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Asian-American Dinner 5/29/92 [OA 7576] [3]
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Asian-American Dinner 5/29/92 [OA 7576] [3]
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Originally Processed With FOIA(s):
FOIA Number:
S
S
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
Record Group/Collection:
George H.W. Bush Presidential Records
Collection/Office of Origin:
Speechwriting, White House Office of
Series:
Speech File Backup Files
Subseries:
Chron File, 1989-1993
OA/ID Number:
13817
Folder ID Number:
13817-001
Folder Title:
Asian-American Dinner 5/29/92 [OA 7576] [3]
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26
22
5
7
1992 OUTLOOK
REVISED
INTERNATIONAL TRAVEL
TO AND FROM THE UNITED STATES
UNITED STATES TRAVEL AND TOURISM ADMINISTRATION
February, 1992
TOTAL INTERNATIONAL TRAVEL TO U.S.
UP 61% IN LAST 5 YEARS
Arrivals in Millions
45
42.1 -
40
39.1
36.6
34.2
35
29.7
30
26.2
25
20
15
1986
1987
1988
1989
1990
1991
Estimate
Source: U.S. Travel and Tourism Administration
"Recap of International Travel To and From U.S. 1986-1990"
February 1992
MAJOR EVENTS AFFECTING TOURISM IN 1991
Middle East Crisis/War
Fluctuating Fuel Prices
PAN AM
Lower Air Fares / Airline Bankruptace
EASTERN
MIDWAY
Slow U.S. Economy
BK but still flyong:
TWA
Chapter II Filing and Disappearance
Contractal
of Major Airline(s)
Source: U.S. Travel and Tourism Administration
February 1992
INTERNATIONAL VISITOR ARRIVALS
1991 ESTIMATES
1991
% Change
% Change
Origin
(000)
1991/1990
1991/1986
Canada
18,954
10%
73%
Mexico
7,032
4%
11%
Overseas
16,128
7%
82%
Europe
7,367
11%
98%
#1
Asia/Mid. East
4,854
11.5%
3%
89%
#2
So. America
1,613
22%
71%
Caribbean
1,076
-5%
36%
Oceania
637
-4%
69%
Central America
444
8%
43%
Africa
137
0%
-6%
Total All Countries
42,114
8%
61%
Source: U.S. Travel and Tourism Administration
February 1992
INTERNATIONAL VISITOR ARRIVALS FOR KEY MARKETS
1991 ESTIMATES
1991
% Change
% Change
Origin
(000)
1991/1990
1991/1986
Canada
Japan
#3
Mexico
3,251
67%
1%
Persian
Guffwa
93%
volume
U.K.
2,480
11%
7.7%9
119%
Germany
Total
1,429
19%
113%
France
781
9%
78%
Brazil
483
21%
87%
Italy
479
21%
79%
Australia
467
0%
89%
Netherlands
319
12%
96%
Venezuela
311
18%
132%
Source: U.S. Travel and Tourism Administration
February 1992
J.
18
SOURCES OF U.S. INTERNATIONAL TRAVEL RECEIPTS
1991 ESTIMATES
7.7% of vintors
Japan
Other Countries
$8.1 Billion
$14.1 Billion
(17.9%)
(31.2%)
Australia
$1.1 Billion
(2.4%)
Canada
France
$6.5 Billion
Mexico
$1.4 Billion
(14.4%)
$4.3 Billion
U.K.
Germany
(3.1%)
(9.5%)
$4.1 Billion
$2.6 Billion
(9.1%)
(5.8%)
Total: $45.2 Billion
(Excluding Int'l. Payments to U.S. Carriers)
Source: U.S. Travel and Tourism Administration
February 1992
ESTIMATES AND PROJECTIONS OF FOREIGN VISITOR
ARRIVALS FOR 1992 AND 1993
1992
% Change
1993
% Change
Origin
(000)
92/91
(000)
93/92
Overseas
17,130
+6
18,180
+6
Europe
7,868
+7
8,364
+6
Asia/Mid. East
5,078
+5
5,310
+5
South America
1,838
+14
2,079
+13
Caribbean
1,090
+1
1,122
+3
Oceania
647
+2
671
+4
Central America
465
+5
486
+5
Africa
143
+4
147
+3
Source: U.S. Travel and Tourism Administration
February 1992
L/C-07-0003
ESTIMATES AND PROJECTIONS OF FOREIGN VISITOR
ARRIVALS FOR KEY MARKETS
1992 AND 1993
1992
% Change
1993
% Change
Origin
(000)
92/91
(000)
93/92
Japan
3,319
+2
3,396
+2 - _FLAT
2
U.K.
2,641
+7
2,781
+5
3
Germany
1,539
+8
1,651
+7
4
France
842
+8
894
+6
5
Italy
534
+11
590
+11
6
Brazil
555
+15
638
+15
7
Australia
472
+1
490
+4
8
South Korea
360
+28 X
433
+20
X
9
Venezuela
354
+14
403
+14
10
Netherlands
341
+7
361
+6
Source: U.S. Travel and Tourism Administration
February 1992
L/C-07-0004
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
Japan
A.
Size of the Market
Arrivals:
1989
actual:
3,080,396
+21%
1990
actual:
3,231,495
+ 5%
1991
estimate:
3,250,900
+ 1%
1992
forecast:
3,319,000
+ 2%
1993
forecast:
3,396,000
+ 2%
Receipts:
1989
actual:
$7,053 million
+ 36%
1990
actual:
$7,694 million
+ 9%
1991
estimate:
$8,056 million
+ 5%
$2478
1992
forecast:
$8,427 million
+ 5%
1993
forecast:
$8,890 million
+ 6%
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
Japan
A.
Size of the Market
Arrivals:
1989
actual:
3,080,396
+21%
1990
actual:
3,231,495
+ 5%
1991
estimate:
3,250,900
+ 1%
1992
forecast:
3,319,000
+ 2%
1993
forecast:
3,396,000
+ 2%
Receipts:
1989
actual:
$7,053 million
+ 36%
1990
actual:
$7,694 million
+ 9%
x
1991
estimate:
$8,056 million
+ 5%
2478
*106
1992
forecast:
$8,427 million
+ 5%
1993
forecast:
$8,890 million
+ 6%
B.
U.S. Market Share/Competitive Environment
1.
Market Share, Rank and Competition¹
o
Top five (country) destinations (1989):
Overall
Long-Haul
1.
United States
32%
1.
United States
44%
2.
South Korea
14%
2.
Hong Kong
17%
J.
Hong Rong
12'
J.
Singapore
12%
4. Taiwan
10%
4. France
9%
5. Singapore
9%
5. United Kingdom
7%
1
Japan National Tourist Office 1990; long-haul travel excludes China, South Korea, and Taiwan
U.S. Department of Commerce
United States Travel and Tourism Administration
In 1990, Japanese spending in the United States accounted for 31 percent
of their total international travel expenditures, excluding transportation².
2.
Trends in Arrivals and Share
The United States market share of the total outbound Japanese travel
market has remained around 30-31 percent throughout the 1980's and into
the early 1990's. The United States has also enjoyed a large share of the
Japanese long-haul market. In 1985, it was 46 percent, and then in 1986
and 1987 it increased slightly to 47 percent, where it peaked. In 1988,
the USA's market share of the long-haul traffic dropped to 44 percent.
In 1989, it remained at 44 percent of all long-haul travel. This is due to
the tremendous growth in other long-haul destination, such as Hong Kong,
Singapore, and Europe. The loss of long-haul share is an indication of
increasing competition in the Japanese market.
The story of Japanese visitation to the U.S. is one of almost continual
increase, yet in the early 1990's the growth rate will slow dramatically
from the double digit growth of the 1980's. The Gulf War in 1991 deeply
influenced the growth in arrivals to the U.S., with the Japanese showing
their respect for the U.S.' involvement by not visiting the country. A
very modest recovery is expected in 1992. Still. Japan is the number one
overseas market in terms of volume.
C.
Visitor Profile³
1.
Current Profile:
The average Japanese traveler to the U.S. in 1990 was a male, on a
vacation/holiday, spending an average of nearly 13 nights in the country,
and is nearly as likely to travel with a spouse as he is to travel alone.
Well over one-third of these visitors were making their first trip to the
Units.I-States. However, the average number of urps 111 a lifedime iv the
U.S. was over 6. The average household income of the Japanese traveler
was $64,000 a year. The Japanese traveler is heavily dependent upon the
travel agent as a source of information, and over 82 percent use the travel
2
From the Bureau of Economic Analysis and the International Monetary Fund, "Balance of
Payment Statistics", 1991
3
USTTA In-Flight Surveys, 1984 and 1990
U.S. Department of Commerce
United States Travel and Tourism Administration
agent to book their air trip. Over half (51 percent) made their trip to the
U.S. on a package, a rate bested by only the New Zealand traveler.
The top states visited in 1990 were: Hawaii, California, Guam, New
York, and Nevada. On average, they spend $1,352 per visitor while in
the United States, or $106 per day.
2.
Changes in the Visitor Characteristics (1984 - 1990)
Over the six year period, 1984 - 1990, there have been several significant
changes in the travel behavior of the Japanese market to the United States.
About 60 percent of Japanese travelers to the U.S. are here for a
vacation/holiday, which is up 3 percentage points. Thirty seven percent
of these travelers were on their first international trip, compared to 30
percent in 1984. Of these travelers over 51 percent used a package,
which has dropped from 64 percent. The number of nights spent in the
country in 1990 was 12.7, practically identical to the 1984 level of 12.6
nights. The use of different types of transportation within the U.S.
overall has remained quite steady. Roughly half use an airline to travel
within the USA. However, over 40 percent are currently using intercity
buses, up 5 percentage points from 1984.
However, the number of states visited is decreasing. In 1990, exactly 70
percent of the Japanese visited only one state, compared to 59 percent in
1984. This change is reflected in the destination patterns for the Japanese.
In 1984 and 1990, Hawaii was the top destination visited by Japanese
travelers. In 1990, Hawaii had a 44.5 percent share and in 1984 its share
was 50 percent, exactly. California is second in 1984 and 1990, but it too
lost market share, dropping to 31.9 percent from the 1984 level of 37.1
percent, Guam, New York, and Nevada round out the top five
destinations and only Guam has seen an increase in its market share of the
Japanese traveler. While there has been lost market share for these states,
all have seen increases in the numbers of Japanese travelers visiting their
state. This is because between 1984 and 1990, the number of Japanese
visiting the country has increased by 128 percent to 3,231,495 from
1,415,000, and the increase in numbers of travelers more than
compensates for the lost market share.
Finally, total expenditures by Japanese in the U.S. reached $1,352 per
visitor, or $106 per visitor per day, in 1990. This is up 33 percent and
23 percent, respectively, from the 1984 totals of $1,013 and $86.
U.S. Department of Commerce
United States Travel and Tourism Administration
D.
Current Market Intelligence
Added by Field Office
E.
Regional Interest⁴
In certain cases it is possible to promote Japanese inbound travel to specific
tourism regions within the United States. The tourism regions are self motivated
groupings of states than band together to best reach the international visitor.
They conduct cooperative marketing activities, and this provide an excellent way
to describe the Japanese travel interest to particular parts of the country. Yet,
with the Japanese market, we must also look at a few individual states that do not
belong to a tourism region.
In terms of interest, the Japanese traveler currently has an interest in three of the
travel regions. They are Visit U.S. West. 86.4 percent; Travel South, 25.2
percent; and Foremost West, 22.2 percen:. None of the other five regions
received an interest level of 11 percent.
The Japanese traveler in the Visit U.S. West is here to see the outstanding
scenery, take advantage of the good shopping and local cuisine, and participate
in the sports and entertainment activities.
The visitor to Travel South is similar to the traveler interested in the West.
Their interests center upon nightlife and entertainment, golf and tennis, live
theater/concerts, and water sports. They are more budget and safety conscience
than the traveler to the West.
