Asia/26″/dt1st/mark2nd
By ELIZABETH HAYES
Staff Reporter
Asian economies are slowly getting back in the saddle and Los Angeles firms are among those aggressively moving in.
A steady stream of real estate investors, law firms, consultants, investment bankers and other deal makers has been flocking to Asia in the past year to take advantage of some of the best investment opportunities in decades.
“Prices are now affordable,” said Ko-Yung Tung, chairman of the global practice group for L.A. law firm O’Melveny & Myers.
While investors perceive that Asian companies and properties have hit bottom price-wise and may be on their way back up, another factor is fueling the Eastward money migration: Previously restrictive markets, particularly Japan, are becoming more open to outside investors.
“A year ago, the Japanese thought, ‘We can’t let go.’ Now, culturally, socially and politically, it’s OK,” Tung said. “They say, ‘We can get rid of this non-core business.’ There’s been a sea change in mental attitude.”
O’Melveny has five attorneys in Tokyo and is doing three times the amount of business in Japan than it did a couple of years ago, Tung said. Other L.A. firms that have ramped up their activities include Colony Capital, Kennedy-Wilson Inc., CB Richard Ellis and Houlihan Lokey Howard & Zukin.
Ron Greenspan, Asian-theater real estate leader for PricewaterhouseCoopers LLP in L.A., said there was a flurry of transactions before the end of Japan’s fiscal year on March 31. Being sold are loans secured by real estate, unsecured loans and loans taken out by companies that are being liquidated.
“The next big window is for the (loan) portfolios coming to market in June and July,” he said. He also expects to see more sale-leaseback transactions, as well as leveraged and management buyouts. And investors are even starting to look outside Tokyo.
For American companies new to the market, the most difficult thing now is establishing the personal ties that are so critical for doing business in Asia. Those that entered the market years ago are enjoying a decided advantage.
“We’re finding growing liquid assets, more transactions available, but the majority are not publicly announced,” said Freeman Lyle, Kennedy-Wilson’s chief financial officer. That’s not a problem for Kennedy-Wilson, which established operations in Japan a decade ago.
“For companies that have the right relationships there, those relationships are resulting in more transactions,” Lyle said. “For firms that are still new to Japan and arrived with a suitcase of cash, it’s difficult to do business. Japan is such a relationship-oriented culture.”
Earlier this year, Kennedy-Wilson and Colony acquired a $100 million office building in the Tokyo metropolitan area, a price that represents a third of the replacement cost, Lyle said. Kennedy-Wilson is also forming a joint venture with Nippon Jisho, the office-building management affiliate of Nippon Credit Bank, and has acquired four note portfolios with Cargill.
Kennedy-Wilson and Colony are looking to jointly acquire $1 billion in Japanese real estate.
Lyle said the companies have already recouped their investment in a note pool acquired last fall. Entrepreneurial Japanese buyers are acquiring pieces of those pools, he said.
Robert Zulkoski, managing director for Colony based in Singapore, said much of the anticipated acquisitions will be in the form of non-performing loan portfolios, as well as investments into real estate companies and assets.
Century City-based investment banking firm Houlihan Lokey also has seen its business dramatically increase in Asia.
“We were unknown in the region before the crisis. This is our first effort outside North America. It took us awhile to establish our identity,” said partner James Zukin. “It’s ramped up so dramatically, our principal constraint is finding quality people.”
The firm is one of the top five investment advisors in Korea, where it has 55 employees along with its Korean partner. In Japan, Houlihan Lokey is doing advisory work for the entertainment industry.
“Their studios and entertainment companies are still starved for capital. It has to do with the fact it’s a new industry,” Zukin said. “We are advising entertainment companies in Japan on bringing Western-style financing to the entertainment industry.”
Most firms said they plan to stay in Asia for the long run, no matter the vicissitudes of the economies there. After all, Asia holds close to half of the world’s population and Japan is the second-largest economy on the globe.
“We’re not going to yo-yo up and down (in staffing), depending on what’s happening,” Tung said. “The opportunities there are almost limitless. We’re steadily increasing our capacities. U.S. financial institutions and real estate companies have been on a buying splurge in Japan, buying non-performing loans at a steep discount.”
He said Japan has sold off only a tenth of its non-performing loans, which in total are estimated to be worth at least $600 billion (or maybe double that amount). That spells opportunity, especially because Japanese financial institutions are under a great deal of pressure to let go of their troubled loans.
Other investors are wary of how much progress has actually been made. Richard Alter, managing director of the Asia Pacific Capital Co. in L.A., said the firm is looking into investments in Tokyo, where values are off at least 65 percent from their mid-1980s highs. But there’s no rush.
“Our hesitancy in part is the fact that (the market is) not getting better. There’s no urgency. You don’t have to buy today, so why tie up your money?” Alter said.
