Japanese Owners - American Managers

Article excerpt

Japanese Owners--American Managers In only a few years, the Japanese have become a major investment, finance, and development force in the United States real estate industry, ranking fourth in total ownership among foreign investors. Their equity investments, debt financing, and sole and joint-venture development activities now include all types of property, notably hotel and hospitality projects in Hawaii and on the West Coast, residential and mixed-use properties from coast to coast, as well as industrial and corporate facilities constructed by Japanese manufacturers for their own use.

From the first tentative moves by a handful of Japanese investors in U.S. real estate in the mid-to-late 1970s, to the headline-making buying sprees of today, the focus has been on high-profile commercial properties--especially so-called "trophy" office buildings in the major markets of New York, Los Angeles, Atlanta, Washington, D.C., and Chicago.

James Montanari, senior vice president of the national brokerage and management firm, Cushman & Wakefield, Inc., says that Japanese investment activity in U.S. real estate currently totals about $20 billion: $1.9 billion in pre-1985 activity, $0.5 billion in 1985, $4.8 billion in 1986, $6.8 billion in 1987, between $5 billion and $6 billion in 1988, and a projected $5 billion to $8 billion in 1989.

According to the property management executives interviewed for this article, several factors have made it not only prudent, but essential, that Japanese owners, investors, and developers rely on local American property managers to handle the day-to-day supervision of their newly acquired or developed properties. These include:

* the size and scope of their activities, in terms of huge financial commitments, diversity of property type, and wide geographic range;

* the enormous differences in social and business cultures, language, ownership and management standards, and the two real estate markets; and

* their relatively small, and often overwhelmed, U.S. staffs.

Differing concepts

of management

Much has been written about the overall Japanese approach to real estate investment and acquisition--their long-range outlook and desire to form lasting relationships with property firms, their general unwillingness to sell a property once it has been acquired, and their eagerness to learn as much as they can about our markets and our business methods.

But, these experts say, learning the American way of property ownership and management will not be quick or easy for America's newest owners because their reference framework of real estate management practices is so radically different than it is in the U.S.

Montanari notes that in America, there is a long, evolutionary history of property management services in which an agent serves as a representative of the owner, but that this is not the case in Japan.

"The concept and practice of property management itself is a whole new phenomenon to the Japanese," he says. "What do property managers do? How do they get paid? What expenses do they bear? What liabilities do they bear for the performance of the building, for accidents, and for things that we take as intuitively obvious because we have grown up in the business?"

Montanari says that Japanese owners must wrestle with issues that domestic and other foreign investors who are familiar with American management methods often take for granted.

"If I'm accustomed to running my building myself, and I have done it successfully in my home market of Japan, then I must not only understand what the U.S. property manager does, but understand why I, as the owner, can't do it myself here.

"Or, how much responsibility do I bear, and how much does the property manager? Do I have to tell him to unlock the door every morning or is he going to do that? Do I have to pay the property taxes or does he? …