The Japanese traveler interested in the Foremost West region is very different
than the visitor to the other two regions. The main interest of travelers to this
region are historic and archeological sites and cities, mountainous
national parks and forests. the unique different native cultures
of the region, and the local crafts and handiwork available from the region.
Finally, an unique analysis available from this region program is to be able to
spot areas of interest the traveler is not visiting. Below is a table that illustrates
this point and shows a few state markets that have a great potential for attracting
Pleasure Travel Market to North America: Japan, 1989
U.S. Department of Commerce
United States Travel and Tourism Administration
the Japanese traveler to their area.
State
Top Three Places
Places Been to in the
Interested in Traveling
Past Three Years
California
72%
32%
New York
56%
16%
Hawaii
26%
67%
Florida
20%
4%
Arizona
16%
4%
Nevada
10%
7%
Washington DC
10%
7%
Washington
5%
3%
Colorado
5%
1%
As you can see from the table, California, New York, Florida, Arizona, and
Colorado have the highest untapped potential for attracting Japanese travelers to
their state.
F.
Economic Outlook⁵
The Japanese economy will show good growth in 1993, compared to the 1992
level. Real Gross National Product will increase by 4.8 percent. Inflation will
remain low, at 2.9 percent. This rate, while low, has fluctuated from 3.7 percent
in 1991 down to 2.2 percent in 1992 and then up slightly for 1993.
Unemployment, by Japanese standards, will be moderate by Japanese standards,
2.2 percent, a very stable rate for the first three years of the 1990s.
The currency situation with Japan will be more favorable for the Japanese. The
relationship of the yen to the U.S. dollar will drop slightly from the 1992 level
5
The WEFA Group, January 1992
U.S. Department of Commerce
United States Travel and Tourism Administration
of 142:1, to 136:1. This 4 percent drop in the exchange rate makes a trip to the
United States somewhat more affordable.
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
South Korea
A.
Size of the Market
Arrivals:
1989
actual:
149,323
+62%
1990
actual:
211,260
+41%
1991
estimate:
282,200
+34%
1992
forecast:
360,000
+28%
1993
forecast:
433,000
+20%
Receipts:
1989
actual:
$273 million
+85%
1990
estimate:
$402 million
+47%
&
1991
estimate:
$554 million
+38%
1963
1992
forecast:
$721 million
+30%
1993
forecast:
$889 million
+23%
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
South Korea
A.
Size of the Market
Arrivals:
1989
actual:
149,323
+62%
1990
actual:
211,260
+41%
1991
estimate:
282,200
+34%
1992
forecast:
360,000
+28%
1993
forecast:
433,000
+20%
Receipts:
1989
actual:
$273 million
+85%
1990
estimate:
$402 million
+47%
1991
estimate:
$554 million
+38%
1963
1992
forecast:
$721 million
+30%
1993
forecast:
$889 million
+23%
B.
U.S. Market Share/ Competitive Environment
The general trend in travel to the U.S. from South Korea is an exciting one of
tremendous double digit growth. The increase from one year to the next,
however, can be rather erratic. The story of growth in the 1980's has been one
of two steps forward and one back. However, beginning in 1989, with the
removal of barriers to external travel, the market from South Korea showed
explosive growth. This catapulted South Korea into the top twenty markets, and
into 17th place in both 1990 and 1991. In 1993, arrivals from this country are
expected to reach 435, 000. A PATA study showed that the
from South Korea would triple by 1991. USTTA anticip uses very strong growth,
above or close to 20 percent through the mid-1990's.
U.S. Department of Commerce
United States Travel and Tourism Administration
C.
Visitor Profile¹
The In-Flight Survey breaks out South Korea from Other Far East for the first
time in 1990. The average traveler from South Korea to the United States is
almost exclusively male, at 77 percent. This is of the highest rates of male
travelers among all overseas countries studied; only the People's Republic of
China has a higher rate of male travelers. In keeping with this phenomenon, he
is more likely to be traveling alone than with a spouse or family. The South
Korean is also one of the few overseas travelers who is more likely to travel for
business (49 percent) than for any other purpose, bested again by travelers from
the People's Republic of China. About 30 percent of these travelers use package
trips to the U.S.
This traveler spends around 24 nights in the U.S. This traveler has an annual
household income of just under $47,000 per year, some 20 percent lower than the
typical overseas visitor and significantly lower than his fellow Far East travelers.
Besides receiving most pre-trip information through a travel agent, he books
through them as well.
The South Korean travels to many states, with 68 percent visiting two or more
states. The favored destination at 50 percent is California, followed in popularity
by New York at 37 percent. Lumped together at the 15 to 20 percent level are
Hawaii, Florida, Illinois, and Washington, DC.
D.
Market Intelligence
To be added by Field Office
E.
Regional Interest²
In certain cases, it is possible to promote South Korean inbound travel to specific
tourism regions within the United
States.
The tourism regions are self motivated
groupings of states than band together to best reach the international visitor.
They conduct cooperative marketing activities, and this provide an excellent way
to describe the South Korean travel interest to particular parts of the country.
Yet, with the South Korean market, we must also look at a few individual states
I
USTTA In-Flight Survey of International Air Travel to the U.S., 1990
2
Pleasure Markets to North America: South Korea, 1991
U.S. Department of Commerce
United States Travel and Tourism Administration
that do not belong to a tourism region.
In terms of interest, the South Korean traveler currently has an interest in four
of the travel regions. They are Visit U.S. West, 82 percent; Foremost West,
Travel South, 25 percent; and George Washington Country at 18 percent.
None of the other regions received an interest level of more than 11 percent.
In all cases, the prevalent travel philosophy for each region was an attitude that
encompasses such notions as it's worth paying more for luxuries, would just as
soon spend money on other things as on travel, like to stay in one spot, like to
return to familiar places, and feel that travel arrangements are such a bother that,
in many cases, they would rather stay at home.
The same trend follows with travel benefit or motivation, with a preference for
watching and participating in sports, indulging in luxury, and visiting places that
their family came from so that they can talk about the trip once they return home
dominating in all four tourism regions.
Not surprisingly, the South Korean seeks products related to gambling, skiing,
water sports, nightlife, golf and tennis for all four regions.
The South Korean traveler in the Visit U.S. West is here to see beaches, scenic
places, and are quite interested in outdoors. Since this region contains California,
the number one destination of interest to the South Korean traveler, as well as
Arizona, Nevada and Washington, all of strong interest, travel to the region
should continue strongly in 1993.
The South Korean traveler interested in the Foremost West region is looking for
nature, scenery, history and outdoor activities, like skiing. Cultures different
from their own are also a big attraction to these travelers and Arizona and
Colorado (at 6 percent), two destinations of interest to the South Korean traveler,
have an abundance of all these attributes including numerous Indian cultures.
The visitor io Travel South is heading for Florida, the beach, and warm, sunny
weather. A large number are seeking luxury vacations, either in a package with
no details to fuss with, or sitting quietly by the beach, doing nothing.
George Washington Country's big draw is Washington, DC with its museums
and art galleries, festivals and special events, and big, modern cities. These are
package travelers who prefer a guided tour.
Finally, an unique analysis available from this region program is to be able to
U.S. Department of Commerce
United States Travel and Tourism Administration
spot areas of interest the traveler is not visiting. Below is a table that illustrates
this point and shows a few state markets that have a great potential for attracting
the South Korean traveler.
State
Top Three Places
Places Been to in the
Interested in Traveling
Past Three Years
California
61%
63%
New York
51%
54%
Hawaii
37%
24%
Arizona
23%
22%
Florida
20%
12%
Washington, DC
13%
19%
Nevada
9%
14%
Texas
8%
12%
Hawaii, and Florida have the highest untapped potential for attracting South
Korean travelers to their state. A few states show more visitation than interest
and may be want to consider other marketing tactics. These include California,
New York, Washington, DC, Nevada and Texas.
E.
Economic Outlook³
The South Korea economy will grow at a very good clip in 1993, despite a
declining growth rate when compared to 1991. Real Gross Domestic Product will
increase by 7.5 percent, a rate some 1.4 percentage points then the rate of
increase in 1991. Nonetheless, this is the second highest rate of any of USTTA's
27 markets, following Taiwan. Inflation will drop nearly three percentage points
over the same period, to 6.5 percent. Unemployment is nearly non-existent in
South Korea, hovering below 3 percent for the 1990's, with the 1993 rate being
2.3 percent.
3
The WEFA Group, January 1992
U.S. Department of Commerce
United States Travel and Tourism Administration
The South Korean won will appreciate very slightly against the U.S. dollar in
1993. It will take 1.6 percent fewer won to buy one U.S. dollar. This will have
a positive impact on travel to the U.S. in 1993, and the dollar is anticipated to
depreciate against the won for the remainder of the 1990's, adding more fuel to
the fire to travel to the U.S. The pent up demand for travel to the U.S. will
remain high, thus, keeping growth strong.
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
Taiwan
A.
Size of the Market
Arrivals:
1989
actual:
157,565¹
-14%
July 89
1990
actual:
239,345
+55%
1991
estimate:
267,500
+12%
,
1992
forecast:
302,000
+ -13%
1993
forecast:
339,000
+12%
Receipts:
1989
actual:
$289 million²
- 2%
1990
estimate:
$366 million
+27%
$
1991
estimate:
$424 million
+ 16%
1585
1992
forecast:
$490 million
+ 16%
1993
forecast:
$566 million
+ 16%
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
Taiwan
A.
Size of the Market
Arrivals:
1989
actual:
157,565¹
-14%
1990
actual:
239,345
+55%
1991
estimate:
267,500
+12%
1992
forecast:
302,000
+13%
1993
forecast:
339,000
+12%
Receipts:
1989
actual:
$289 million²
- 2%
1990
estimate:
$366 million
+27%
1991
estimate:
$424 million
+16%
1585
1992
forecast:
$490 million
+16%
672/day
1993
forecast:
$566 million
+16%
B.
U.S. Market Share/ Competitive Environment
From 1981 to 1989, there had been nothing but increases from this market. It
had grown almost 200% by 1989 Despite the dip in 1989 which may be due to
use of another data source, growth continues in the double-digit range through the
mid-1990's. A recent PATA study shows that the potential outbound pleasure
market should come close to doubling by 1991. This will provide a much larger
pie from which the U.S. can garnish a much larger slice.
I
Based on data from Tourism Bureau, Ministry of Communications, Republic of China
2
Based on trip expenditures within the U.S.; from the In-Flight Survey, Foreign Visitors to the
U.S., 1989 and 1990
U.S. Department of Commerce
United States Travel and Tourism Administration
C.
Visitor Profile³
The In-Flight Survey breaks out the Republic of China (Taiwan) from Other Far
East for the first time in 1990. The average traveler from Taiwan to the United
States is male, on vacation, and is more likely to be traveling alone than with a
spouse or family. The Taiwanese have a fairly high ratio of package use to the
U.S., at 40 percent. It follows, then, that 34 percent of arrivals from this
country in 1990 were first time visitors.
This traveler spends around 21 nights in the U.S. and has an annual household
income of $55,000 per year, some 5 percent lower than the typical overseas
visitor and also slightly lower than his fellow Far East travelers. Besides
receiving most pre-trip information through a travel agent, he books through them
as well.
This traveler spends $1,531 in the U.S. or $72 per visitor per day.
The Taiwanese travel to many states, with 60 percent visiting two or more states.
The far and away favorite destination at 69 percent is California, followed in
popularity by Hawaii at 39 percent. Nevada makes a strong showing in third
place with over 24 percent of the Taiwanese market to the U.S., with
Washington, DC trailing at just under 8 percent.
D.
Economic Outlook4
The Taiwan economy will grow at a very good clip in 1993. Real Gross National
Product will increase by a whopping 7.9 percent, the highest rates of any of
USTTA's 27 markets. The annual inflation will increase slightly to 4.2 percent.
Like Singapore, unemployment is virtually unheard of in Taiwan, with the annual
rate on the order of less than 2 percent for the last several years. The New
Taiwan dollars will appreciate against the U.S. dollar, taking 6 percent fewer
Taiwan dollars to ouy one U.S. dollar. A trip to the U.S. wiii be even more
attractive, due to the favorable relationship between the currencies.
