KAGA, Ishikawa Pref. (Kyodo) When U.S. investment bank Goldman Sachs told developer Shin Higeta he could shut down the famous Shiroganeya inn in Kaga, Ishikawa Prefecture, for renovations, he was surprised.
“It is amazing that a foreign fund can actually stand a business suspension as long as four months,” said Higeta, who works for Hoshino Resort Inc., based in Karuizawa, Nagano Prefecture.
Higeta was put in charge of renovating the ryokan, which was built in 1624 and is famous for being patronized by artist Rosanjin Kitaoji (1883-1959).
The inn closed in March 2005. More guest rooms were added and a massage room catering to women was built.
At the same time, Goldman’s experts dealt with the ryokan’s legal affairs, including the complicated debt liquidation procedures.
When the inn reopened, the occupancy rate, which had been below 20 percent, recovered to a profitable level of nearly 40 percent.
As economic recovery expands nationwide after more than a decade of slowdown, many foreign investors are at the forefront of the recovery. And a number of them are getting involved in turning around failing hotels and golf courses.
One big player is U.S.-based Lone Star Funds, which is buying golf courses that had been mismanaged.
Lone Star’s Pacific Golf group now runs about 100 courses. It’s the largest number of courses owned by a single firm in the country. Pacific Golf was listed on the Tokyo Stock Exchange in December.
Another big U.S. investment bank, Morgan Stanley, unveiled a plan last fall to invest 300 billion yen to buy Japanese hotels through its fund Panorama Hospitality K.K.
As foreign funds enter the Japanese market, some domestic firms are improving their businesses by linking up with these investors.
Dix Kuroki Co., based in Fukuoka, is building about five blocks of rental condominiums in the city per year to be sold to foreign funds. Its sales have doubled in the last four years.
Land prices in the heart of Fukuoka rose for the first time in 15 years due chiefly to the influx of money from foreign funds, according to a report released by the Land, Infrastructure and Transport Ministry in March.
“Recently, domestic real estate investment trusts are also turning their attention to properties, but only foreign funds were doing that before,” said Ken Ishii, a Dix Kuroki director.
In February, Goldman listed Japan’s first REIT specializing in hotels.
The REIT incorporated Shin-Urayasu Oriental Hotel in Urayasu, Chiba Prefecture, which it had purchased from struggling supermarket chain Daiei Inc.
The rise of foreign funds entering the market was spurred by a government initiative in September 2002 — led by Heizo Takenaka, then state minister in charge of fiscal policy — to get banks to dispose of nonperforming loans.
Financial institutions that felt they would be kicked out of the market unless they got these loans off the books rushed to sell their properties — and the buyers were foreign funds.
And now the foreign funds are seeing gains from their investment efforts.