ESG + Mitsui try to bridge the gap.

ESG + Mitsui try to bridge the gap

The joint venture begun by the Japanese real estate concern, Mitsui Real Estate Sales and the New York-based Edward S. Gordon Company, is bringing a new look to New York real estate. While other firms on both sides of the world begin scrambling to find suitable partners, the two companies are already beginning to service Japanese real estate needs in the Northeast.

The companies expect the work to encompass, among other things: bridging cultural differences in landlord tenant relationships and providing leasing services to Japanese owners and tenants.

Edward S. Gordon said, "I think it's a wonderful opportunity for both companies to generate some important and good business for us and our clients."

Gordon dismissed reports which inferred the two companies might merge at a later date. "It is not a prelude to any other working relationship," he explained.

Masahiko Takahashi, managing director of Mitsui Real Estate Sales Co., Ltd, and president of the New York operation, was in Japan but said, in a statement, that the fusing of the two companies will be most responsive and effective in adding value and providing the full range of real estate services for Japanese owners and tenants.

Masahiko Kawakami, executive vice president of Mitsui Real Estate Sales, who will head up the Mitsui side of the pairing, said ESG's knowledge of the market will create tremendous opportunities for the two firms.

Mitsui is the largest commercial brokerage company in Japan and while it employs 5,000 brokers in Japan, it has not done any commercial leasing. Kawakami said they do not work on the leasing end in Japan because it is not cost effective. "The fee structure is different because there you only receive one month's rent for a commission," he explained.

ESG Senior Managing Director David W. Levinson, who will run the ESG end together with managing director Randy Kohana, said, "This is their access into the marketplace to service Japanese nationals in New York. Although we've done considerable business with Japanese firms, it will open a lot of doors for us." The venture will also give a greater degree of comfort to the Japanese nationals, he noted, since they may have had business relations with Mitsui in their home country.

The two companies expect there will be both a business and cultural exchange of ideas and techniques.

While the Japanese have had no problem buying buildings in New York, the problems have come about when they have tried to lease them, Levinson explained because the leasing is much more sophisticated and complicated. "We will be able to provide Mitsui with ESG's level of talent while Mitsui will provide a better understanding of Japanese plans and requirements. We will have people on both sides of the ocean discussing the transactions which will add a great deal of comfort to the Japanese."

Kawakami said for the past several years they have been acting as principal in the purchase of real estate in the United States. He expects to purchase more income-producing properties in Manhattan where, he says, there is a great opportunity to buy and they are familiar with the area.

Mitsui currently owns income generating properties in Chicago, Stamford, Short Hills and on Madison Avenue in Manhattan. During this time, Kawakami said, they learned how important it is to have the right strategies to position their properties in the market. "The knowledge of the market would be required and we needed to have a strong leasing agent to hone the market," he said.

While Kawakami said their own properties are doing well at this time and do not require ESG's leasing expertise, the company realizes they can provide the combination of Mitsui and ESG to serve the other Japanese landlords and tenants. There are over 1,000 Japanese companies in the city alone.

Kohana said the Japanese came into the market in the mid-80's and started investing a vast amount of capital, which was accumulated through exports, into the United States and New York area. Since 1985, he said, the Japanese have put over $11 billion into the Manhattan marketplace. About $3 billion is in equity, he said, and the balance has been in debt. "They bought properties that were going up at a sharp angle," Kohana noted, "with high rents per square foot, and easy leasing - it was good times."

Unfortunately, Kohana said, the Japanese had projected that their buildings would be getting rents of $50, $60, and $70 per square foot in the future -- which is now. "So today the buildings are still not leased or partially leased or with vacancies. It is a tough market place."

A combination of reasons, Kohana said, including decision making in Tokyo, and a lag time between the showing of a property and the negotiations and signing, contributed to their failure in the rental market. "They need a quicker turnaround," Kohana explained. By taking Mitsui and all of their expertise and their "cultural excellence" combined with ESG's knowledge of what it takes to get deals accomplished in New York, the companies believe they will be able to be effective in adding value and providing a full range of real estate service for Japanese owners and tenants.

Kawakami noted that the Japanese tenants have to deal with property owners and are in need of professional expertise. "We need to be the intermediary to explain the Japanese client's exact needs and objectives to ESG and to explain to the Japanese the real estate market here."

The Mitsui role will be to act as a clarifier of both business and cultural needs. "We need to know how the Japanese corporation would decide, and we need to know how the real estate market strategies will fit into their corporate need," Kawakami said. Because of their knowledge of Japanese corporate decision making, Mitsui will review the ESG presentation and make it fit the style of the Japanese needs, Kawakami explained.

"We will work on assignments where we can add value," Levinson said. While there are numerous deals in the works, the company representatives declined to discuss any specific property.

The Mitsui/ESG venture will also concentrate on attracting Japanese companies to New York. There are many companies and retailers which have not yet tried out the market there and Levinson and Kohana are eager to work with them. "There are hundreds and hundreds of companies," Kohana said. There are eight other retailers the size of Mitsukoshi USA, he noted which is opening a store in its retial condo at 57 Street and Park Avenue. "We have just seen the tip of the iceberg."

While other American and New York-based real estate companies have formed relationships with Japanese firms, Levinson and Kohana were quick to distinguish those as being simply "passive money" partners. "This is an active, shoulder-to-shoulder business but we are also pursuing business and going after business together," Levinson said.

Kawakami will be making local decisions of Mitsui, while Levinson and kohana will work on the different transactions for ESG. While Kohana and Levinson will be working out of the Gordon office in Midtown, they said there will be a dedicated phone line for Mitsui/ESG operations. As the volume of business increase, Levinson said, Mitsui/ESG will accommodate those needs.

"The short plan is to help with the banks on loan portfolios," Levinson added. Although not the current focus, they said in the future, the companies may also work with reverse marketing and help American businesses buy and lease property in Japan. "It could happen that we will help them assimilate into their culture," Levinson said.

The bi-annual Edward S. Gordon office report will also be published in Japanese, and Kohana said he expects it will be used as "the bible" to the New York real estate market. "They use it now very much," he added.

ESG currently does business with many Japanese companies and expects to continue those dealings but, Levinson said, they will not form other Japanese joint ventures. Where it will enhance the relationship, Levinson said, the business will go through the Mitsui/ESG operation.

In the past, there have been some discussions at ESG about forming relationships with real estate companies in other countries, "but nothing can compare with having Mitsui as a partner," Levinson said. The magnitude -- there is no analogous South American or European company that compares with them."

Gordon did not think other leasing firms would be able to effectuate a merger with Japanese companies. "Other people may wish to do something like this but do not have the expertise," he said. "We don't see anybody else coming up with anything like this."

Levinson and Kohana came up with the idea for the venture earlier this year. "It was really quite fast," Kohana recalled. "We sat down and formulated the idea in April and signed it in August."