Japanese firms pay record price in property deal.

Japanese firms pay record price in property deal

Two Japanese conglomerates have agreed to pay what is apparently the highest price ever for a major commercial property in Los Angeles County, the Business Journal has learned.

Kowa Real Estate Investment Co. and Sogo Co. Ltd. will plunk down well in excess of $200 million for the still-abuilding, 135,000-square-foot Two Rodeo Drive retail complex in Beverly Hills. The price tag translates to more than $1,500 a square foot.

By comparison, Fox Plaza in Century City sold for $422 a square foot last year, although office projects generally sell for much less than retail projects.

For example, tenants moving into Two Rodeo Drive will be paying as much as $200 a square foot a year when the project is completed in September, while Fox Plaza tenants pay about $40 a square foot.

Last week's sale marks the return of high-profile Japanese purchases of local real estate.

The Japanese have shattered price records in past years for trophy properties here, with Arco Plaza and the Hotel Bel-Air being among the highest-profile examples.

But a financial crisis in Japan had cooled the U.S. buying frenzy in recent months.

Last week's $1,500-a-square-foot deal could be a harbinger that Japan is back on the acquisition trail in a big way, industry experts said.

The two Japan-based buyers of Two Rodeo Drive have been negotiating with the project's current owners for more than two years, said developer Doug Stitzel, who owns a 20 percent stake in the project.

Other owners of Two Rodeo Drive, which is on the northeast corner of Wilshire Boulevard and Rodeo Drive, include a U.S. unit of London-based Berisford International, which owns a 40 percent stake, and Amec-Power-Malkin Partners, which owns the remaining 40 percent.

The pending sale is being structured in two separate parts, Stitzel explained.

The first part involves the sale of Amec-Power-Malkin Partners is a three-way partnership among British construction firm AMEC, Irish real estate investment company Power Corp., and Scott D. Malkin Interests Inc. of New York.

That 40 percent equity sale is already in escrow and is expected to close soon, according to sources close to the deal.

The second part of the sale involves Berisford's 40 percent stake and most of Stitzel's 20 percent stake.

That sale, which will give Kowa and Sogo an ownership stake of more than 90 percent, is scheduled to be consummated when the project is completed in September.

Stitzel, the actual developer of the European-style shopping complex, will retain an equity stake of less than 10 percent and will continue as property manager of the complex.

"I created this project; I acquired the land, designed it, got the entitlements, got it built," explained the 38-year-old San Francisco-based developer. "You get attached to these things; so I want to stay in it."

Stitzel, who is also developing the $70 million One Colorado retail project in Pasadena, declined to specify what he planned to do with the proceeds of the pending sale.

He did confirm, however, that he is already working on future developments, some of which will be in Los Angeles County. But Stitzel insisted that those future deals are not contingent on money coming from the Two Rodeo Drive sale.

"The way my company is structured, I don't need to sell one project to buy or build another," he said.

The other two sellers of Two Rodeo Drive, Berisford and Amec-Power-Malkin, and the two Japanese buyers all declined comment last week.

The crash of the Tokyo Stock Exchange, a dramatic decline in the value of the Japanese yen relative to the U.S. dollar, and soaring interest rates had resulted in major Japanese investors pulling back from U.S. real estate deals.

After three years of explosive growth, Japanese investment in U.S. real estate declined nearly 11 percent last year, according to a recent report by accounting firm Kenneth Leventhal & Co.

And that decline was felt sharply in Los Angeles, which for the past two years has been the top metropolitan area for Japanese investment.

Japanese investors sank $2.51 billion into Los Angeles area real estate last year, representing 17 percent of Japanese investment in U.S. real estate. But that was down dramatically from the $3.05 billion spent by the Japanese on L.A. projects in 1988.

"The overall value of the Japanese stock market dropped by $1 trillion (U.S.) dollars, or about 30 percent, during the first 90 days of this year," said Jack Rodman, managing partner at Kenneth Leventhal & Co. "But it has regained more than half of that in the past 30 days. And the foreign exchange rate, which was a high as 160 yen per dollar three weeks ago, has also strengthened."

Last week, the exchange rate was about 151 yen per U.S. dollar.

Another Japanese company returning to the U.S. acquisitions trail last week was Shuwa Corp.

Through its Los Angeles-based subsidiary, Shuwa Investments Corp., the company bought a 247,000-square-foot office building in San Francisco from a limited partnership for $60.6 million.

Shuwa now owns more than 40 U.S. properties, with a cumulative value of about $2.7 billion. Its holdings include three prominent downtown Los Angeles sites: Arco Plaza, the 655 S. Hope St. Building, and the seven-acre city block bounded by Eighth, Ninth, Hope and Flower streets.