 Everybody, my name is Mark Schlauve. I am the host of Think Tech Hawaii's Law Across the Sea program. And today we are going to talk about investments coming from Japan, the history, a brief history, if there is such a thing, of Japanese investment in the United States and in Hawaii. And my guest, very knowledgeable attorney, Alan Fujimoto, a good friend of mine who I've known for many, many years. He was born and raised in Japan, speaks Japanese fluently and in his practice has had a lot of experience helping Japanese investors in the United States make investments, work through them, work out of them. And I've asked him to come today to talk a little bit about his own experience, his own background, and also his experience with Japanese investment in the United States and especially in Hawaii, so that we can get a basic understanding of what happened in the past. Alan, welcome. It's very good to see you. Good to be here, Mark. Good to always be with you and talk a little bit. And Alan and I have talked for years about things Japanese and Japanese investment. Alan, you were born in Japan, raised there. How did you get here? How did you get to Hawaii? Well, first, my father is originally from Hawaii. He was in the 442nd in Italy and after that he joined the Army Civil Service and was stationed in Japan where he met my mother, a Japanese, and I was born and raised in Japan, but I did attend international schools and the Department of Defense High School on the basis there, so my primary language is English. I picked up the Japanese on my own, of course, to be able to communicate with my mother and my Japanese friends out there and to reading and writing to read the Japanese comic books and the newspapers. That's how I became fluent in Japanese. I see. And I know from my own experience knowing you all these years that you've been very involved in Japanese investment, but how did you get to be involved here in Hawaii as a lawyer? How did that come about? Okay, well, after graduating from high school in Japan, I came here to attend the university and after that I went to law school in California and even while I was at law school, my thinking was it's best for me to be able to utilize the Japanese language ability that I have and to deal with the Japanese investors coming into Hawaii. So that's where my primary interest was. And after graduating from law school from UC Davis, I came back to Hawaii. Well, actually, I clerked at the Hawaii Supreme Court for one year with Justice Yoshime Hayashi, but I already had lined up a job with a very small firm called Kashiwa Kashiwa and Kato. I knew them well. And Genro Kashiwa, the founder of that firm, was a go-getter in terms of the Japanese, early Japanese investors, and they had a good range of Japanese clientele. So I thought it was a perfect fit for me, so I joined the firm. And then a couple of weeks after I joined the firm, the partners there told me, OK, we're going to be merging with Goodsill. So I was with the Kashiwa firm for all of five or six months, and I joined Goodsill back in 85, and I've been with Goodsill since. OK. All right. Well, you know, your dad being with 442nd, I mean, that could be another program. Oh, absolutely. I mean, especially in Italy and the Las Battalion, and that whole story is quite remarkable. So he went to Japan, and then that's where you grew up, but you learned the background and the culture there and came here and joined a law firm. And obviously, the Kashiwa firm, very well known in those days for early investment. Now, tell us about the early investment. What was that? I mean, what was happening with Japanese? I mean, we know that Admiral Matthew Perry went to Japan and said, we want trade with you. That was 160 years ago or so. And he wanted to open up the US and Japan to trade. Well, so what happened? Well, it's not too far-fetched to talk about Admiral Perry, because actually the Japanese from way back when have always been enterprising and looking for places where they can invest beyond the confines of the Japanese islands. So even back then, they were looking to Korea, China, and elsewhere. But in the period right after World War II, the Japanese economy, of course, was in tatters and they were trying to rebuild. And in the mid-50s, I believe it was, things started moving forward. And for example, that's exactly when the airline industry started to take off. And Japan came up with a semi-government entity. Japan Airlines was a semi-government entity at the time, and they started developing overseas routes. And tourism outside of Japan became a reality. And Hawaii was actually a very favorite destination. I remember when growing up in Japan, I watched the Japanese quiz programs. And the big prize would be a trip to Hawaii. I remember seeing that. So tourism was growing. And Japanese started going overseas. A lot of them came to Hawaii. And once the visitors start moving, then all the business people notice that and say, well, maybe there's some business opportunity here. So it took a while for that industry to grow. But then in the early 60s, there were some enterprising business people who took advantage and said, well, this is an opportunity. Maybe we should look into this and started investing in Hawaii. And one of the earliest was you probably know Kenji Osanwa, who was the owner of Kokusai Kogyo in Japan. And they were in the tourism, transportation, and other real estate and other businesses in Japan and said, OK. And I understand he initially purchased the Princess Kailani Hotel. Here in Hawaii? Yes. And went on to acquire the Moana Surfrider, the Royal Hawaiian, Sheraton Waikiki, and the