Japan bank changes create advantages for Hawaii property buyers

Reforms to the Japanese banking industry are paying dividends in Hawaii as properties purchased for premium prices during the 1980s are quietly being resold, some for losses in the millions of dollars.

As the Japanese government continues to undo the financial scandals and huge losses that sent the country's economy into a tailspin during the late 1990s, it has pushed through banking reforms that include forcing the industry to sell Hawaii real estate held as collateral on overdue loans.

"All this capital has been tied up and even though the mainland economy was booming, there was nothing to come over here for," says Joel LaPinta, commercial Realtor of Hilo's Orchid Isle Properties. "Now with properties going into new hands, there is renovation, repair and development. That has stimulated the construction industry."

The Japanese government's response to excesses among the country's banks is similar to the U. S. government's action during the savings and loan crisis of the late 1980s.

At that time, Congress created the Resolution Trust Corp. to clean up the failed lending institutions and dispose of their assets. Similarly, the Japanese government created the Resolution and Collection Corp., administered by the Ministry of Finance.

Like its U.S. counterpart, the corporation was designed to clean up the messy relationships between lenders and borrowers and to resolve the many longstanding unpaid loans that continued to be on the books as a result of heavy Japanese investment in the 1980s.

With financial institutions apparently reluctant to call in overdue loans, the Japanese government stepped in, took over troubled financial institutions and conveyed loans to the corporation, which then hired brokers to sell the properties -- frequently at substantial losses.

In Hawaii, effects of the clean-up are now being felt. More and more Japanese-owned properties are coming on to the market -- sold mostly to U.S. investors from the West Coast in so-called "short sales"-- amounts below the original mortgage.

For Nicholas Ordway, a professor at the University of Hawaii's College of Business Administration who specializes in real estate and international investments, what is happening with Japanese-owned properties in Hawaii mirrors much of what he saw in Texas during the savings and loan crisis. He believes Hawaii, like Texas, will see more benefits over time as the once high-priced properties are sold at more realistic prices and redeveloped or improved.

At the height of the savings and loan crisis, Ordway says, about 40 percent of all the real estate owned in Texas was in the hands of banks. The situation was so bad that at one point there were as many as 100 new -- but empty -- high-rise buildings in downtown Houston.

It took close to four years, savings and loan failures, institutional restructuring and finally sales of all the vacant properties once the government-created Resolution Trust Corp. stepped in.

But the result was a much stronger, diversified economy as properties were purchased at reduced, more realistic prices and more businesses could afford to come into the market. Lowered rents also meant commercial and residential tenants had more disposable income to spend in other areas of the economy.

"It really had a multiplier effect," Ordway says.

Not every sale of Japanese-owned property in Hawaii is caused by the government reforms. But such sales are a part of the state's real estate picture, says Realtor LaPinta, who is handling a growing number of the transactions.

LaPinta currently has two listings through the Japanese Resolution and Collection Corp. with a third sale just completed. He has handled 11 Japanese-owned property sales since 1998 as companies increasingly began to shed their Hawaii real estate holdings.

A 1999 Waikoloa land sale illustrates the trend.

In the 1980s, a Japanese partnership paid $33 million for 29 acres of beachfront property. But its lender, the Bank of Tokyo Mitsubishi, was willing to settle for $13 million to complete the sale. Such stories are now becoming more commonplace, LaPinta says.

In some areas, such as Maui's Wailea, there is even a pent-up demand for Japanese-owned properties as buyers wait for them to come to market, says CB Richard Ellis' Andres Albano.

"The demand for developable properties in Wailea is really great. So far, only two Shinwa (Corp.) properties there have been approved for sale, but there are others," he says.

Neighboring properties have also benefited from the demand in certain areas. Albano notes that a neighboring resort property now owned by Japanese Cebu Corp. at Makena has become more desirable, even though infrastructure improvements have not been completed.

• Print
• Email

Reader Comments

• More News Headlines
• Popular News Stories