I'll Take Manhattan -- and Waikiki

By Janice Castro

Exxon, ABC and Tiffany have more in common than famous names and slick midtown-Manhattan addresses. All have Japanese landlords. Within the past six months, investors from Japan have bought the headquarters buildings of the three firms. In a new twist on the protectionist slogan "Buy American," Japanese firms are literally buying America, or at least choice pieces of it, from New York City high-rises to beachfront hotels in Hawaii. Eager as customers at a close-out sale, these investors from the Far East snapped up as much as $6 billion worth of U.S. real estate last year, more than four times the 1985 level, and they have only begun to shop.

Economic forces on both sides of the Pacific have helped set off this international game of Monopoly. For one thing, Japan's incredible export machine has created a huge pool of excess capital. Japan's trade surplus with the U.S. in 1986 alone was $58.6 billion, and exchange-rate changes over the past two years havesharply boosted Japanese purchasing power in the U.S. The dollar has depreciated in value against the Japanese currency by some 40%, from 260 yen in February 1985 to 153 yen last week. That makes even Manhattan prices seem reasonable. Example: a building that cost $100 million, or 26 billion yen, two years ago would now set back the buyer a relatively paltry 15 billion yen.

Japanese investors are hungry for property because it is very expensive in their own country. The average cost of leasing commercial real estate in Tokyo's saturated downtown market is now more than 20 times as high as it is in New York City, and 30 times as high as in Los Angeles. Meanwhile, the overbuilt American skyline beckons.

In their invasion of the U.S. property market, the Japanese have spent spectacular sums. Mitsui Real Estate Development paid $610 million for the Exxon Building in Rockefeller Center last December, the highest price ever fetched by a Manhattan office tower. Last November, Daiichi America Real Estate paid an all-time top price for U.S. retail space when it shelled out $94 million, or about $1,000 per square foot, for the Tiffany building on Manhattan's Fifth Avenue. Nissei Realty turned over an estimated $135 million last November for a half share of San Francisco's 38-story Crocker Bank Tower and Galleria shopping center. In December, Sumitomo Life Insurance agreed to pay $145 million, or about $330 per rentable square foot, for an office building under construction in Los Angeles.

Shuwa Investments, a family-owned real estate developer, may be America's largest Japanese landlord. The company made headlines last summer when it bought ARCO Plaza, a prime, 2.4 million-sq.-ft. piece of downtown Los Angeles, for $620 million, in the biggest real estate megadeal in California history. Since September 1985, Shuwa has spent $2 billion to acquire some 12 million sq. ft. of property in the U.S., including two buildings in Century City, Calif., worth $235 million, Chase Plaza in downtown Los Angeles ($103 million) and the ABC tower in Manhattan ($175 million).

While many of the splashiest transactions have involved the purchase of big-city landmarks, Japanese investors havealso bought industrial parks, shopping centers, condos and hotels in several states. Nine of the 14 hotels along Waikiki Beach in Hawaii are owned by Japanese landlords. Within a month, Kokusai Jidosha, a real estate company, will close a deal to buy the Hyatt Regency on Maui from Chicago-based VMS Realty for an estimated $319 million.

The Japanese sun is also rising over the U.S. construction industry. Kumagai Gumi, a major Japanese construction firm, started $700 million in Hawaiian projects last year, an enormous sum in a state where all nongovernment construction for 1985 totaled $862 million. Nikko Hotels International is building a 425-room luxury hotel in Chicago's Riverfront Park Development and a 525-room hotel near Union Square in San Francisco. Aoki America Construction is building about 1,000 homes in Raleigh, N.C., in a joint venture with a local investor group.

Some American business managers are pleased with the investment boom. Mike McCormack, a leading commercial-property broker in Honolulu, credits Japanese investments with pulling Hawaii out of a long real estate slump. Since Japanese real estate investors tend to buy for the long haul, many industry experts believe they will make excellent landlords, committed to maintaining the value of their properties. Other U.S. business executives simply view the real estate boomlet as a harmless way to handle America's lopsided balance of payments with Japan by in effect trading high-rises and land for VCRs and cars. After all, the literal translation of fudosan, the Japanese word for real estate, is "nonmoving assets." That seems like a fair description of Manhattan skyscrapers.

With reporting by Neil Gross/Tokyo and Charles Pelton/San Francisco, with other bureaus