Sheraton Maui. And he had the foresight to take advantage of the growing tourism industry where the Japanese were coming to Hawaii. That was really the start of the most, I guess, post-war investment of the Japanese into Hawaii. And Kenji Osanwa, the name's well known to us in Hawaii because we've heard it. Was he making investments only in Hawaii or was he making investments in the mainland United States? And where was he getting his money? And how was the reaction to him? We're just a little bit past World War II. And now we have Japanese coming into the United States and making investment. What do you know about that background? OK. Well, I wasn't around, so I can't really be sure what the reaction might have been. But Kenji Osanwa was not looking only at Hawaii. He did, in fact, after Hawaii. Also did invest in San Francisco with the Palace Hotel and also in Florida. So he wasn't looking only at Hawaii. And Kenji Osanwa's business, as I said, was in the travel transportation business in Japan. And with the growing income of the Japanese in the 50s and 60s, people started spending more money on travel and transportation and so forth. And he did make a lot of money there, which he did invest overseas. One thing about the Japanese is that once they start to realize that there may be limitations to what they can do in Japan, they do start looking overseas. That's been a characteristic of them over the years. And Osanwa had the foresight to look to Hawaii and elsewhere. And he was developing his own business in Japan. And that's where he made his money, I guess. Did he have to borrow money? Did he make this investment with his savings? How did he go out there and start buying hotels, which cost substantial amounts of dollars? Of course there was borrowing, too. But the reality of it is also that getting money out of Japan initially was very difficult, as it is currently for China and Korea. When a country is redeveloping, the government doesn't want the money sourced outside of the country. They want the investment to be in the country so the country can continue to prosper and develop. But Kenji Osano somehow managed to get the banks involved. And of course with his cash as well, he managed to get the funds to invest overseas. So he found a way to do it because he could see that this was a good investment. What was the result of his investments? Where did they go? What happened to Kenji Osano? Well, Kenji Osano, you may know, was involved in a bribery scandal later on, back in the late 80s, as I recall, with one of the principles of the Liberal Democratic Party in Japan. A legislator that was pretty powerful. Both of them got indicted by the Japan authorities and they ended up with a lot of problems. But the investments did well, and the Kokusai Kogyo people, after some bumps along the way, still own most of the properties that they acquired, at least all of the properties in Hawaii that they acquired, and they're doing well. And of course, the initial investment by Osano spurred other investors to come to Hawaii after that. So like who else was coming? Of course, with the travel industry, you had people like JTB, JALPAC, the travel agency's coming into Hawaii, the wedding industry. Yes, we see them downtown all the time now, yeah. Like Watabe came in the 70s, JTB and those other folks came in the 70s. So that spurred quite a bit of investment from Japan in the 70s. And this is not just Hawaii, this is mainly the United States too, or is it mostly Hawaii that we're seeing it? Initially, for the 70s, I think much of it was in Hawaii. I don't recall that there was much interest at that time on the mainland at the time, so initially it was primarily in Hawaii. Okay, and that was in the 60s and 70s when that started happening, and a lot of it had to do with sort of a Japanese affinity for Hawaii too. Absolutely. What's that about? I mean, I see it, and the Japanese seem to love Hawaii. They do. And is it a cultural thing, because we've had so much Japanese influence here, or what do you think that is, that brings people which investment then follows? So what's that formula? Part of it may have to do with the fact that there is a large Japanese-American population here, and when you go to stores in Waikiki, you have these employees who speak Japanese, and it's not like it started recently. Even back in the 60s and 70s, we had people who were, well, if not fluent, at least can speak some Japanese and deal with Japanese tourists. So I'm sure that had something to do with that. So there's sort of a receptive climate here, a friendliness in Hawaii that brought money. I mean, the two things are interconnected, although you don't always think that's the way it should be. And the mainland United States kind of followed after that. Is that correct? The mainland was a little after that. I don't know if you want to start talking about the bubble yet. Well, we're going to talk about that in a minute, because we're going to take a break right now. And then we'll get back and talk about when you actually started into practice and what happened. All right, thank you. My name is Steven Phillip Katz. I'm a licensed marriage and family therapist, and I'm the host of Shrink RAP Hawaii, where I talk to other shrinks. Did you ever want to get your head shrunk? Well, this is the best place to come to pick one. In doing this, we must have 60 shows with a whole bunch of shrinks that you can look at. I'm here on Tuesdays at 3 o'clock every other Tuesday. I hope you are too. Aloha. We are back with Alan Fujimoto talking about a brief history. A Japanese investment in the United States, especially with respect to