3
USTTA In-Flight Survey of International Air Travel to the U.S., 1990
4
The WEFA Group, January 1992
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
Hong Kong
A.
Size of the Market
Arrivals:
1989
actual:
143,611
+14%
1990
actual:
163,457
+ 14%
1991
estimate:
179,600
+ 10%
1992
forecast:
197,000
+10%
1993
forecast:
215,000
+ 9%
Receipts:
1989
actual:
$263 million
+31%
1990
estimate:
$311 million
+18%
1991
estimate:
$355 million
+ 14%
$1977
1992
forecast:
$399 million
+ 12%
1993
forecast:
$448 million
+12%
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
Hong Kong
A.
Size of the Market
Arrivals:
1989
actual:
143,611
+14%
1990
actual:
163,457
+14%
1991
estimate:
179,600
+10%
1992
forecast:
197,000
+10%
1993
forecast:
215,000
+ 9%
Receipts:
1989
actual:
$263 million
+31%
1990
estimate:
$311 million
+18%
x
1991
estimate:
$355 million
+14%
1977
1992
forecast:
$399 million
+12%
1993
forecast:
$448 million
+12%
B.
U.S. Market Share/ Competitive Environment
o
Top five (country) destinations (1990):¹
1.
Thailand
19%
2.
Taiwan
13%
3.
Japan
12%
4.
Philippines
7%
5.
United States
7%
The history of travel from Hong Kong IS one of almost continual increase. With
the exception of 1977 and 1985, each year has seen an increasing number of
visitors from this small, but prosperous country. The prospects for continued
near double digit increases are with us, at least through 1992. Through the early
1990's, increases at the 9 percent level are anticipated annually.
I
Hong Kong Transit Authority and PATA, June 1991
U.S. Department of Commerce
United States Travel and Tourism Administration
C.
Visitor Profile2
The average traveler from Hong Kong to the United States is a male, on vacation,
spending around 18 nights in the U.S. and has traveled to the U.S. more than 17
times in his lifetime. He is twice as likely to be traveling alone as traveling with
a spouse. He has a household income of nearly $69,000 per year, one of the
highest of any of USTTA's markets, second only to the Swiss. Besides receiving
most pre-trip information through a travel agent, he books through them as well.
The favored destination is California, with over two-thirds of all Hong Kong
travelers visiting the state. This state is followed in popularity by New York and
Nevada, where the draw of gambling plays an important role, and Hawaii, at 15
percent.
D.
Economic Outlook³
The Hong Kong economy will continue to be subject to a number of political
situations which may adversely impact foreign investment in that economy. Real
Gross Domestic Product will increase by a modest 3.0 percent, in what appears
to be a slow-down in the annual increase of GDP. Hong Kong has one of the
lowest GDP's of all USTTA's markets, at 58. This is comparable to the
Scandinavian countries and some South American countries.
Inflation will moderate somewhat, increasing at a slower rate, 9.8 percent, than
in the past two years where double digit increases were noted. Unemployment
is very low, at a consistent level of about 2 percent. Because the Hong Kong
dollar is tied to the U.S. dollar, the exchange rate will remain the same between
the two countries, at $7.8 Hong Kong to one U.S. dollar. As the end of the
British occupancy nears, a great deal of uncertainty looms over Hong Kong's
future.
2
USTTA In-Flight Survey of International Air Travelers, 1990
3
The WEFA Group, January 1992
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
Singapore
A.
Size of the Market
I
Arrivals:
1989
actual:
48,567
+ 8%
1990
actual:
53,565
+ 10%
1991
estimate:
55,800
+ 4%
1992
forecast:
57,000
+ 3%
1993
forecast:
59,000
+ 3%
Receipts:
1989
actual:
$ 89 million
+23%
1990
estimate:
4
$102 million
+ 15%
1991
estimate:
$110 million
+ 8%
$1,971
1992
forecast:
$116 million
+ 5%
1993
forecast:
$123 million
+ 6%
U.S. Department of Commerce
United States Travel and Tourism Administration
Review of the Market
Singapore
A.
Size of the Market
Arrivals:
1989
actual:
48,567
+ 8%
1990
actual:
53,565
+ 10%
1991
estimate:
55,800
+ 4%
1992
forecast:
57,000
+ 3%
1993
forecast:
59,000
+ 3%
Receipts:
1989
actual:
$ 89 million
+ 23%
1990
estimate:
$102 million
+ 15%
1991
estimate:
$110 million
+ 8%
1971
1992
forecast:
$116 million
+ 5%
1993
forecast:
$123 million
+ 6%
B.
U.S. Market Share/ Competitive Environment
The history of travel from Singapore is one of good growth. However, from
1982 through 1986 there was a stagnation when the numbers held to the
mid-30,000's. This changed in 1987, when there was a sharp increase. Every
since then Singapore has been a source of steady moderate growth. In 1990,
arrivals topped the 50,000 mark. The trend for moderate growth looks to
continue at least through the mid-1990's.
C.
Economic Outlook¹
The Singapore economy will grow at a very good clip in 1993, despite a declining
in growth from the previous year. Real Gross Domestic Product will be 5.6
percent, one percentage point lower than 1992.
The WEFA Group, January 1992
U.S. Department of Commerce
United States Travel and Tourism Administration
Inflation will remain quite low, around 3.3 percent and is anticipated to remain
around 3.5 percent through the 1990's. The U.S. dollar and the Singapore dollar
will trade at the same rate through 1993, making a U.S. vacation an attractive
option with no surprises in the exchange rate.
Employment Generated by International Visitor Expenditures
Total us
3/4 of Bellum
JUBS
One of the most important benefits of international visitor spending is the
employment it supports. International visitor spending generated a total of 738,400 jobs
in the U.S. during 1989. On average, each $46,630 in visitor spending directly supported
one job. Table 12 provides the visitor generated employment estimates for the states by
industry sectors.
International visitor spending generated the most jobs in the Lodging and Food
Service sectors. Together, these two sectors accounted for two-thirds of the total
employment generated from international visitor spending. This is partly attributable to the
high level of expenditures in these two categories. It is also partly attributable to the
high labor intensiveness of these two industries versus industries like Public Transportation
which is more capital-intensive.
Overall, international visitor spending in California generated the most jobs (156,700).
Florida was second with 114,600 jobs, and New York was third with almost 80,000.
Lodging in California generated the most jobs with 55,700, followed closely by Food
Service with 50,600. Florida's Food Service sector was the third largest employer with
40,300 jobs, and Florida's Lodging sector ranked fourth with 35,000 jobs. New York's
Lodging ranked fifth and Food Service was sixth with 27,800 jobs and 25,900 jobs,
respectively.
California
160 ,our 1031
Flnda
115,000
V.Y
80.00
25
Table 12: 1989 Employment Generated by International Visitor Expenditures in the U.S. by States (in thousands)
Public
Auto
Food
Entertainment
Incidentals/
State
Transport
Transport
Lodging
Service
& Recreation
Retail
Total
Alabama
0.1
0.0
0.7
0.6
0.2
0.3
2.0
Alaska
**
**
**
**
**
**
**
Arizona
0.8
0.2
4.4
4.5
1.5
2.2
13.6
Arkansas
**
**
**
**
**
**
**
California
10.3
0.7
55.7
50.6
15.1
24.3
156.7
21.2%
of
Colorado
1.3
0.0
3:9
3.5
1.3
1.4
11.4
total US
Connecticut
0.1
0.0
1.4
1.1
0.4
0.5
3.5
Delaware
0.0
0.0
0.3
0.3
0.1
0.1
0.8
Florida
8.8
1.2
35.0
40.3
13.3
16.0
114.6
Georgia
1.7
0.0
3.7
3.4
0.8
1.4
11.0
Hawaii
2.5
0.4
13.2
16.1
11.5
9.3
53.0
Idaho
**
**
**
**
**
**
**
Illinois
2.1
0.1
9.6
8.1
2.4
3.8
26.1
Indiana
0.4
0.0
2.7
2.0
0.8
0.6
6.4
lowa
**
**
**
**
**
**
**
Kansas
**
**
**
**
**
**
**
Kentucky
0.4
0.0
1.3
1.1
0.5
0.3
3.7
Louisiana
0.8
0.0
3.2
3.0
0.9
1.1
9.1
Maine
0.1
0.1
1.6
2.1
0.6
0.4
4.8
Maryland
0.1
0.0
0.5
0.6
0.2
0.3
1.7
Massachusetts
0.7
0.1
6.9
6.8
2.0
2.6
19.0
** State excluded due to inadequate sample size
Source: U.S. Travel Data Center, U.S. Travel and Tourism Administration
26
ECONOMIC IMPACT OF INTERNATIONAL VISITOR EXPENDITURES IN THE U.S.
International visitors traveling in the U.S. during 1989 purchased goods and services
from retail and service establishments throughout the nation. Retail and service
establishments in turn employed workers to produce and deliver these goods and services.
These businesses also pay federal, state, and local taxes for the sales and income
generated from international visitors.
Payroll Income Generated by International Visitor Expenditures
T. sai
35 Billion
9 Billin
International visitor expenditures totaled $34.4 billion and generated approximately
Paymi
$8.9 billion in payroll or wage and salary income for United States employees during 1989.
On average, every dollar of international visitor expenditures generated about 26 cents in
payroll income. Table 11 demonstrates the distribution of this income by state and by
industry sector.
The Lodging sector accounted for over $2.6 billion and captured almost 30 percent
of all visitor generated payroll income in 1989. Food Service followed with almost $2.0
billion and about 22 percent. Public Transportation generated payroll income was $1.5
billion, followed closely Incidentals/Retail items ($1.5 billion) and Entertainment & Recreation
($1.2 billion).
As shown by Table 11, California, Florida and New York were the top three states
in payroll income generated by international visitor expenditures. In terms of state shares,
California had more payroll by a large margin than any other state, accounting for 22.5
percent of the total with over $2 billion. Florida was second with 15 percent, or almost
$1.4 billion, while New York showed about 13 percent, or nearly $1.2 billion.
The distribution of the payroll among sectors was similar for most states. For the
top three states with higher payroll income, Lodging accounted for the largest share,
while Food Service ranked second, followed by Public Transportation and Incidentals/Retail
items.
Caly
22.5%
2. Billim
Famla 15%
1.4 Zellin
,V.Y
1370
1.2 Billin
21
Table 11: 1989 Payroll Generated by International Visitor Expenditures in the U.S. by State ($ millions)
Public
Auto
Food
Entertainment
Incidentals/
State
Transport
Transport
Lodging
Service
& Recreation
Retail
Total
Alabama
$
2.0
$
0.1
$
5.7
$
4.5
$
1.7
$
3.5
17.5
**
**
**
**
**
**
**
Alaska
Arizona
17.4
2.7
38.4
32.2
15.7
26.8
133.2
**
**
**
**
**
Arkansas
**
**
California
348.6
13.7
598.0
426.1
292.8
331.6
2,010.8
22.5% of
Colorado
41.7
0.5
35.1
25.4
17.6
15.2
135.6
total
V.S,
Connecticut
2.7
0.3
16.3
10.5
5.5
6.5
41.9
Delaware
0.3
0.0
3.3
2.0
0.8
1.1
7.5
Florida
272.2
19.1
355.2
330.2
190.9
190.4
1,357.9
Georgia
67.4
0.5
34.0
25.8
10.9
16.6
155.2
Hawaii
65.4
7.5
198.9
146.1
142.1
120.7
680.6
Idaho
**
**
**
**
**
**
**
Illinois
74.2
1.2
102.6
62.4
31.6
50.2
322.1
Indiana
7.7
0.1
19.7
12.9
7.9
6.4
54.7
lowa
**
**
**
**
**
**
**
Kansas
**
**
**
**
**
**
**
Kentucky
9.3
0.3
9.4
7.8
5.1
3.2
35.1
Louisiana
22.0
0.5
31.7
22.1
10.4
12.4
99.0
Maine
**
**
**
**
**
**
**
Maryland
2.0
0.2
4.7
5.4
3.1
3.3
18.8
Massachusetts
23.8
1.6
79.3
60.2
30.7
33.1
228.7
** State excluded due to inadequate sample size
Source: U.S. Travel Data Center, U.S. Travel and Tourism Administration
22
L
1991 JAPANESE INVESTMENT IN
UNITED STATES REAL ESTATE
A Study by
KENNETH LEVENTHAL & COMPANY
Certified Public Accountants
C
Kenneth Leventhal & Company 1992
Although the information in this report has been obtained or derived from sources which Kenneth
Leventhal & Company believes to be reliable, we do not guarantee its accuracy, and such information
may be incomplete or condensed. All opinions and estimates included in this report constitute our judg-
ment as of the date of issuance and are subject to change without notice. This report is for information
purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of
any security or as an inducement to any specific transaction.
