Japanese Investors Tap Residential Sales Boom : Peninsula Draws Buyers From Pacific Rim

A busload of Japanese businessmen arrived at the Coldwell Banker real estate offices in Rolling Hills last month, primed for a day of sightseeing on the Palos Verdes Peninsula.

Whale-watching and spectacular ocean vistas, however, were not high on their list of must-see attractions.

They came from Japan to see something else for which the peninsula and parts of Torrance are becoming increasingly well-known among Asian executives: exclusive, expensive homes.

“One of our agents went out and gave them a tour,” said June Hather, vice president and branch manager of Coldwell’s Rolling Hills office. “We’ve had quite a few Japanese buyers who come in on their own and we’ve had Japanese buyers whose companies have transferred them and recommended they buy a house.”

The businessmen on the bus tour included individuals as well as representatives of Japanese corporations, all looking to buy single-family houses, Hather said.

Although the typical house hunter from Pacific Rim countries does not come straight from Los Angeles International Airport to the peninsula, for the past two years they have been coming in increasing numbers to scout the South Bay real estate market, seeking suitable homes or profitable investments, according to real estate agents on the peninsula and in Torrance.

For the Japanese who do a great deal of business in the area, one lure is the advantage of a home-like alternative to hotels. Other attractions to home-buying include established Japanese social and educational communities, often centered around Japanese language schools--such as the International Bilingual School, Los Angeles in Hermosa Beach--or Japanese language classes held at Torrance’s South High on Saturdays.

Well-tended golf courses on the peninsula are another attraction. At Rolling Hills Country Club, for example, 75 of the club’s 400 full members are Japanese, said club secretary Barbara Jenkinson. A recent Rolling Hills membership sold for $109,000. Similar memberships in Japan cost $200,000 to $2 million.

A South Bay home is important for many Asians whose businesses are among those with offices or headquarters in Torrance, Gardena and adjacent cities. The addresses of choice are often in south and west Torrance, or almost anywhere on the peninsula, real estate agents said.

Asian real estate investing is not restricted to the local market. Throughout the country, more Japanese firms are doing business in the United States, and so there are more Japanese business people and their families living in the U.S. In addition, real estate values increase on average more than 7% yearly in the United States, compared to 2% to 3% in Japan. The exchange rate also favors the yen over the dollar and land is more available in the United States.

Yet another reason is the comparative cost of land. On the peninsula, the average 1988 cost of a three- or four-bedroom, 3,000-square-foot home was between $500,000 and $700,000, according to real estate agents. That is low compared with the going rate of about $2 million for a modest house in the Tokyo suburbs.

“In Tokyo, they know the name Palos Verdes,” said Jim Hirtle, of Remax Realty in Rancho Palos Verdes. The peninsula has “achieved some prestige status there. And it’s not just the Japanese.”

From 1987 to 1988, sales to Asians from Remax’s Rancho Palos Verdes office doubled, Hirtle said. Last year, transactions involving Asian investors accounted for nearly half--at least $100 million--of the company’s $225 million in sales, he said.

Although several South Bay realty boards said they knew of no real estate agents who court Asian clients exclusively, some agents aggressively seek foreign investors. Shinyu Tawada, president of Best Realty in Rolling Hills, for example, has opened a Tokyo office to attract home buyers from Japan.

About half his clients are from Pacific Rim countries, Tawada said.

A Steady Rise

Though no group or data base specifically tracks Pacific Rim investment in residential real estate, a number of organizations serve as barometers to the rise in Asian business and residential activity.

The Japan Business Assn., for example, a nonprofit organization that acts as a chamber of commerce for a consortium of businesses based in Japan, has noted a steady rise in the number of Japanese corporations doing business in the South Bay in the last six years, said Rika Hiroto, South Bay membership activities coordinator.

