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1992 JAPANESE INVESTMENT IN U.S. REAL ESTATE DOWN 85 PERCENT TO $807 MILLION, LEVENTHAL STUDY SHOWS

 Continued Development of Existing Projects was '92 Focus;
 Retrenchment and Restructuring are Watchwords for '93
 LOS ANGELES, March 18 /PRNewswire/ -- Japanese banks and investors forced to cope with financial woes back home and weak property markets in the United States dramatically cut investment in U.S. real estate last year, spending only $807 million, according to a study released today by the national accounting firm of Kenneth Leventhal & Co. The 1992 investment was 85 percent less than the 1991 total of $5.1 billion and the lowest since the Leventhal firm began tracking such investment in 1985.
 "Japan's government started putting the brakes on real estate investment two years ago, but with the tremendous momentum from prior years, the flow of dollars didn't come to a halt until last year," said Jack Rodman, director of the firm's Pacific Rim practice.
 "Like most investors in U.S. real estate, the Japanese have suffered massive losses from plummeting real estate values. But, with $76 billion in cumulative investment, it is critical for the Japanese to take action now to preserve existing values and minimize further erosion of their portfolios," advised Rodman. "Indeed, some investors holding on to underperforming properties have had to make unexpected additional investments in U.S. real estate and have reached into their pockets to cover the mortgage and even operating expenses.
 "Significant overbuilding and the lingering U.S. recession, combined with mounting problem loans at Japanese banks and a 60 percent decline in Japanese stock prices, have triggered the substantial retrenchment in investment activity," Rodman added.
 "We have seen fundamental changes in Japanese lending practices fueled by new regulatory standards here and abroad," he said. "Implementation of new U.S. banking rules (the Foreign Bank Supervision Enhancement Act of 1991) will force foreign banks to set aside capital reserves for non-performing loans. In addition, the Bank of Japan has suggested banks aggressively address their problems related to non-performing loans," Rodman explained. "Because of this increased regulatory pressure, Japanese banks and investors will be forced to make difficult choices -- to restructure their problem loans, continue to hold problem investments or loans, or dispose of the properties at a loss."
 Securitization and Sales on the Horizon
 Rodman advised the Japanese to consider securitization as a way to dispose of troubled assets. "The capital markets offer an effective way to liquefy investments," he said. "Several U.S. banks, the Resolution Trust Corp. and other financial institutions have successfully eliminated problem real estate this way."
 According to Rodman, the Japanese could spin off some of their loans and/or properties and form real estate investment trusts (REITs) or sell to existing REITs. They also could package problem loans and real estate acquired in foreclosure into a separate entity, selling shares to outside investors.
 "In addition, Japanese investors will be selling single properties over the next year and the repricing could be a boon for institutional buyers with cash," Rodman predicted.
 The alternatives need to be evaluated carefully, he cautioned, and should include an analysis of the real estate outlook for individual markets and other economic factors.
 U.S. Gateways to Pacific Rim Draw '92 Investment
 "The one bright spot for Japanese investment is affordable housing," said Rodman. "Like their American counterparts, Japanese investors in affordable housing have fared well; now they are focusing on finishing projects started over the past several years." Rodman added that residential investment accounted for $462 million or 57 percent of the 1992 total investment.
 According to the Leventhal study, Hawaii and California led the nation in capturing the attention of Japanese investors in 1992. Investments in these two states alone accounted for $619 million or 77 percent of the 1992 total.
 Of the $328 million invested in Hawaii, 56 percent went to residential projects. Reflecting Hawaii's strength as a vacation destination, 33 percent of the state's investment was funneled to hotels and resorts.
 Virtually all of the $291 million invested in California was placed in new and continuing residential projects, particularly master-planned communities.
 In 1988, Japanese investment in U.S. real estate reached a record $16.5 billion when low interest rates fueled a boom in Japan's stock and real estate markets, providing low-cost capital for development in then-healthy U.S. markets. Of the $76 billion invested in U.S. real estate by Japanese investors since 1985, office properties took the lion's share. More than 50 percent of cumulative investment occurred from 1987 to 1989 with 78 percent of that amount targeted for commercial development in New York, Los Angeles, Chicago and Hawaii.
 The Kenneth Leventhal & Co. Japanese Data Base tracks convertible debt and equity investment in real estate acquired or developed for investment purposes only. It does not include data on manufacturing facilities or the individual purchase of single-family homes. Kenneth Leventhal & Co., the nation's eighth-largest accounting firm, is known for its expertise in real estate and financial services.
 -0- 3/18/93
 /CONTACT: Jack Rodman of Kenneth Leventhal & Co., 310-277-0880; or Francie Murphy of Casey & Sayre, 310-458-1224, for Kenneth Leventhal & Co./


CO: Kenneth Leventhal & Co. ST: California IN: FIN SU:

JL-MS -- LA003 -- 7471 03/18/93 12:01 EST
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Date:Mar 18, 1993
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