1991 JAPANESE INVESTMENT IN
UNITED STATES REAL ESTATE
A Study by
Kenneth Leventhal & Company
Certified Public Accountants
Member of Clark Kenneth Leventhal,
An International Association
1991 JAPANESE INVESTMENT IN
UNITED STATES REAL ESTATE
Table of Contents
Page
INTRODUCTION
1
Observations
4
METHODOLOGY
5
JAPANESE INVESTMENTS
7
Types of Properties
7
Financial Profiles
12
GEOGRAPHICAL DISTRIBUTION
15
State Allocation
15
Profile of Leading States
19
Metropolitan Area Allocation
22
Profile of Leading Metropolitan Areas
26
Primary/Secondary Market Allocation
29
JAPANESE INVESTORS
31
Investor Type
31
Investment Method
35
CONCLUSIONS AND OUTLOOK
39
INTRODUCTION
Japanese investment in United States real estate in 1991 totaled $5.06 billion, the lowest level
since 1985 when Kenneth Leventhal & Company (KL&Co.) began tracking such investment
(Exhibit 1). The 1991 total investment amount exhibited a dramatic 61 percent decline from
the 1990 investment amount of $13.06 billion. This precipitous decrease needs to be reviewed
in the context of various national and international events affecting investment in U.S. real
estate by the Japanese.
EXHIBIT 1
JAPANESE INVESTMENT
IN U.S. REAL ESTATE
Billions of Dollars
20
16.54
14.77
15
12.77
13.06
10
7.53
5.06
5
1.86
O
1985
1986
1987
1988
1989
1990
1991
Source: Kenneth Leventhal & Company
Commercial real estate in the United States is substantially oversupplied, with resulting declines
in property values and return on investment. Rent concessions translate into reduced cash
flows. Nineteen ninety-one was a year of economic recession in the United States and a period
of substantial economic decline in Japan. The Gulf War and global economic decline resulted
in a year of international investment uncertainty and indecision.
-1-
In April of 1990, the Japanese Ministry of Finance imposed real estate lending restrictions on
Japan's financial institutions which have only recently been eased. Japan's banks are still in
the process of complying with the Bank of International Settlements' capital-adequacy rule
(8 percent of their risk-adjusted assets by March 31, 1993). The Japanese stock market, a major
source of investment capital in recent years, continued to experience an overall decline. The
so-called Japanese bubble economy of the late 1980s seems to have burst. In addition, there
was increased trade friction between the United States and Japan.
Japanese investment in the United States peaked in 1988 and is not expected to return to that
year's levels in the near future because of an overhaul in Japan's financial system. A restrictive
monetary policy, higher bank capital requirements, a declining stock market, the banking
industry's low profit margins, and declining land prices have changed the profile of the
Japanese financial system. These changes are restructuring the Japanese financial system into
one that focuses more on profits than on growth, places a greater priority on domestic lending
and forces Japan's financial institutions to compete on a more level playing field with the
world's banks.
The emerging Japanese financial industry will see a number of mergers that will contract the
once-plentiful supply of low-cost financing to the world's capital markets. The contraction of
credit in Japan is being felt around the world. This is particularly evidenced by the dramatic
decline of Japanese investment in U.S. real estate in 1991. Long-term capital outflow from
Japan fell in 1990 to $44 billion from a high of $130 billion in 1988. For the first six months
of 1991, there was a net inflow of long-term capital amounting to $4 billion, the first net inflow
of capital into Japan in 11 years.
The surge in Japanese investment worldwide that capped the 1980s was led by the inexpensive
cost of capital in Japan and the eagerness of Japanese banks to expand market share. The
prevalence of liquidity resulted in higher asset values of Japanese property and financial
instruments, which investors borrowed against to acquire vast quantities of real estate
(particularly in the United States), as well as artworks, entire companies, and stocks and bonds.
However, the higher interest rates and the resulting crash of the Japanese stock market caused
the value of stocks to plunge, consequently shrinking the Japanese banks' capital base. Japan's
banks are now being forced to raise capital at higher funding costs at the same time as they are
being asked to set aside higher capital reserves in accordance with new international bank
standards. The outlook for real estate loans is not favorable since mortgage and construction
loans require additional capital reserves.
However, in spite of all these factors as well as other related matters, total Japanese investment
in the United States in 1991 increased (albeit at a modest 7 percent) to $75.78 billion. The
Japanese continue to be a significant force in U.S. real estate, with investments in at least
36 states and 75 metropolitan areas. Last year's Japanese investment is reflective of a different
set of circumstances than those that triggered the $16.54 billion investment in 1988. The
cyclical aspect of Japanese investment in U.S. real estate is becoming more apparent during its
relatively short time horizon.
-2-
The single largest acquisition of a U.S. company by the Japanese occurred in 1991. The
purchase of MCA Inc. by Matsushita, the giant Japanese electronics conglomerate, has been
estimated at approximately $6.3 billion. KL&Co.'s Japanese Data Base does not track
acquisitions of U.S. companies per se, but rather U.S. real estate transactions. However, a
significant portion of the MCA-Matsushita purchase was real estate oriented, including office
buildings, hotels, retail and land held for development. The amount of the total transaction that
was real estate oriented was approximately $622 million. This figure does not include the two
theme parks involved in the transaction since they were deemed to be primarily non-real estate
based.
The MCA acquisition alone accounted for 12 percent of the total 1991 Japanese investment in
U.S. real estate. The transaction was finalized on January 3, 1991. We have classified it as
mixed-use due to its multiple property types. In terms of our methodology and recording
procedures, the MCA-Matsushita transaction is considered a single transaction although the
various real estate components are situated in several locations. The investment amounts,
however, have been disaggregated into the appropriate geographical locations with all properties
being classified under the umbrella of mixed-use. Explanatory comments are included in the
report, as warranted, to present a comprehensive picture of 1991 Japanese investment activity.
Overall in 1991, hotel/resort was the leading investment category with 25 percent of total
investment, followed by mixed-use and office (both with 19 percent), residential (16 percent)
and land (11 percent).
On a cumulative basis, office is still the leading property type with 38 percent of total
investment through 1991. Office investment is followed by hotel/resort with 26 percent, mixed-
use (11 percent) and residential (11 percent).
The number of transactions declined from 307 in 1990 to 103 in 1991. However, the average
transaction amount increased from $42.5 million in 1990 to $49.1 million in 1991. This
16 percent increase is partially attributable to the MCA transaction. The vast majority of the
transactions in 1991 (88 percent) were less than $100 million in value.
Hawaii replaced California as the leading investment state in 1991 with 33 percent of total
investment versus 19 percent for California. This is a significant turnabout. However, on a
cumulative basis through 1991, California leads all states with 33 percent of total investment,
with Hawaii in second place (24 percent), followed by New York (16 percent).
Regarding the investment allocation for metropolitan statistical areas (MSAs), New York is
again the leading MSA with 17 percent of total investment in 1991, followed by Honolulu
(13 percent) and Los Angeles (12 percent). In terms of cumulative MSA investment, the top
three, Los Angeles, New York and Honolulu, each remain unchanged from their 1990 rankings.
In terms of investment by investor type, miscellaneous public/private companies and
construction and development companies tied for first place, both with 37 percent of total
-3-
investment. Individual investor/investment companies received 17 percent of total investment
and finished in third place.
Full ownership accounted for 68 percent of the dollars invested, a substantial increase over the
1990 results. Joint ventures declined from 43 percent in 1990 to 32 percent in 1991. New
construction received 53 percent of total 1991 investment, with existing properties declining
5 percent to 47 percent of total investment.
Observations
Speculation regarding any sizable liquidation of U.S. real estate by the Japanese was unfounded.
However, while not numerous, there were more sales than in previous years, and a number of
Japanese-owned properties are reportedly for sale. However, the Japanese do not seem to be
disenchanted with U.S. real estate. Rather, they are beginning to recognize its cyclical
fluctuations as well as its long-term potential. Furthermore, the Japanese realize that
U.S. commercial real estate as a whole has become somewhat depressed, not just the properties
they purchased. Certain Japanese who have sold or are considering selling their U.S. real estate
holdings are doing so for portfolio diversification and/or to offset other investment losses.
The Japanese investors in U.S. real estate are cognizant that some of their properties have
declined in value due to diminished cash flows resulting from depressed rents and lower
occupancy rates. This has resulted in the classification of a number of real estate loans as
nonperforming or in default. Likewise, the Japanese are aware that the increasing number of
troubled real estate loans in the United States may push property prices down further. As a
result, prudent Japanese investors have sought troubled debt restructuring for selected U.S. real
estate holdings. The restructuring vehicle presents a viable alternative to foreclosure and
enables both the bank and investor to focus on their long-term investment strategy outside of
bankruptcy. This trend is likely to continue as U.S. bank regulators shift attention to Japanese
real estate loans in the United States.
The following sections of this report present comprehensive and detailed analyses of Japanese
real estate activity for 1991. This year's report should provide members of the real estate
profession with valuable insights into existing and future trends.
-4-
METHODOLOGY
The annual Kenneth Leventhal & Company study of Japanese investment in U.S. real estate is
derived from the firm's Japanese Data Base (JDB.) The JDB records transactions by dollar
amount, property type, geographical location, buyer/developer and seller, and other
characteristics on an ongoing basis. Data are analyzed to show trends in value of investment,
percent contribution, product type, geographical distribution, types of investors, methods of
investment, property characteristics and other factors. Contrasts and comparisons are made with
prior JDB report findings so that the latest trends are presented.
The types of investments tracked in the JDB are primarily major investments that are "real
estate driven," i.e., acquired or developed for investment purposes and oriented toward
tenants/guests who pay rent, rather than being functional facilities from which business activities
are conducted. Investments in factories and other manufacturing facilities, as well as
transactions of which KL&Co. and its contacts are unaware, are not included in the JDB;
neither are transactions involving individual, single-family detached residential units acquired
by Japanese individuals.
KL&Co.'s Japanese Data Base is considered to be the most comprehensive and authoritative
data base tracking Japanese real estate investment available. Our information is collected from
a number of sources including Japanese clients and contacts, non-Japanese clients, KL&Co.
regional offices and their public relations firms across the country, contacts maintained by
KL&Co. personnel, and numerous media representatives. KL&Co. has an extensive tracking
network in place. In addition, an extensive literature search is periodically performed by the
KL&Co. National Library.
The JDB information is downloaded into a fully automated, computerized model. This
electronic processing system gives the JDB a large storage capacity and enables the information
to be readily manipulated in a variety of ways. The ability to present data in different sorts and
subsets and to array various distributions facilitates and expedites KL&Co.'s analytical
procedures.
We consider an investment in real estate to encompass both equity investment in and
convertible debt secured by real estate in the United States. Real estate financed by a Japanese
financial institution, but in which there is no Japanese equity investment, is not included in the
JDB. For transactions that are purchases of existing properties, estimated value is based on the
acquisition price. The acquisition price or estimated value is recorded to the extent that the
seller does not retain a percentage interest in the property.
With new construction, the estimated value is based primarily upon the costs to complete the
project, including the cost of land. The project is subdivided into individual phases whenever
possible. Similarly, with joint venture transactions, the Japanese contribution is recorded
separately as available. The dollar investment amount placed in the JDB is based upon the total
asset value net of any seller-retained or non-Japanese interest.
