By ELIZABETH HAYES
With the Asian financial crisis deepening, an increasing number of Far East investors are looking to unload their Los Angeles-area properties.
Those divestitures are being undertaken primarily by the Japanese, who own a combined $10 billion in L.A.-area properties, and Koreans, who own at least $200 million worth, sources said.
The Koreans have become particularly aggressive sellers in recent weeks. Much of their $200 million in L.A.-area properties have been put up for sale in the last couple of months due to the financial crisis, said broker Michael Lee at Charles Dunn Real Estate Services Inc.
“Everything is up for sale,” Lee said. “They need the money over there. They must use the assets overseas.”
The Japanese are going about their divestiture more methodically, but on a larger scale. Nationwide, they will unload between $3 billion and $5 billion in U.S. real estate assets this year, said Jack Rodman, director of Asian real estate services for E & Y; Kenneth Leventhal Real Estate Group. That’s roughly in line with recent years.
Rodman said he had not yet computed an estimate for 1998 Japanese divestitures of L.A.-area properties, but if it is proportional with the amount of L.A. holdings in Japan’s overall U.S. property portfolio, Japanese investors will unload between $450 million and $750 million in L.A. properties this year.
“I think we’re going to see more sales by Japanese this year than last,” said Martin Sawa, first vice president at CB Richard Ellis.
Several factors are making it more advantageous for Japanese investors to sell their L.A.-area properties now than in years past. First, the U.S. dollar has strengthened sharply against the yen. Since proceeds from the sale of L.A. properties are in U.S. dollars, the effective price realized in yen is far greater now. Second, L.A. property values have been rising steadily (dramatically in certain areas of town). Third, U.S. capital gains taxes have been dramatically reduced in the last year or so.
“I’m telling foreign investors it’s a great time to sell,” said Rodman. “We’re starting to see prices at about replacement cost, except downtown.”
Dick Ziman, chairman of Arden Realty Inc., a Beverly Hills-based real estate investment trust, said he expects the Japanese to realize the benefits of selling their U.S. real estate assets, and act on that realization.
“We’re anticipating you’re going to see good business judgment dictate the Japanese be sizable sellers of commercial real estate,” he said.
Likely adding to the attractiveness of selling U.S. properties, and L.A. properties in particular, is the fact that the recent market upswing has erased much of the paper losses Japanese investors had been suffering.
“The U.S. investment market is so good, prices are moving back to close to what Japanese investors paid for properties,” said Steve Marcussen, senior vice president at Cushman Realty Corp. “If they’re trying to repatriate dollars, it’s a great time to do it.”
There’s another reason Asians are looking to sell.
“Basically, what we’re seeing is a lot of the Southeast Asian investors selling their assets in the U.S. primarily because they feel there are going to be good opportunities in Asia, and they want to be liquid to take advantage of the opportunities there,” said Michael Zietsman, managing director of investment sales and finance at the L.A. office of Jones Lang Wooten.
In fact, American investors are also looking to buy real estate in Asia. “It’s a total reversal,” Rodman said.
When Asians do sell their U.S. buildings, it is usually handled discreetly, with minimal marketing.
Industry sources were reluctant to disclose which Asian holdings are currently being marketed for sale, but a few of them include 505 N. Brand in Glendale; the Home Savings of America Tower at 660 S. Figueroa St.; Shoreline Square in downtown Long Beach; and 3900 Alameda in Burbank. The Regent Beverly Wilshire Hotel, which is owned by a Hong Kong-based partnership, has also been put up for sale recently. The finishing touches are being put on a $20 million renovation to that hotel, apparently to help it fetch a better price.
Investors from Japan, Hong Kong and Singapore have also been selling their L.A.-area residences and apartment buildings at a brisker clip in the last six months, said Philip Hodgen, a Beverly Hills tax attorney who represents many foreign clients.
In addition, Asian companies are moving to sell their manufacturing and distribution facilities and owner-occupied office buildings, said Brad Cox, senior managing director of the Pacific Southwest for Cushman & Wakefield Inc.
“They’re looking at raising cash for operations by selling,” he said.
Last year, Japanese investors sold off several high-profile L.A. properties, including 550 S. Hope in 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 in downtown L.A., Marcussen said. Shuwa Corp. alone owns half a dozen or so office towers in Los Angeles, including the 505 N. Brand building and trophy buildings in downtown and Century City.
Not all the Asian divestitures are by Japanese investors. One prominent property sale this spring involved Sinar Mas, an Indonesian conglomerate, selling its portfolio of office and hotel properties that included the 801 Figueroa office buildings and the Pasadena Hilton Hotel for more than $265 million.
And there will be willing buyers as more property comes on the market.
“If they sold every single building tomorrow, it would give our guys a place to put their billions,” Marcussen said, referring to cash-rich real estate investment trusts, pension funds and private companies.
But Marcussen said he doesn’t expect Japanese investors to sell “until they’re forced to by the Ministry of Finance. The banks don’t want to sell and acknowledge more losses. The government will force banks to disclose their collateral (equity) on every asset.”
The extent of Japan’s real estate woes are enormous. The Japanese currently have some $600 billion worth of non-performing real estate loans worldwide, Rodman said. And much of that is in their home country.
“The real estate in America is probably second fiddle to the problems in the Asian real estate market,” Marcussen said.
Added Rodman, “Japanese banks now have the largest Asian loan exposure in the world more than 10 times that of all the U.S. banks combined.”
Japanese life insurance companies may be the exception. They will be more likely to hold onto their U.S. assets because they are not as over-leveraged as many other Japanese companies, several observers said.