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Tuesday, Sept. 29, 1998
Foreign firms cool to hot Japanese real estate
GE Capital Services Corp., a U.S. nonbank financing giant, was at one time planning to purchase Nissan Motor Co.'s head office building, sources close to the companies involved said Tuesday.
However, only a few days before it was to close the deal, GE Capital backed off, saying its New York headquarters would not give approval, the sources said. The Nissan building was eventually sold last week to Mori Building Development Co. and its affiliate Mori Building Sangyo Co.
GE Capital's cancellation may be an indication that foreign investors are becoming more cautious and selective in their real estate investments here, analysts say.
Last week, Nissan sold the newer of its two head office buildings in Tokyo as part of its corporate restructuring plan. The building, which stands on a 3,200-sq.-meter plot on the east side of the Ginza shopping district, fetched 14.65 billion yen from the Mori Building group, bringing the nation's second-biggest automaker a 7.185 billion yen profit.
Under the initial sales plan, however, Mori Building Sangyo was supposed to purchase 50 percent of the office building and GE Capital the remaining 50 percent, the sources said.
But because GE Capital gave such short notice on its cancellation, Mori Building Sangyo could not find another investment partner for the building quickly enough, and Mori Building Development reportedly decided to bear the additional 7 billion yen, the sources.
Despite the advantage of being situated near the center of the upscale shopping district, some real estate analysts say that demand is low for office space in east Ginza. If Nissan stopped leasing the building, some analysts say, Mori Building firms would have had difficulty finding tenants.
In the expectation of profiting from investments in low-priced Japanese assets and benefits from the government's ongoing "Big Bang" financial deregulation, many U.S. and European financial institutions have been aggressively hunting for prime real estate investments.
In the Nissan case, the sources say, GE Capital had planned to work together with Mori Building because of the complex Japanese business practices required in acquiring Tokyo real estate. It is now uncertain whether the two will pursue that or any other alliance, they added.
Despite the hurried hiring of Japanese real estate experts over the past few years, only a few seem to be successful in generating the expected returns from these shopping sprees, industry sources say. "Currently, many international investors are not in the condition to take huge risks here due to the recent Russian economic crisis. In addition, nobody thought that Japanese real estate prices would keep falling like this," said Yoshihiro Hashimoto, a senior equity analyst at Merrill Lynch Japan, Inc.