-5-
The JDB provides an indication of the magnitude of the contribution to U.S. Gross Domestic
Product made by property acquisitions and build-outs. Through the use of this measurement
approach, the effects on the U.S. economy and on particular real estate markets can be
evaluated in a quite comprehensive manner.
-6-
JAPANESE INVESTMENTS
Types of Properties
Exhibits 2 and 3 illustrate Japanese investment by property type over the past three years.
Investment in all property types decreased in 1991, and most of these declines were
pronounced. The property type experiencing the largest percentage increase was mixed-use; it
increased from 14 percent to 19 percent of total investment. This is largely attributable to the
MCA-Matsushita transaction. The largest percentage distribution decline occurred with
hotel/resort, which decreased from 29 percent to 25 percent. The percentage allocations for
other property types were quite similar to the 1990 numbers.
The trends depicted in Exhibits 2 and 3 illustrate that Japanese investment has been declining
since 1988 and is becoming more diversified according to product type. Investment in office
properties has declined substantially both in absolute and percentage terms. The supply-demand
imbalances in the office sector have been well documented. The Japanese preference for
hotel/resort properties is apparent: hotel/resort has been the leading investment property type
for the last three years. Residential property has also been capturing a steady share of
approximately 15 percent of total investment for the past three years, although in diminishing
dollar amounts.
EXHIBIT 2
INVESTMENT BY PROPERTY TYPE
Billions of Dollars
20
15
10
5
0
1988
1989
1990
1991
Office
Hotel/Resort
Mixed-use
Residential
Land
All Other Types
Source: Kenneth Leventhal & Company
-7-
EXHIBIT 3
INVESTMENT BY PROPERTY TYPE
1988
1989
1990
1991
Dollar
1988
Dollar
1989
Dollar
1990
Dollar
1991
Property
Amount
Percentage
Amount
Percentage
Amount
Percentage
Amount
Percentage
Type
(Millions)
of Total
(Millions)
of Total
(Millions)
of Total
(Millions)
of Total
Hotel/resort
$ 3,577
22%
$ 4,158
28%
$ 3,790
29%
$ 1,258
25%
Mixed-use
2,416
15
2,184
15
1,834
14
963
19
Office
8,310
50
3,331
23
2,163
17
941
19
Residential
702
4
2,216
15
2,056
16
809
16
Land
302
2
1,321
9
1,718
13
581
11
Golf course
202
1
394
3
547
4
325
6
Retail
644
4
350
2
524
4
136
3
Industrial
310
2
305
2
129
1
35
1
Other
81
-
517
4
298
2
12
-
Total
$16,544
100%
$14,775
100%
$13,059
100%
$ 5,060
100%
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
In 1991 the Japanese continued to purchase additional land, although they are postponing the
development of prior land acquisitions until market conditions improve and financing becomes
more readily available. Land acquisitions are a good indicator of Japanese intentions in the
future. While golf course acquisitions continue to receive considerable media attention, they
remain only a minor investment type.
Exhibits 4 and 5 illustrate cumulative Japanese investment by property type. Office is clearly
the dominate property type with 38 percent of the overall investment. However, in 1989, office
accounted for 44 percent of total investment. The second leading investment category,
hotel/resort, has been maintaining an even cumulative percentage share since 1989, slightly over
25 percent. The aggregate Japanese investment in hotel/resort properties is now $20 billion.
The cumulative investment in mixed-use remained rather static at approximately 10 percent.
Cumulative dollar investment for mixed-use is about $8.5 billion. Much the same can be said
for residential, i.e., a cumulative percentage of investment of about 10 percent and an aggregate
investment slightly exceeding $8 billion. Land held even at 6 percent of cumulative investment
in both 1990 and 1991 after experiencing a relatively slight cumulative percentage gain after
1989. On a relative basis, the aggregate investment in land in 1991 was rather minimal.
However, there are substantial land acquisitions that have not yet been developed but eventually
should be over the next few years as conditions for the new development improve.
-9-
EXHIBIT 4
INVESTMENT BY PROPERTY TYPE
PERCENT OF TOTAL INVESTMENT
HOTEL/RESORT
OFFICE
MIXED-USE
RESIDENTIAL
LAND
GOLF COURSE
RETAIL
INDUSTRIAL
OTHER
0%
10%
20%
30%
40%
PERCENT OF TOTAL INVESTMENT
Cumulative
1991
Through 1991
Source: Kenneth Leventhal & Company
-10-
EXHIBIT 5
CUMULATIVE INVESTMENT BY PROPERTY TYPE
Cumulative
Cumulative
Cumulative
Dollar
Dollar
Dollar
Amount
Percentage
1990
Amount
Percentage
1991
Amount
Percentage
Through
of Total
Dollar
1990
Through
of Total
Dollar
1991
Through
of Total
Property
1989
Through
Amount
Percentage
1990
Through
Amount
Percentage
1991
Through
Type
(Billions)
1989
(Billions)
of Total
(Billions)
1990
(Billions)
of Total
(Billions)
1991
Office
$25.36
44%
$ 2.16
17%
$27.52
39%
$ 0.94
19%
$28.46
38%
Hotel/resort
14.96
26
3.79
29
18.75
27
1.26
25
20.01
26
Mixed-use
5.80
10
1.83
14
7.63
11
0.96
19
8.59
11
Residential
5.32
9
2.06
16
7.38
10
0.81
16
8.19
11
Land
2.33
4
1.72
13
4.05
6
0.58
11
4.63
6
Retail
1.88
3
0.52
4
2.40
3
0.14
3
2.54
3
Golf course
0.75
1
0.55
4
1.30
2
0.32
6
1.62
2
Industrial
0.66
1
0.13
1
0.79
1
0.03
1
0.82
1
Other
0.60
1
0.30
2
0.90
1
0.01
-
0.91
1
Total
$57.65
100%
$13.06
100%
$70.72
100%
$ 5.06
100%
$75.78
100%
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
Financial Profiles
Exhibit 6 illustrates various financial trends in the purchase of U.S. real estate by the Japanese.
Over the seven-year period beginning in 1985, the price range has gradually widened, with
some fluctuations, with the lower end being pushed down by investments in land purchases
(1987), condominiums (1988), an apartment complex (1989), a small office building (1990), and
an incremental investment in an office building (1991). The upper end has been driven by the
size of the premier office complex (1985-1989) or large mixed-use projects, which were
acquired in both 1990 and 1991.
EXHIBIT 6
TRANSACTION PROFILE TRENDS
Magnitude of
Average
Annual
Transactions
Transaction
Percentage
Year
(Millions)
(Millions)
Change
1985
$4.0 - $542.0
$ 88.6
-
1986
4.0 620.0
110.0
+24%
1987
1.4 670.0
150.0
+36
1988
1.2 500.0
78.0
- 48
1989
0.3 - 744.0
50.8
- 35
1990
0.8 800.0
42.5
16
1991
0.3 621.6
49.1
+16
Source: Kenneth Leventhal & Company
The average transaction price increased 16 percent in 1991 to $49.1 million. This was a
reversal of the trend toward smaller-sized transactions that began in 1988. However, the
increase ($6.6 billion) was not of major proportions and can be attributed to the reduced number
of 1991 transactions combined with a substantial increase in the percentage distribution of more
expensive transactions, i.e., a somewhat skewed distribution.
Exhibit 7 illustrates the dollar distribution of Japanese investment. There have been only
relatively minor changes in the percentage distribution of transactions by category over the last
three years. In the category of transactions under $100 million, the percentage of transactions
is virtually unchanged from 1989 to 1991. The pattern is basically the same with both the
$100-to-less-than-$200-million and the $200-million-to-less-than-$300 million categories. Even
in the over-$300-million category, the transaction percentage allocation increased to only
5 percent from 1 percent in both of the previous years.
-12-
EXHIBIT 7
DISTRIBUTION OF JAPANESE INVESTMENT
(MILLIONS OF DOLLARS)
1989
1990
1991
Investment Category
Amount
Transactions
Amount
Transactions
Amount
Transactions
< $100 million
$ 7,653
256
$ 7,046
272
$2,002
91
Percent
52%
88%
54%
89%
40%
88%
$100 to < $200 million
$ 3,736
25
$ 4,151
30
$ 608
5
Percent
25%
9%
32%
10%
12%
5%
$200 to < $300 million
$ 2,093
8
$ 722
3
$ 470
2
Percent
14%
3%
6%
1%
9%
2%
≥ $300 million
$ 1,294
2
$ 1,140
2
$1,980
5
Percent
9%
1%
9%
1%
39%
5%
Total
$ 14,755
291
$ 13,059
307
$5,060
103
Percent
100%
100%
100%
100%
100%
100%
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
As would be expected, the major allocation changes occurred in the dollar amounts of the
transactions. The leading category (under $100 million) remained the same, receiving
40 percent of total investment in 1991, a substantial decline from 54 percent in 1990. The
average transaction amount in this category was only $22 million. However, a very significant
increase occurred in the over-$300-million category. In 1991, this category received 39 percent
of the total investment, up from 9 percent in both 1989 and 1990. While the over-$300-million
category consisted of only five transactions, the average transaction amount was nearly
$400 million. The other two categories accounted for only about 20 percent of 1991
investment. The 1991 transaction amount distribution seems somewhat related to an inversion
of the normal distribution, exhibiting a marked increase in the dollar amount of transactions
exceeding $300 million.
-14-
GEOGRAPHICAL DISTRIBUTION
State Allocation
Japanese investment also contracted geographically in 1991, occurring in 18 different states or
territories, down from 27 in 1990. As illustrated in Exhibits 8, 9, and 10, Hawaii and California
remain the preeminent states for Japanese investment, capturing $2.63 billion or 52 percent of
the 1991 total. New York regained its position as the third-ranking state in 1991 with a
doubling of investment (17 percent of the total) compared to 1990. The continued development
of resort projects on Guam propelled that small U.S. territory to a fourth ranking, with
13 percent of total investment.
EXHIBIT 8
DIVERSIFICATION BY STATE
PERCENT OF TOTAL INVESTMENT
PERCENT
35%
30%
25%
20%
15%
10%
5%
0%
HI
CA
NY
GUAM
FL
TX
AZ
GA
NJ
CO
OTHER
Cumulative
1991
Through 1991
Source: Kenneth Leventhal & Company
Hawaii attracted the most Japanese investment for the first time in four years, capturing
33 percent of the 1991 total, or $1.66 billion (Exhibit 9). This represents a decrease in dollars
but an increase in relative percentage of investment. Investment in Hawaii was $4.44 billion
in 1989 and $2.86 billion in 1990, representing 30 percent and 22 percent of total investment,
respectively. Investment in Hawaii continues to be concentrated in resort development, with
this property type increasing its investment share from 37 percent in 1990 to 48 percent in
1991.
-15-
In terms of cumulative Japanese investment in U.S. real estate, Hawaii is second only to
California, capturing $18.02 billion, or 24 percent of the $75.78 billion cumulative Japanese
investment through 1991 (Exhibit 10). This is a modest increase from 21 percent of cumulative
investment through 1988 and 23 percent through 1989 and 1990. Cumulative percentage
investment in Hawaii seems to be leveling off after peaking at 27 percent of total investment
through 1987. It should be noted, however, that a number of large projects (aggregating more
than $1 billion) have been put on hold until market conditions improve.
Although finishing behind Hawaii in 1991, California remains the dominant state for Japanese
investment on a cumulative basis. California received 19 percent of Japanese investment in
1991, or $976 million (Exhibit 9). This is significantly lower than the 45 percent the state
captured in 1990 and the 36 percent it captured in 1989. On a cumulative basis (Exhibit 10),
California exceeds all other states with 33 percent of total investment, down slightly from
34 percent through 1990.