In 1983, the Japan Business Assn. represented 130 Japanese corporations, but by January, 1989, the group had 211 Japanese corporate members in the South Bay alone, including American Honda Motors and Nippon Express USA, Hiroto said. The group’s three offices represent 587 Japanese businesses in Orange County and downtown Los Angeles as well as the South Bay, she said.

Another indicator of the Japanese influence in the area is changes in school enrollment.

Of the 100 school districts in Los Angeles County, the Torrance and Palos Verdes districts combined have 42% of all Japanese-speaking students, according to a report by the California Basic Educational Data System, a research office of the State Department of Education.

Foreign-Born Children

Between 1985 and 1988, officials for the Palos Verdes Unified School District reported gradual but steady increases in the numbers of foreign-born children, with the heaviest representation from Japan, Taiwan and Korea, said Rosemary Claire, who directs the Palos Verdes district’s special programs, including English as a Second Language.

In 1985, for example, there were 1,365 foreign-born students, with 346 from Japan, 214 from Taiwan and 150 from Korea, Claire said. The remainder of foreign-born students were from Iran, the Philippines, Mexico and Latin American countries, among others, she said.

In 1988, there were 1,559 foreign-born students in the district, with 434 from Japan, 249 from Taiwan and 193 from Korea.

Even more dramatic growth is evident at Hermosa Beach’s International Bilingual School, Los Angeles, a private Japanese school started in 1979 with six students. The school now has 270 students, and moved last fall from a 14-classroom facility to one with 21 classrooms, said business manager Takatsugu Watanabe. About 90% of the students are children of Japanese executives, he said.

A Tremendous Increase

“More and more companies are establishing businesses here,” Watanabe said. “Naturally, they bring their families and try to look for a school system that will not let the children fall behind when they return to Japan.”

Those increases in school enrollment have been paralleled in the South Bay real estate market, brokers said.

Tawada of Best Realty said Asian home buyers are on the buying or selling end of half of his company’s transactions. “In the last two years there’s been a tremendous increase,” said Tawada. His company, which specializes in attracting overseas investors, did $200 million in business on the peninsula last year.

For many Asians, a major attraction of the South Bay market is the cost of buying versus renting, Tawada said.

As the rents for peninsula homes have escalated, more and more Pacific Rim business executives and companies have abandoned renting residential property, Tawada said.

Large Cash Downpayments

Four years ago, Sumitomo Special Metals America Inc., a Tokyo-based electronics parts distributor, was paying monthly rents of $1,800 to $2,000 for Rancho Palos Verdes homes for its four employees, said President Masaru Yokokura.

“We had to negotiate on a yearly basis and the owner increased the rent every year,” Yokokura said.

Sumitomo officials decided it would be more cost-effective to buy. Now the company owns three houses in Rancho Palos Verdes valued at about $500,000 each and is looking for a fourth, Yokokura said.

Often, Asian executives are able to pay large cash down payments or pay entirely in cash for homes that cost hundreds of thousands or even millions of dollars, according to a number of South Bay real estate agents.

“We usually pay cash,” said Yokokura of Sumitomo Metals, “because we are not so familiar with your banking system, and it involves a rather high interest rate compared to Japan.” Interest rates in Japan average between 6% and 7%.

Real estate broker Pamela Nicholson of Century 21-Torrance Realty said Asian clients with ready cash reserves come straight to the peninsula because “homes elsewhere in the South Bay wouldn’t compare with what they may have seen in those areas. . . . Many times they have talked to others who have been here on previous trips and were told this is a very desirable area.”

Kenneth Leventhal & Co., a Los Angeles-based accounting firm specializing in real estate transactions, monitors the impact of Japanese investment on the American economy. According to the firm’s 1987 survey on Japanese real estate investment, the Japanese spent $12.5 billion on American commercial and residential real estate, a 70% increase over 1986.

Jack Rodman, a Leventhal managing partner, said the peninsula is the most preferred residential neighborhood in the Los Angeles area for Japanese businessmen, followed by Pasadena, San Marino, Arcadia and, to a lesser extent, Hancock Park near the Japanese embassy.

