Japanese investors flee local market.

Another Japanese-based owner of a big downtown property is about to call it quits.

Kawasaki Leasing is in discussions to sell its Home Sayings of America Tower in downtown Los Angeles, according to local real estate sources.

The buyer, these sources say, is Equity Office Properties Trust, the real estate investment trust run by investor Sam Zell of Chicago. Zell has agreed to pay nearly $50 million for the 250,000-square-foot building, or $200 per square foot.

The sale is emblematic of the broader issue of Japanese investors in L.A. real estate. Kawasaki bought the building in 1990 for about $87 million - or $350 per square foot meaning it is taking a massive loss on the pending sale.

While the $200-a-foot sale price is a bargain relative to 1990, it is considerably more than the $175 a foot Zell paid last month for another Japanese-owned skyscraper, the 550 South Hope building.

Both those prices are huge increases from the $88 a foot Zell paid just a year ago for downtown's Two California Plaza.

"Zell obviously sees downtown as having its worst days behind it," said Whitley Collins, first vice president at CB Commercial Real Estate Group. "A lot of REITs are willing to pay what the buildings will be worth in five years or so because they believe it will be worth it in the long term."

The discreet but steady sell-off of U.S. real estate by Japanese interests is especially striking, given that L.A. property values have increased almost 50 percent in the past two years - and the value of the yen has decreased by 23 percent against the dollar since 1995.

"Many of these investors held out for as long as they could," explained Michael Zietsman, senior director of investment sales and finance at the L.A. office of Jones Lang Wooton.

But domestic problems back in Japan are causing the Ministry of Finance to press Japanese banks to call in overdue loans, and many of those loans are mortgages on L.A.-area properties.

As Kawasaki and other Japanese investors look to dump their L.A. properties, the giant REITs and other U.S.-based groups have been willing buyers.

Maguire Partners last week announced that it is buying Japanese-based developer Arai Corp.'s 50 percent equity stake in the Plaza Las Fuentes office and hotel campus in Pasadena. Maguire Partners now owns a majority interest in the 400,000-square-foot project.

Almost all the Japanese real estate divestments so far have been "compelled" sales. often by construction and leasing companies that were heavily leveraged by domestic banks.

Japanese banks have had severe financial problems for a number of years, but only recently acknowledged that they need to clean up their balance sheets, Zietsman said.

Japanese lenders are struggling with $600 billion of non-performing and sub-performing loans. Coupled with that, the country's economic climate is sickly: It has the largest per capita national debt, stock prices are 50 percent of their 1989 peak values, and domestic land values have fallen by an estimated 75 percent since 1990.

For most of the decade, Japanese banks had extended the maturity dates of loans to Japanese investors. But now, "they can no longer afford to take care of their own," said Edward Yu, managing director of Westmark Realty Advisers International.

Bank-leveraged property owners will become increasingly pressured to sell their buildings, although analysts say it probably won't ignite the long predicted fire sale of Japanese-owned properties in L.A.

Some banks have loans so enormous they can't call them in at current market values without suffering massive financial Josses.

For example, Shuwa Corp. - which owns 11 office buildings in Los Angeles as well as numerous other U.S. properties nationwide - has bank loans estimated to be around $12 billion, though its U.S. real estate assets are currently worth an estimated $7 billion.

The extent of Japanese investors' financial desperation depends on their capital structure. Real estate owners that aren't as heavily leveraged - such as life insurer Sumitomo Life, which owns the 100 Wilshire building downtown, and Meiji Life, which owns part of the debt on Library Tower in downtown - have a better likelihood of holding onto their L.A. properties a while longer to see if prices continue to rise.

Last year, Japanese investors sold 10 major properties in L.A. County, according to E&Y/Kenneth Leventhal. They received a combined total of $686 million, roughly half the $1.3 billion they collectively paid to acquire those 10 properties.

E&Y has not yet begun tracking transactions for this year; however, analysts mention the sale of 550 S. Hope, the Ritz Carlton hotel in Marina del Rey and University Center in downtown as the best-known closed Japanese sales this year.

Recent Japanese divestment activity has been "pretty darn poky," said Kevin Dretzka. managing director of Eastdil Realty's L.A. office. "The owners who aren't under the same duress as the commercial banks are doing their best to ride it out."

Though many analysts say Japanese investors won't take their properties to market en masse anytime soon, the sale of 550 S. Hope has "caught a lot of owners' attention," said Rick Mori, vice president at CB Commercial, who deals with foreign investment.

When Obayashi Corp. took its 550 S. Hope building to market, it received numerous offers and eventually took Zell's $100 million bid.

"Every building in downtown is in play right now," said Steve Marcussen, senior vice president at Cushman Realty Corp. "It's just a matter of how much (the investors) are hurting."