EXHIBIT 9
INVESTMENT BY STATE
1990
1991
Dollar
1990
Dollar
1991
Amount
Percentage
Amount
Percentage
State
(Millions)
of Total
(Millions)
of Total
Hawaii
$ 2,860
22%
$1,656
33%
California
5,824
45
976
19
New York
418
3
859
17
Guam
1,099
8
655
13
Texas
207
2
162
3
Florida
510
4
160
3
Arizona
296
2
117
2
Georgia
107
1
88
2
New Jersey
94
1
64
1
Colorado
50
-
61
1
All others
1,594
12
262
5
Total
$ 13,059
100%
$5,060
100%
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
-16-
EXHIBIT 10
CUMULATIVE INVESTMENT BY STATE
Cumulative
Cumulative
Cumulative
Dollar
Dollar
Dollar
Cumulative
Amount
Percent of
Amount
Percent of
Amount
Percent of
Dollar
Percent of
Through
Total
Through
Total
Through
Total
Amount
Total
1988
Through
1989
Through
1990
Through
Through
Through
State
(Millions)
1988
(Millions)
1989
(Millions)
1990
1991
1991
California
$12,641
29%
$17,938
31%
$23,762
34%
$24,738
33%
Hawaii
9,065
21
13,502
23
16,362
23
18,018
24
New York
8,633
20
10,938
19
11,355
16
12,214
16
Illinois
2,951
7
3,057
5
3,359
5
3,365
4
Arizona
1,730
4
2,010
3
2,306
3
2,423
3
Texas
1,720
4
2,044
4
2,251
3
2,412
3
Guam
-
-
28
-
1,127
2
1,782
2
Florida
683
2
881
2
1,391
2
1,551
2
Washington
1,072
2
1,221
2
1,324
2
1,378
2
Georgia
848
2
1,020
2
1,127
2
1,215
2
All other areas
3,541
8
5,019
9
6,353
9
6,680
9
Total
$42,884
100%
$57,658
100%
$70,717
100%
$75,776
100%
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
New York ranked third in 1991 investment at $859 million or 17 percent of the total
(Exhibit 9). After experiencing a significant decline in investment in 1990, the state reported
the greatest increase in investment from 1990 levels primarily as the results of two large
transactions. New York continues to rank third in cumulative Japanese investment with
16 percent of the total, down from 20 percent through 1988 (Exhibit 10).
Guam was the fourth-ranked area for Japanese investment in 1991. After experiencing a record
level of investment for the island in 1990, Guam continued to capture investment interest
related to projects under construction. Investment in 1991 was $655 million or 13 percent of
the 1991 total (Exhibit 9), sufficient to make Guam the seventh-ranked area for investment on
a cumulative basis (Exhibit 10), just behind Texas.
Texas rebounded from a tenth-place ranking in 1990 investment to place fifth in total
investment and sixth in cumulative investment in 1991. Investment in Texas was $162 million
-17-
in 1991, which accounted for 3 percent of total 1991 investment. On a cumulative basis, Texas
has also received 3 percent of total Japanese investment to date.
Florida, which ranked fourth in 1990, slipped to sixth place in 1991 with $160 million in
investment, less than one-third the dollar amount of investment reported in 1990. On a
cumulative basis, Florida is eighth-ranked with 2 percent of cumulative investment. Most of
the investment in Florida has been in hotel and resort properties.
Although 1991 investment in Arizona was $117 million, down significantly from $296 million
in 1990, the state maintained its seventh-place ranking. On a cumulative basis, Arizona ranks
fifth with 3 percent of total investment.
Georgia, with $88 million in investment, ranked eighth in 1991 and tenth on a cumulative basis
with 2 percent of total investment. New Jersey ranked ninth in total investment in 1991 with
$64 million, although it did not make the top-ten list for cumulative investment.
Colorado finished tenth in 1991 investment with $61 million, but, like New Jersey, it is not
among the top ten states on a cumulative basis.
Although not among the top ten states for investment in 1991, Washington has 2 percent of
total cumulative Japanese investment, placing it ninth overall.
Investment in the top ten states totaled $4.80 billion, or 95 percent of total investment in 1991.
The top three states, Hawaii, California and New York, accounted for 69 percent of all Japanese
real estate investment. On a cumulative basis, states other than the top ten have attracted only
9 percent of total Japanese investment.
-18-
Profile of Leading States
Exhibits 11 and 12 present the investment highlights of 1990 and 1991 investment for the
three leading states: Hawaii, California and New York. In 1991, the average transaction
amount in Hawaii increased by $31.3 million, or 71 percent over the 1990 figure. Hawaii's
typical acquisition amount was 53 percent, or $26.2 million, above the national average. The
comparison with all other states (excluding California and New York) shows an even more
pronounced difference, with Hawaii's average transaction amount more than twice as large
as the others.
EXHIBIT 11
INVESTMENT PROFILE OF LEADING STATES
Dollar Amount
Percent of Dollar
Percent of All
Average Transaction
(Millions)
Amount
Transactions
(Millions)
State
1990
1991
1990
1991
1990
1991
1990
1991
Hawaii
$ 2,860
$ 1,656
22%
33%
21%
20%
$ 44.0
$ 75.3
California
5,824
976
45
19
35
26
53.9
34.9
New York
418
859
3
17
3
5
46.4
171.8
All other areas
3,957
1,569
30
31
41
49
31.6
29.1
Total
$13,059
$ 5,060
100%
100%
100%
100%
$ 42.5*
$ 49.1*
*National average
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
During the last year, Hawaii increased its relative percentage of total investment dollars.
However, its percentage of total transactions declined from 21 percent to 20 percent. This is
consistent with the substantial increase in Hawaii's average transaction amount in 1991.
California displayed a pattern of declining average transaction amount similar to that of most
other states. From 1990 to 1991, the average transaction amount in California declined by
$19.0 million, or 35 percent.
New York experienced the highest average transaction amount ($171.8 million) of any state in
1991. Two large transactions were responsible for the majority of the state's investment this
year and the high average transaction amount.
-19-
Exhibit 12 presents a summary of the leading property types, acquisition methods and investor
types for these three leading investment states. In 1991, the percentage of Hawaii investment
in the residential and land categories was similar to 1990 levels. Hotel/resort investment
continued to dominate property preferences, increasing from 37 percent of total Hawaiian
investment in 1990 to 48 percent in 1991.
Regarding the leading property types in California, the most noteworthy change from 1990 and
1991 was the increase in mixed-use investment from 29 percent to 44 percent. This increase
is due primarily to the classification of the real estate portion of the MCA acquisition. Office
investment declined from 18 percent in 1990 to 13 percent in 1991. Offsetting this decline,
residential investments increased from 14 percent in 1990 to 19 percent in 1991.
Investment in New York, on the other hand, was not as diversified by property type, but rather
was concentrated in office properties, which constituted 89 percent of 1991 investment.
In terms of leading acquisition methods, the overall pattern depicts a trend toward greater
Japanese emphasis on full ownership, particularly in California. The other major observation
is the marked increase of investment in new construction in the state of Hawaii. As Japanese
investment declined in 1991, construction projects became increasingly prominent in the year's
results.
-20-
EXHIBIT 12
TRANSACTION PROFILE OF LEADING STATES
Leading Property Types
Leading Acquisition Methods
Leading Investor Types
State
1990
1991
1990
1991
1990
1991
Hawaii
Hotel/resort
37%
Hotel/resort
48%
Existing property F.O.
39%
New construction F.O.
50%
Construction/development CO.
38%
Construction/development CO.
57%
Residential
22
Residential
21
New construction F.O.
35
New construction J.V.
29
Individual/investment CO.
33
Misc. public/private CO.
29
Land
18
Land
20
Misc. public/private CO.
15
Trading CO.
7
California
Mixed-use
29
Mixed-use
44
New construction J.V.
40
Existing property F.O.
65
Construction/development CO.
51
Misc. public/private CO.
47
Office
18
Residential
19
Existing property F.O.
38
New construction J.V.
18
Individual/investment CO.
16
Financial/leasing CO.
15
Residential
14
Office
13
Financial/leasing co.
13
Construction/development CO.
13
New York
Hotel/resort
36
Office
89
Existing property F.O.
66
Existing property J.V.
48
Misc. public/private CO.
65
Individual/investment co.
48
Retail
25
Residential
9
Existing property J.V.
25
Existing property F.O.
39
Construction/development co.
30
Misc. public/private CO.
37
Residential
18
Retail
2
Individual/investment CO.
4
Construction/development co.
15
All other
Hotel/resort
45
Mixed-use
34
Existing property - F.O.
33
New construction F.O.
50
Construction/development CO.
46
Construction/development CO.
43
states
Office
20
Hotel/resort
22
New construction - F.O.
30
Existing property F.O.
25
Individual/investment CO.
18
Misc. public/private CO.
39
Residential
13
Residential
12
Misc. public/private CO.
17
Individual/investment co.
11
Total
Hotel/resort
29%
Hotel/resort
25%
Existing property F.O.
38%
New construction F.O.
35%
Construction/development CO.
46%
Misc. public/private CO.
37%
Office
17
Mixed-use
19
New construction J.V.
29
Existing property F.O.
33
Individual/investment co.
20
Construction/development CO.
37
Residential
16
Office
18
Misc. public/private CO.
15
Individual/investment CO.
16
Notes: State listing is in descending dollar volume; percentages are of total dollar volume for that state; J.V. = Joint Venture; F.O. = Full Ownership.
Source: Kenneth Leventhal & Company
Metropolitan Area Allocation
A more precise analysis of Japanese investment is possible through separating such investment
by metropolitan areas (Exhibits 13 and 14). Here the main trend visible is the declining
dominance of California locations among the top ten investment areas. Only three of the top
ten metropolitan areas in 1991 were in California -- Los Angeles, San Diego, and
San Francisco-Oakland. In 1990, six of the top ten metropolitan areas were in California. This
demonstrates the magnitude of both the economic and real estate recessions in California.
A second trend in 1991 was the continued increase in investment in nonmetropolitan areas.
These areas, which include cities with populations of fewer than 50,000 and rural areas,
captured 35 percent of the 1991 investment, compared with 22 percent the previous year.
Of the $1.76 billion invested in nonmetropolitan areas, $655 million was invested in Guam and
$994 million was invested in the Hawaiian islands other than Oahu. (The entire island of Oahu
is included in the Honolulu metropolitan area.) Most of this Hawaiian investment was in hotels
and resorts ($619 million) and land ($300 million). The remaining $114 million of investment
in nonmetropolitan areas was primarily in hotel and resort properties scattered across the United
States.
Investment in the New York metropolitan area totaled $859 million in 1991, moving New York
from seventh place in 1990 to first place in the 1991 rankings. On a cumulative basis, New
York maintained its second-place ranking in 1991, with 16 percent of the total Japanese
investment, almost equaling Los Angeles.
Honolulu had the second-highest level of investment in 1991 with $662 million, or 13 percent
of total investment. On a cumulative basis, investment in the Honolulu metropolitan area
exceeded $8.80 billion, or 12 percent of cumulative Japanese investment. This places Honolulu
third behind Los Angeles and New York in cumulative investment.
In 1991, for the first time in four years, Los Angeles was not the top metropolitan area for
Japanese investment for the year, both New York and Honolulu receiving more investment.
With $590 million, or 12 percent of total 1991 investment, the Los Angeles metropolitan area
dropped to third place. On a cumulative basis, however, Los Angeles is still ahead of New
York as the metropolitan area with the most Japanese investment. The Japanese have invested
a cumulative total of $12.43 billion, or 16 percent of their total investment, in Los Angeles.
San Diego received the fourth-largest amount of Japanese investment, with $138 million or
3 percent of the total investment in 1991. On a cumulative basis, San Diego climbed to fifth
place with 4 percent or $3.11 billion of total investment.
San Francisco-Oakland ranked fifth in 1991 investment, with $127 million or 3 percent of
Japanese investment. In terms of cumulative investment, San Francisco-Oakland still ranks
sixth with $2.89 billion in total investment.
-22-
Orlando ranked sixth among the top ten metropolitan areas in 1991 with $122 million of
investment. Cumulatively, Orlando does not rank in the top ten metropolitan areas.