“The attraction in Palos Verdes is the ranch-style homes, which are more like a Japanese home--single-story, spread out,” Rodman said. “The ocean is very attractive. And Palos Verdes is a little less expensive than the Pacific Palisades, Bel Air and Brentwood.”

Low-Crime Neighborhoods

Satoru Jo, a vice president of Cushman Realty in Los Angeles, has lectured to American business groups on Japanese investment in the commercial and residential real estate markets. Because they are usually unfamiliar with the U.S., the Japanese tread carefully in selecting an area. They want low-crime neighborhoods with access to the best American schools, as well as to Japanese schools where their children can continue Japanese studies.

When American business people go to work in Japan, Jo said, they use many of the same criteria for choosing an area in which to live.

Although some home buyers from Pacific Rim countries are seeking a financial investment with a good return when they shop for houses, most are in the market to find housing for their families, who often relocate from Japan, Taiwan or Korea when the head of the household comes to work for companies based in Torrance or Gardena.

“They’re working and living here,” Rodman said. “These aren’t speculative houses. These are business people, and they need a place to live. This is not to say these areas are becoming an enclave for these people. They enjoy living in them for the same reasons we prefer to live in them. . . . There’s also an established Japanese population in those areas, and a very well-integrated one, I might add.”

The availability of land is another attraction, said broker Nicholson.

Rate of Return 7.5%

“Because of the cost of housing here, compared to Japan, and the exchange rate between the yen and the dollar, they can’t afford to buy anything over there, and can afford to buy almost everything over here,” Nicholson said.

The rate of return on investments in the American real estate market, typically about 7.5% annually, is high compared to Japan, where the return averages about 2% to 3%, said Jo of Cushman Realty. And in some Palos Verdes Peninsula and Torrance neighborhoods last year, property value increased by as much as 10% over a single two-month period, brokers said.

The rise in property values is unrelated to the rise of Asian interest in the American real estate market, many agents said.

“I don’t think that because of Oriental people the price (of homes) is going up,” Tawada said. The wide-open California real estate market is not like Japan or Hawaii, where available land is scarce, he said.

Real estate broker Nicholson agreed.

Agents Speak Japanese

“I don’t think it’s affected the price of homes,” Nicholson said. “What affected the price of homes was pure, pent-up demand, and (the fact) that interest rates went below double-digit.”

The booming Asian interest in South Bay residential real estate has created changes in the way some real estate offices are run.

Most firms have hired agents who speak Japanese, Korean or Chinese, and many have increased their services to be more attentive to Asian businessmen, who expect a high level of protocol.

Tawada of Best Realty, for example, founded the company three years ago after anticipating a growth in Asian interest in owning American homes. One of his primary concerns, he said, is properly courting important Japanese clients.

Heads of banks and major corporations, for example, expect to be met at the airport by the president of the real estate firm--not just an agent, Tawada said. They expect to be given a tour of their neighborhood of interest, to be properly housed and attended to, and to be shown courtesy and respect not usually given by large, impersonal chain real estate companies.

Business ‘Very, Very Good’

Tawada has catered to those expectations and his efforts have paid off.

“Business is very, very good,” Tawada said. “We have a lot of buyers in the $1 million to $1.5 million price range. That’s not unusual.” Price tags for Best Realty’s homes go as high as $3 million, he said.

The company routinely lists homes for sale in their Rolling Hills Estates and Tokyo offices simultaneously in an effort to attract Japanese as well as American buyers, Tawada said.

Tawada makes two trips to Japan each year to lead how-to seminars on investing in California commercial and residential real estate. Attendance at his seminars, in places like Okinawa and Tokyo, is usually between 100 and 300, he said.

Tawada foresees no end to the steady flow of customers from Japan.

“It’s getting better and better,” he said.