Wave of Europeans Bumps Asians as Big L.A. Players.

EUROPEANS have been quietly filling the vacuum left by the Japanese and Koreans as the main foreign real estate buyers in Los Angeles.

But whereas Asian investors grabbed headlines by buying prestigious downtown and Century City properties during the 1980s, the Dutch and the Swedes, among others, are taking a lower-profile approach.

For example, ING Realty Partners, a unit of Dutch financial conglomerate ING Group, has more than $150 million invested in Southern California properties, including the Sheraton Four Points Hotel near L.A. International Airport and the Marriott Courtyard Hotel in Pasadena.

Such investments are small potatoes compared to the $650 million that Japanese investment firm Shuwa Corp. paid for Arco Plaza in 1984, but they are likely to be better values in the long term.

"The Dutch tend to be more opportunistic investors," said Michael Zietsman, managing director with Lehman Bros. "Through ING, they have been looking at deals below the radar screen and have formed partnerships to invest in new developments."

Although ING Realty's fund is open to an array of institutional investors, and as such is not an investment vehicle for ING Group, it represents mainly Dutch and other European pension funds.

The German invasion

Aside from the Dutch, other Europeans that have shown a lot of interest in the West Coast are the Germans, and to a lesser extent the Swedes and the British. However, German investors tend to be more interested in acquiring trophy buildings and have mostly shunned L.A. in favor of San Francisco and other parts of the Bay Area.

"Los Angeles is a more difficult market to understand than San Francisco or New York," said Zietsman. "It is more spread-out and diversified, and there is no straightforward downtown/periphery layout. That makes it much more difficult for outsiders to feel comfortable in."

Moreover, because of the weakness of the euro vs. the U.S. dollar, German investments in particular have slowed down on the West Coast over the last six months. That is likely to change, though, as the euro recovers and U.S. real estate becomes more affordable again for overseas investors.

The most active German investors have been bank-sponsored funds that invest for high-net-worth individuals, who enjoy considerable tax benefits through their U.S. investments.

"They will return as the exchange rate stabilizes," said Bill Chadwick, managing director with Chadwick, Saylor & Co. "They've been pretty consistent in establishing a U.S. presence."

Questions remain whether the Asian investors who gobbled L.A. real estate in the '80s will be back anytime soon -- either as buyers or sellers. After the collapse of the Asian currencies in 1997 and the subsequent economic slump in Japan and Korea, it was widely anticipated that Asian investors would unload their downtown L.A. and Century City trophy buildings at rock-bottom prices. That has occurred to some extent, but it has not been the fire sale that was originally expected.

"It's been a long, drawn-out process," said Bob Safai, principal with Madison Partners. "Part of the reason is the bureaucratic decision-making process at the Japanese companies, but they also may have dragged out the process because it's been a very bitter pill for them to swallow. They are in many cases lucky to make 50 cents on the dollar they've invested."

Nippon Life sold the Century Plaza Hotel last year, and Shuwa sold a number of its properties in and around L.A., but not Arco Plaza, in many ways the symbol of the boom-and-bust real estate market of the '80s. With the acquisition of Atlantic Richfield Co. by BP Amoco plc., the building has lost its main tenant -- so Shuwa may end up fetching as little as $200 million for the twin towers if and when it decides to sell.

Strong Asian ties

Still, some industry insiders believe that in time, Asian investors will return to L.A.

"As the Asian economies, and China in particular, continue to improve and market conditions stay strong, Asian investors will start coming back to the U.S.," said James Wickser, managing director with ING Realty. "They love it here. They love the legal system in the U.S., and in many cases they have family here and strong ties to the U.S."

That said, it is very unlikely that foreign investors, Asian or European, will have the kind of impact on the local real estate market that the Japanese had in the '80s. Most industry observers believe that the foreign investments make up only a small portion of the total number of transactions, perhaps as little as 1 or 2 percent, and that for now at least, the market is dominated by domestic institutional investors.

"As far as foreign activity is concerned, perception is ahead of reality," said Kevin Dretzka, managing director with Eastdil Realty. "There was a bit of flurry with the Germans, but they're gone. They will be back and we will see benefits from the Asian recovery, but it's not going to have a major impact on the local real estate market."