With $88 million of investment in 1991, Atlanta captured 2 percent of the total Japanese
investment. Cumulative investment in Atlanta now totals $1.20 billion, or 2 percent of total
investment.
Residential properties in Phoenix continue to attract Japanese investors. Investment in Phoenix
was $74 million, or 1 percent of the 1991 total. Phoenix, with $2.38 billion, has 3 percent of
cumulative investment and ranks seventh overall.
Denver broke into the top ten metropolitan areas in 1991, finishing ninth. Denver received
$59 million, or 1 percent of 1991 Japanese investment. Cumulatively, however, Denver is still
not one of the top ten metropolitan areas, having less than 1 percent of the total investment.
Anchorage attracted Japanese investment for the first time this year and even made the top ten,
with $54 million of investment. Cumulatively, however, Anchorage is not one of the top ten
metropolitan areas.
Several metropolitan areas that have consistently attracted Japanese investment in previous years
were not among the top ten in 1991. These areas include Anaheim, Riverside, Chicago, Dallas,
and Washington, D.C. On a cumulative basis, however, the Chicago metropolitan area
continues to rank fourth, while Anaheim ranks eighth and Washington, D.C. ranks ninth. Dallas
holds a tenth-place ranking on a cumulative basis.
-23-
EXHIBIT 13
INVESTMENT BY METROPOLITAN AREA
Through
1988
Through
1989
1990
Total Dollar
1988
Dollar
1989
Dollar
1990
1991 Dollar
1991
Amount
Percentage
Amount
Percentage
Amount
Percentage
Amount
Percentage
Metropolitan Area
(Millions)
of Total
(Millions)
of Total
(Millions)
of Total
(Millions)
of Total
New York, NY
$ 8,633
20%
$ 2,304
16%
$
402
3%
$ 859
17%
Honolulu, HI
5,745
13
1,064
7
1,325
10
662
13
Los Angeles, CA
7,619
18
2,512
17
1,704
13
590
12
San Diego, CA
821
2
1,103
7
1,052
8
138
3
San Francisco, CA
1,912
4
358
2
488
4
127
3
Orlando, FL
-
-
-
-
234
2
122
2
Atlanta, GA
836
2
172
1
106
1
88
2
Phoenix, AZ
1,730
4
280
2
297
2
74
1
Denver, CO
54
-
128
1
4
-
59
1
Anchorage, AK
-
-
-
-
-
-
54
1
Other metropolitan areas
14,875
35
3,174
22
4,515
35
524
10
Non-MSAs
659
2
3,680
25
2,932
22
1,763
35
Total
$ 42,884
100%
$ 14,775
100%
$ 13,059
100%
$ 5,060
100%
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
The top ten metropolitan areas accounted for $2.77 billion, or 55 percent of the 1991 Japanese
investment. The $524 million included in metropolitan areas other than the top ten represents
10 percent of the total 1991 investment and is spread across 21 different metropolitan areas.
EXHIBIT 14
DIVERSIFICATION BY METROPOLITAN AREA
PERCENT OF TOTAL INVESTMENT
NEW YORK
HONOLULU
LOS ANGELES
SAN DIEGO
SAN FRANCISCO
ORLANDO
ATLANTA
PHOENIX
DENVER
ANCHORAGE
OTHER METRO AREAS
NON-METRO AREAS
0%
5%
10%
15%
20%
25%
30%
35%
40%
PERCENT OF TOTAL INVESTMENT
Cumulative
1991
Through 1991
Source: Kenneth Leventhal & Company
-25-
Profile of Leading Metropolitan Areas
Exhibits 15 and 16 present the salient investment characteristics of the five leading metropolitan
areas. Exhibit 15 shows the considerably smaller range in the 1991 investment amounts versus
the 1990 figures. The total dollar amount is also more concentrated among the top three MSAs
than in previous years.
EXHIBIT 15
INVESTMENT PROFILE OF
LEADING METROPOLITAN AREAS
Dollar Amount
Percent of
Percent of All
Average Transaction
(Millions)
Dollar Amount
Transactions
(Millions)
Metropolitan
Area
1990
1991
1990
1991
1990
1991
1990
1991
New York
$
402
$
859
3%
17%
3%
5%
$50.3
$171.8
Honolulu
1,325
662
10
13
10
11
42.7
55.2
Los Angeles
1,704
590
13
12
9
6
63.1
84.3
San Diego
1,052
138
8
3
9
5
39.0
27.6
San Francisco
488
127
4
3
3
2
48.8
63.5
All other areas
8,088
2,684
62
52
66
71
39.2
34.4
Total
$13,059
$ 5,060
100%
100%
100%
100%
$42.5*
$ 49.1*
*National averages
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
The average transaction amount for Honolulu ($55.2 million) approximates the national average.
The average transaction amount for Los Angeles ($84.3 million) is approximately 72 percent
greater than the national average of $49.1 million. The considerably larger figure for
Los Angeles is the result of the impact of the transaction associated with the MCA acquisition.
Exhibit 16 presents a summary of the leading property types, investor methods and investment
types. New York reported the most heavily skewed results of any metropolitan area, with
89 percent of all investment in the office category. The second- and third-most popular
investment categories, residential and retail, were relatively insignificant. Hotel investment, the
top category in 1990, was absent among the 1991 transactions in New York.
-26-
EXHIBIT 16
TRANSACTION PROFILE OF LEADING
METROPOLITAN AREAS
Leading Property Types
Leading Investment Methods
Leading Investor Types
Metropolitan
Area
1990
1991
1990
1991
1990
1991
New York
Hotel/resort
38%
Office
89%
Existing property F.O.
64%
Existing property J.V.
48%
Misc. public/private co.
63%
Individual/investment co.
48%
Retail
26
Residential
9
Existing property J.V.
26
Existing property F.O.
39
Construction/development CO. 33
Misc. public/private CO.
37
Residential
19
Retail
2
Individual/investment co.
4
Construction/development co. 14
Honolulu
Hotel/resort
34
Residential
44
New construction F.O.
42
New construction F.O.
82
Construction/development co. 46
Construction/development co. 58
Office
16
Hotel
27
Existing property F.O.
41
New construction - J.V.
13
Individual/investment co.
35
Misc. public/private co.
27
Residential
15
Golf course
24
Misc. public/private co.
11
Individual/investment co.
15
Los Angeles
Office
45
Mixed-use
70
New construction J.V.
53
Existing property - F.O.
87
Financial co.
42
Misc. public/private co.
70
Mixed-use
15
Office
17
Existing property J.V.
41
New construction - J.V.
13
Construction/development co. 30
Financial CO.
11
Retail
12
Hotel
11
Misc. public/private co.
15
Construction/development CO.
8
San Diego
Hotel/resort
29
Residential
71
New construction J.V.
54
Existing property J.V.
29
Construction/development co. 34
Individual/investment co.
38
Land
19
Land
29
Existing property F.O.
39
New construction J.V.
29
Individual/investment CO.
29
Construction/development co. 33
Residential
17
-
Trading co.
19
Trading co.
29
San Francisco
Hotel/resort
33
Hotel
40
Existing property F.O.
70
New construction F.O.
61
Construction/development CO. 69
Individual/investment co.
40
Office
29
Residential
39
New construction J.V.
30
New construction J.V.
39
Individual/investment co.
28
Financial CO.
39
Mixed-use
22
Land
21
Trading CO.
13
Misc. public/private CO.
21
All other areas
Hotel/resort
31
Hotel/resort
36
Existing property F.O.
41
New construction - F.O.
40
Construction/development co. 51
Construction/development CO. 47
Residential
18
Mixed-use
20
New construction - J.V.
28
Existing property F.O.
30
Individual/investment co.
19
Misc. public/private co.
35
Mixed-use
16
Land
18
Misc. public/private co.
15
Individual/investment CO.
8
Total
Hotel/resort
29
Hotel/resort
25
Existing property F.O.
38
New construction F.O.
35
Construction/development CO. 46
Misc. public/private co.
37
Office
17
Mixed-use
19
New construction J.V.
29
Existing property F.O.
33
Individual/investment CO.
20
Construction/development CO. 37
Residential
16
Office
18
Misc. public/private CO.
15
Individual/investment co.
16
Notes: Metropolitan area listing is in descending dollar volume; percentages are of total dollar volume for that metropolitan area; J.V. = Joint Venture; F.O. = Full Ownership; N/A = Not applicable.
Source: Kenneth Leventhal & Company
In Honolulu, residential investment achieved the number one position among property types.
In this market, full ownership acquisitions accounted for over 80 percent of the transactions in
1991. The three leading investor types remained the same but miscellaneous public and private
companies increased to the number two position over individual investor/investment companies.
The MCA acquisition had a substantial impact on leading property type, investment method and
investor type for Los Angeles in 1991. A similar phenomenon in 1990 Los Angeles investment
skewed the results toward office buildings as the leading property type, due primarily to two
downtown office investments. Los Angeles experienced a substantial increase in its percentage
allocation of mixed-use investment in 1991 versus 1990. The metropolitan area had a
disproportionately large share of its transactions in the existing property - full ownership
category, with miscellaneous public and private companies as the dominant investor type due
to the MCA transaction. Financial companies slipped to second place as the most common
investor type while construction and development companies fell to third place.
San Diego experienced a significant increase in the residential category in 1991. In contrast
with 1990, San Diego did not report any investment in hotel/resort properties. New
construction - joint ventures and existing property - joint ventures were the two most common
investment methods, accounting for 58 percent of all investment. Individual investor/investment
companies were the number one investor type in San Diego, followed by construction/
development and trading companies.
In 1991, San Francisco-Oakland reported a sizable increase in its percentage allocation for
residential transactions, giving hotel and residential investment the number one and two
rankings, respectively. Construction/development companies, which accounted for 69 percent
of investment in San Francisco-Oakland in 1990, did not make any new investments in 1991.
-28-
Primary/Secondary Market Allocation
Kenneth Leventhal & Company has continued to analyze the geographical variations of
Japanese real estate investments according to primary and secondary market areas (Exhibit 17).
The primary market areas consist of the cities of Los Angeles, New York, San Francisco and
the island of Oahu, Hawaii (the Honolulu metropolitan area). The secondary market areas
consist of all other areas that encompass other metropolitan areas, the suburban portions of the
Los Angeles, New York and San Francisco metropolitan areas, nonmetropolitan areas, and the
other Hawaiian islands.
EXHIBIT 17
INVESTMENT BY PRIMARY AND SECONDARY
GEOGRAPHIC MARKETS
Billions of Dollars
12
10.07
9.52
9.58
10
-7.31
8
7.02
5.46
6
5.20
4.27
4
3.26
2.99
3.02
2.04
2
1.50
0.36
0
1985
1986
1987
1988
1989
1990
1991
PRIMARY
SECONDARY
Source: Kenneth Leventhal & Company
The primary market areas were the first markets to be the recipients of major Japanese real
estate investments. They are the nation's major international cities, have coastal locations and
contain some of the "best known" real estate in the nation. The Japanese were familiar with
these areas through their existing commercial presence. The terminology "primary/secondary"
is intended to differentiate the market areas initially receiving the vast majority of the Japanese
investment from those markets receiving increasing subsequent attention. No implication
regarding the quality of real estate product is intended.
-29-
The four primary markets had been receiving a decreasing share of Japanese investment through
1990, comprising 81 percent of total investment in 1985, 42 percent in 1988, and only
23 percent in 1990. However, in 1991 the primary markets received 40 percent of total
investment. (This is largely attributable to the portion of the MCA-Matsushita transaction
located in Los Angeles.) The primary markets had shown increases in absolute investment each
year through 1988. Since 1989 and continuing into 1991 that trend has been changing.
Absolute investment declined in the primary markets while absolute investment increased in the
secondary markets in 1989 and 1990, despite the overall decrease in Japanese investment. In
1991, however, there was a significant decline in absolute investment in the secondary markets.
