Pacific Capital Investors Buys $1.7 Billion in Japan Loans

An Orange County investment group said Friday that it completed the purchase of defaulted and foreclosed Japanese loans with a face amount of $1.7 billion from Bank of Tokyo-Mitsubishi, the world’s biggest bank.

Pacific Capital Investors, the 9-month-old local group, is competing with large Wall Street firms and “vulture funds” also hoping to benefit by buying bad debts in Japan at a fraction of their face value, then striking deals with the borrowers to repay them at steep discounts. The loans stem from the collapse of the 1980s “bubble economy,” which drove Japanese real estate and stock prices unsustainably high.

Pacific Capital, whose president is former American Savings & Loan chief William J. Popejoy of Newport Beach, purchased the first $370 million in bad loans in March, using funds from partners in the investment company and their friends. Popejoy said the “workouts” of those debts, mostly on property in Tokyo, have been proceeding faster than expected.

The latest deal, for the remaining $1.35 billion in bad debts, involves a more complex mix of properties, most of them outside Tokyo. The purchase was completed Wednesday, financed by an institutional private equity fund, said Pacific Capital’s chairman and founder, Michael Ray of Laguna Beach. Ray said his group had agreed not to identify the fund.

Pacific Capital estimates it will take 2 1/2 years to work through its current portfolio of loans. Ray said the group hopes to continue investing in Japanese debt and real estate.