea

After recently deregulating to allow foreign ownership of real estate for the first time, this is shaping up as one of Asia's most active markets.

But the biggest problem for foreign investors has been the high prices sought by sellers who believe the financial crisis is ending.

"None of the buildings that have been put on the market in Seoul have been sold," Rodman said. "Every time (investors) make an offer, the Koreans increase it 10 percent, so there's very little property trading."

A high percentage of South Korean real estate has been owned by conglomerates, which were highly leveraged and hit hard by the economic crisis. But they have now been forced to downsize and market their real estate assets, according to E & Y; Kenneth Leventhal.

"The market has yet to emerge, so people are struggling to find their pricing point," Runciman said. "Investment deals will start to happen."

Rodman said the Korean Asset Management Co., which was formed to facilitate the asset resolution process, already has had some successful sales, including $1 billion worth of corporate loans. And investment banker Houlihan Lokey Howard & Zukin sold a huge portfolio of real estate loans.

Thailand

Thailand offers major investment opportunity but also huge challenges.

The nation's Financial Restructuring Authority was the first in Asia to aggressively sell loan pools but made several missteps in the process, according to Rodman.

Furthermore, there's a huge oversupply of real estate. Vacancies are at a staggering 40 percent or more, rents are down, and hundreds of construction projects sit partially completed.

The hotel sector has remained relatively strong. Goldman Sachs is fighting for control of the Regent Hotel in Bangkok. And American International Group Inc. is looking for investment opportunities involving office buildings, condominiums and hotels.

"There's still a tremendous amount of investors," Rodman said.

Discount shopping centers and affordable housing are also attractive investment opportunities. "Land values have been eroded, but for somebody who can hang in there, it has prospects," Runciman said.

Thailand does have a lot going for it a huge population, natural resources, deep sea port, cheap labor and lots of automotive manufacturing plants.

"So when the Asian economic crisis blows over, it should resume its growth," Gaw said. "Thailand will be a big manufacturing and industrial country."

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