For Japan's investors, time to redeploy

COMMERCIAL REAL ESTATE

May 18, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

Jay Leno will need some new material. His jokes about Japanese investors buying every U.S. building worth having are not only stale but just wrong.

Japanese investors are getting out of U.S. real estate, according to Kenneth Leventhal & Co., the real estate-oriented Los Angeles accounting firm that tracks such things. After putting more than $77 billion into U.S. real estate since the early 1980s, Japanese investors are selling or restructuring $17.6 billion of their deals. With another $12 billion in assets expected to be unloaded or restructured this year, that means the Japanese are revamping 40 percent of their U.S. real estate holdings.

Basically, Japanese investors made the same mistakes Americans did, Mr. Leventhal said. This was especially true in Hawaii, where the Japanese bet heavily on the tourism business late in the economic cycle: 28 percent of Japanese-owned hotels, golf courses, resorts and other properties in the 50th state are in foreclosure.

"Many of these investors were asset-rich in Japan's bubble economy," the Leventhal report says, using the slang term for the extremely high values Japanese markets placed on both land and stocks before that nation's recession. "They found themselves investing in real estate even though they were not experienced real estate investors. When the bubble burst, they were left overleveraged."

Jack Rodman, director of the firm's Pacific Rim practice, added that the long-term investment horizon that so many Americans praise in Japanese business people does not always serve them well in real estate. The Japanese have been slow to sell properties that have little chance of stemming their losses soon, he said.

Most Japanese-owned U.S. real estate is in Hawaii, California, New York and Illinois. The biggest local commercial real estate investment by Japanese interests is believed to be in the Commerce Place office building downtown, a joint venture between U.S. and Japanese investors.

State lease in Towson

The state of Maryland is set to make a big office deal in Towson that illustrates that while big tenants like the state can still make aggressive deals on lease renewals, they can't push landlords around with quite the impunity of not so long ago.

The Board of Public Works is set to vote today on a renewal for the Baltimore County office of the Department of Human Resources, which has occupied almost 65,000 square feet at the Investment Building in Towson. The state is expanding the space to 78,000 square feet, about the same amount that a mid-sized company or big law firm might need for a headquarters (and equal to about five floors of a downtown tower).

The annual rent is coming down from the last lease, but only by an average of $1 a square foot over the course of the 10-year deal, said Dave Humphrey, spokesman for the Department of General Services, which manages most of the state government's real estate affairs. The average annual rent will be $13.50 a square foot.

Last year, the state negotiated the average rent of the state attorney general's office downtown by almost $6 a square foot.

General Services Secretary Martin W. Walsh Jr. said the state will save nearly $13 million because of the real estate recession.

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