The steady decreases in investment in the primary markets are attributable to a number of
factors. The large cumulative existing investment in the primary markets means that relatively
fewer "preferred" properties are left to be acquired. Within three of the four (Honolulu being
the exception), office facilities have been the predominant property type acquired. The current
condition of the office market has resulted in a slowing of investment and a more selective
investment strategy for this product type. Increased familiarity with real estate markets in the
United States has heightened Japanese awareness of and interest in secondary markets over the
last few years. In addition, many Japanese companies own multiple properties in the United
States and have sought to decrease geographic risk by diversifying the locations of their
properties.
-30-
JAPANESE INVESTORS
Investor Type
The diversification in property types invested in is mirrored by the diversification of investors.
In 1991 miscellaneous public/private companies invested the largest dollar amount (Exhibits 18
and 19), with 37 percent of total investment. Construction and development companies, the
leading investor type for the previous three years, dropped to second place, also with 37 percent
of total investment. The percentage allocation for individual investors/investment companies
declined from 20 percent in 1990 to 17 percent in 1991, moving from second to third ranking.
Life insurance companies, which were major investors in earlier years, have had only a very
minor presence in the market for the past two. Financial companies and trading companies,
whose percentages of investment had substantially increased in 1990, both decreased their
investment levels in 1991.
In 1991, investment by construction and development companies dropped 9 percent from 1990's
percentage, but they are still the overall dominant investor type. Although these companies are
investing in all property types, they are involved in a disproportionately large share of
hotel/resort and residential investment (Exhibit 20). Not surprisingly, these companies have a
low share of office building investment, since office acquisitions are mainly of existing
properties, allowing less opportunity for construction and development companies to capitalize
on their own expertise.
Individual investors and investment companies have spread their investment broadly across most
property types. This group holds a disproportionate share of golf course investment. Although
these investors represented only 17 percent of total investment, they purchased 47 percent of
the golf courses in 1991.
Miscellaneous public and private companies have also invested in a broad range of real estate
product types. They acquired the MCA real estate and, hence, the disproportionate share of
investment in mixed-use property. This investment category also favors hotel/resort, land and
office investments.
-31-
EXHIBIT 18
INVESTMENT BY INVESTOR TYPE
1989
1990
1991
Dollar
1989
Dollar
1990
Dollar
1991
Amount
Percentage
Amount
Percentage
Amount
Percentage
Investor Type
(Millions)
of Total
(Millions)
of Total
(Millions)
of Total
Miscellaneous public/private company*
$ 2,549
17%
$ 2,011
15%
$ 1,879
37%
Construction/development company
7,222
49
6,038
46
1,869
37
Individual investor/investment company
3,034
21
2,601
20
835
17
Trading company
84
1
978
7
228
5
Financial company
318
2
942
7
148
3
Life insurance company
891
6
113
1
10
-
Other unclassified companies**
677
5
376
3
91
2
Total
$14,775
100%
$13,059
100%
$ 5,060
100%
*
Companies whose type of business is known but does not fit into another listed category, e.g. manufacturing, retail, transportation, etc.
** Companies whose type of business could not be determined.
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
EXHIBIT 19
INVESTMENT BY INVESTOR TYPE
Billions of Dollars
16
14
12
10
8
6
4
2
0
1989
1990
1991
Construction/Development Company
Misc. Public/Private Company
Individual Investor/Investment Company
Other Investor Types
Source: Kenneth Leventhal & Company
-33-
EXHIBIT 20
1991 INVESTMENT
BY PROPERTY AND INVESTOR TYPE
(MILLIONS OF DOLLARS)
Hotel/
Golf
Mixed-
Investor Type
Office
Resort
Residential
Retail
Land
Course
Industrial
Use
Other
Total
Miscellaneous public/private company*
$329
$ 370
-
$ 100
$370
$ 58
-
$ 640
$ 12
$1,879
Construction/development company
106
663
$488
15
150
90
$ 35
322
-
1,869
Individual investor/investment company
431
60
157
13
21
153
-
-
-
835
Trading company
-
100
88
-
40
-
-
-
-
228
Financial company
30
65
54
-
-
-
-
-
-
148
Life insurance company
-
-
-
8
-
-
-
2
-
10
-
Other unclassified companies**
45
-
22
-
-
24
-
-
-
91
Total
$941
$1,258
$ 809
$ 136
$ 581
$ 325
$ 35
$ 963
$ 12
$5,060
* Companies whose type of business is known but does not fit into another listed category, e.g. manufacturing, retail, transportation, etc.
** Companies whose type of business could not be determined.
Note: the sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
Investment Method
The data on investment method for 1991 reflect an acceleration of trends that were noted in
1990. Japanese investors are relying less on joint ventures, particularly for new construction.
In 1990, for the first time, full ownership represented the majority of Japanese investment. Full
ownership transactions became even more popular in 1991, accounting for 68 percent of
investments, up from 57 percent in 1990 and 46 percent in 1989 (Exhibits 21 and 22). Among
the joint ventures, numerous transactions involved only Japanese companies.
The growing Japanese knowledge of U.S. real estate markets is also shown in the increase in
the percentage of investment in new construction. In 1991, new construction represented
53 percent of the total Japanese investment, increasing from 48 percent in 1990 and 44 percent
in 1989.
The increase in new construction is partly a result of prior investments in land, but is
nonetheless somewhat surprising since a number of Japanese companies slowed or postponed
development of their projects in 1991, waiting until the U.S. real estate markets strengthen. The
increase in new construction is also indicative of the continuing participation by Japanese
construction/development companies. The percentage of new construction should continue to
increase as the real estate markets stabilize and land purchases, which are considered existing
properties, are turned into construction projects.
An analysis of investment method by investor type (Exhibit 23) provides further insights.
Miscellaneous public/private companies are both increasingly choosing full ownerships over
joint ventures, particularly with existing properties. The construction/development companies
are now using more full ownerships than joint ventures for new construction.
The construction/development companies continue to invest substantially more in new
construction than in existing properties. The new construction totals probably understate the
importance of new construction because raw land acquisitions, which have represented major
investments by construction/development companies, are categorized as existing properties. The
individual investors/investment companies continue to purchase more existing properties.
-35-
EXHIBIT 21
INVESTMENT BY PROPERTY INVESTMENT METHOD
1989
1990
1991
Dollar
1989
Dollar
1990
Dollar
1991
Amount
Percentage
Amount
Percentage
Amount
Percentage
Property Investment Method
(Millions)
of Total
(Millions)
of Total
(Millions)
of Total
New construction - full ownership
$ 2,088
14%
$ 2,534
19%
$ 1,765
35%
Existing property - full ownership
4,717
32
4,904
38
1,678
33
New construction - joint venture
4,397
30
3,847
29
931
18
Existing property - joint venture
3,574
24
1,773
14
686
14
Total
$14,775
100%
$13,059
100%
$ 5,060
100%
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
EXHIBIT 22
INVESTMENT BY PROPERTY INVESTMENT METHOD
Billions of Dollars
16
14
12
10
8
6
4
2
0
1989
1990
1991
Existing Property-Full Ownership
Existing Property-Joint Venture
New Construction-Joint Venture
New Construction-Full Ownership
Source: Kenneth Leventhal & Company
-37-
EXHIBIT 23
PROPERTY INVESTMENT METHOD BY INVESTOR TYPE
PERCENT OF TOTAL INVESTMENT
Percent of
Percent of
Percent of
Percent of
Existing Property -
New Construction -
Existing Property -
New Construction -
Full Ownership
Full Ownership
Joint Venture
Joint Venture
Percent of Total
Investor Type
1990
1991
1990
1991
1990
1991
1990
1991
1990
1991
Miscellaneous public/private company*
8%
27%
2%
8%
1%
2%
5%
-
15%
37%
Construction/development company
16
2
12
23
4
2
15
10%
46
37
Individual investor/investment company
10
2
4
4
3
8
3
2
20
16
Trading company
2
-
1
-
2
1
3
4
7
5
Financial company
1
1
-
-
3
-
3
2
7
3
Life insurance company
-
-
-
-
1
-
-
-
1
-
Other unclassified companies**
1
2
1
-
-
-
1
-
3
2
Total
38%
34%
19%
35%
14%
13%
29%
18%
100%
100%
*
Companies whose type of business is known but does not fit into another listed category, e.g. manufacturing, retail, transportation, etc.
** Companies whose type of business could not be determined.
Note: The sum of individual components may not correspond to totals due to rounding.
Source: Kenneth Leventhal & Company
CONCLUSIONS AND OUTLOOK
The decline in Japanese investment that many individuals expected in 1990 did not actually
occur until 1991. Last year Japanese investment in U.S. real estate was $8 billion less than in
1990. The primary factors contributing to this decrease in investment dollars were the U.S.
recession and its anemic and/or faltering recovery; the supply-demand imbalances in the United
States commercial real estate markets, resulting in impaired financial performances; the
restructuring of the Japanese financial system, which reduced the former plentiful supply of
low-cost financing; the real estate lending constraints imposed by the Japanese Ministry of
Finance; the contraction of the Japanese economy; the international disruptions resulting from
the successful Desert Storm operation; the disappointing and declining financial returns of some
Japanese investments in the United States and the need to financially restructure some
properties; and the severity of both the economic and real estate recessions in California.
These factors and conditions became more pronounced in 1991 as their duration was extended
and their cumulative effects intensified. Many of the 1990 Japanese transactions proceeded with
planning and infrastructure development under the assumption that economic conditions would
improve. However, as conditions became less favorable and constrictions intensified in 1991,
decisions to postpone or forgo certain investments were made. Many of the projects placed on
hold may be reactivated in the third and fourth quarters of 1992 as the recession draws to a
conclusion.
Kenneth Leventhal & Company forecasts 1992 Japanese investment to range from $3 billion
to $5 billion. The conditions under which the Japanese previously invested in U.S. real estate
have markedly changed since the late 1980s and are not expected to be reversed. The
acquisition of trophy properties will be lacking. Residential, the least oversupplied real estate
sector, will be increasingly the beneficiary of Japanese investment. Capital infusions will flow
into new single-family and apartment development projects. This investment will assist in
filling the financing void created by the curtailment of traditional lending sources. A
considerable portion of this investment should occur in Southern California.
Japanese investment in terms of both equity and debt has played an important role is providing
capital to the financially strapped U.S. real estate industry. The easing of restrictions on the
part of the Ministry of Finance should help lay the basis for future Japanese investment as
market conditions improve. This investment has increased in importance as the U.S. real estate
industry struggles to recover from the financial and regulatory constraints imposed over the past
two years.
-39-
KENNETH LEVENTHAL & COMPANY LOCATIONS
Los Angeles
Orange County
2049 Century Park East
660 Newport Center Drive, Suite 800
Los Angeles, California 90067
Newport Beach, California 92660
(310) 277-0880
(714) 640-5000
Boston
New York
60 State Street, 35th Floor
805 Third Avenue, 12th Floor
Boston, Massachusetts 02109
New York, New York 10022
(617) 570-8400
(212) 832-6990
Chicago
Phoenix
500 West Madison Street, Suite 3300
2425 East Camelback Road
Chicago, Illinois 60661
Phoenix, Arizona 85016
(312) 648-9600
(602) 957-2000
Columbus
San Francisco
10 West Broad Street
100 Spear Street, Suite 1200
Columbus, Ohio 43215
San Francisco, California 94105
(614) 464-1403
(415) 777-3640
Dallas
San Diego
2200 Ross Avenue, Suite 1100
701 B Street, Suite 700
Dallas, Texas 75201
San Diego, California 92101
(214) 969-0900
(619) 232-6300
Houston
Washington, D.C.
5 Greenway Plaza, Suite 600
1150 18th Street, Suite 500
Houston, Texas 77046
Washington, D.C. 20036
(713) 850-9100
(202) 775-1880
Miami
International
2100 Ponce de Leon Blvd., Suite 950
Clark Kenneth Leventhal
Coral Gables, Florida 33134
25 New Street Square
(305) 443-2323
London, England
011-44-1-353-0508
Headquarters
2049 Century Park East
Los Angeles California 90067
(310) 277-0880