Talk Story
Real estate turns around
in Japan and also HawaiiIN 1993, when my wife and I bought our house, so did 2,000 other families on Oahu. Collectively, we paid an average of $360,000. Today, our homes are worth about $305,000 apiece on average, down 15.2 percent in nine years, but prices are rallying.
If we'd kept the condo we bought in 1990, we'd have done even worse. Condo prices are down 16.7 percent after 12 years.
Between 1996 and 2000, Honolulu small talk was about stock portfolios, but from 1987 till 1993 it was real estate -- what you got for your old place, how much you paid for a new one, lease-fee conversions, renovations, capital gains, and so on.
Anxious buyers outbid asking prices by tens of thousands. You snoozed, you losed.
I remember a Bank of Hawaii economist's saying neither he and his wife nor Hawaii generations to follow would ever afford to own a home, given the trends.
Those were the days.
SCARCITY drives up prices and Hawaii real estate was scarce, thanks to what was happening in Japan in the 1980s. There, property values skyrocketed. The land under the Imperial Palace, for example, was estimated to be worth more than all the property in California.
Meanwhile, Japanese interest rates were rock bottom. Why earn 2 percent in a Tokyo bank when average Honolulu home prices doubled every four years? With billions in collateral back home, you could buy a Waikiki condo, a Portlock villa or a Manoa bungalow.
Corporations didn't stop there. By 1990, Japanese companies owned many commercial buildings and most Hawaii hotels, such as the lavish Hilton Waiakaloa Village. They bankrolled major new developments, such as the Aloha Tower Marketplace and Waikiki Landmark.
In 1990, Japanese banks boosted interest rates to take heat out of the balloon before it burst. It was too late. Rather than level off, the balloon crashed. Stock market and property values tanked. Collateral dried up and good loans went bad.
By 1999, Tokyo condos that sold for an average price of more than $1 million in 1990 had dipped to less than $300,000. Today, they are beginning to appreciate again and U.S. companies are snapping them up, reversing the ownership trend.
Goldman Sachs has invested more than $3 billion, purchasing more than 650 buildings in Japan, according to the Wall Street Journal. Every 10 days, Morgan Stanley buys another Japanese property.
While most properties remain mired in the slump, the best are rallying. Bargain prices in central Tokyo are attracting families and companies that had been driven away by high prices. They're snapping up posh new condos and spurring an office tower construction boom.
At the height of the bubble, University of Hawaii MBA Curtis Freeze went to Japan and prospered enough to launch his own company, Prospect Asset Management in Hawaii, in 1994. Since then, he's been hiring fellow UH grads to scour the Japanese market for attractive investments, such as three companies that buy rundown Tokyo condos, fix them up and sell them to young professionals.
Freeze discovered some Tokyo properties now rent for 7 percent of their purchase price, more than in any major city in decades, according to experts. He is not alone in exploiting that yield, but he knows the market.
After checking out more than 100 buildings, Freeze bought two. His goal is to win enough investors and leverage to acquire at least 1,000 rental units, set up a Real Estate Investment Trust (a type of real estate mutual fund) and take it public.
By the time Freeze pulls that off, I hope our house is worth what we paid for it in 1993.
John Flanagan is the Star-Bulletin's contributing editor.
He can be reached at: jflanagan@starbulletin.com.