Hawaii. Alan, you became a lawyer in 1985, I believe. That was about the time of what they called the Japanese bubble. What was that? Tell us about that. Officially, I did a little checking. The official records say that the Japanese bubble period was between 1986 and 1992. What led to that, basically, before that was that the real estate prices in Japan started jumping in the mid or the early to mid-80s. Land prices became really exorbitant in Japan, particularly in the metropolitan areas. Tokyo, Osaka, Nagoya, places like that. People could not afford real property. At the same time, the restrictions on the yen were lifted by the Japanese government. Back in the early 80s, 240 yen to the dollar started going up. In the mid-80s, it was already down to 130 yen to the dollar. The yen is becoming more valuable? Yes. It's probably a combination of things like that. The Japanese looked at it and said, hey, we can't afford these high prices for Japanese property. What about overseas? Sure enough, land prices were pretty stable at the time in the U.S. People noticed that and started looking into the U.S. responsibilities. The bank, the amazing thing about the banks at this time, was that the properties that these companies owned in Japan were valued so high that a lot of the banks said, well, we'll just keep the Japanese property as collateral. The value is so high, why don't you borrow our money based on the collateral in Japan and you can buy properties in the U.S. and we won't even mortgage those U.S. properties. Wow. The Japanese properties should be fine. Crazy when you think about it. When you think back, yes. Those are the things they were doing. So there was plenty of money available from the banks. So why wouldn't these companies interested look for properties in the U.S.? They couldn't afford more properties in Japan because they were so expensive, but there were cheap properties available in the U.S. So that's how they ended up coming to Hawaii. A lot of companies you'd never heard of before started coming to Hawaii, buying up hotels, office properties, golf courses, resorts. And this wasn't restricted to Hawaii. It went all the way to the mainland and you might remember the resentment people had when the Japanese bought out Rockefeller Center in New York. Oh, okay. Yes, I remember that very distinctly. Tell us a little bit about that and what your thoughts are about that, too. Well, I mean, they had the money. The banks were willing to lend them the money. So these companies that never invested in the U.S. had all this money to spend. And people were buying up properties in Hawaii. They said, okay, well, move on to Los Angeles, San Francisco, Chicago. Well, New York's available, too. Why not? So they bought out these prime office buildings in New York as well. And they had the money. They thought nothing of it. And they ended up as landowners in the United States. And a lot of the funds were for loans that were based on mortgages on the Japan property, not necessarily the United States property, as I understand it. And did anybody think about that at the time? I mean, they didn't call it the bubble at that period. What were they thinking? I guess they didn't think. They just figured they had money. Apparently not, yeah. And all these circumstances with the yen becoming more valuable kind of coalesced. What happened? What happened? Of course, I mean, this wouldn't last. What happened was the property valleys in Japan started to go down. Then the banks started saying, oops. Well, I mean, we're covering all of these acquisitions in the U.S. based on the real property valleys in Japan. If these valleys in Japan drop, that might be a problem. And sure enough, it was. The loans started going bad. Primarily back in the early 90s, I guess people started realizing this effect. And the banks were in trouble. And they had to figure out, well, what should we do about the situation? And what did they do? And also during this period of time, what were you doing? By the way, what was your role as a Japanese speaking attorney in Hawaii, American attorney who knew the customs and practices of Japan? What was your role? The interesting thing is that I mentioned, sorry, practicing 85 just as the bubble was starting. So it kept me very busy, kept a lot of attorneys busy in Hawaii and across the U.S. The thing about the Japanese is that the Japanese practice in real estate acquisitions is quite different from that in the U.S. When the Japanese buy commercial buildings, resort properties, the contract they use is generally like two or three pages with very little detail. Just some language that says if there should be any dispute, we'll cooperate and resolve these disputes. That would never work in the U.S. And so they came to Hawaii to buy these properties and we'll prepare these purchasing sale agreements that are 60, 70 pages long and they'll look at it and say, what the hell is this? Right. And you'd have to explain it to them. Yes. And the thing is the documents, some of the more sophisticated people would have the documents translated either by Japan attorneys or people, translators in Japan because there were very few translators in Hawaii available at the time, as I recall. So getting these 60, 70 page agreements in place was quite demanding, not to mention that the deeds and assignment documents had to come along with that and there'd be several more documents like that. So when you sit at the closing table for people to sign documents, you have all these documents laid out on the table for the president of the company to sign and they were quite stunned at what they were getting involved in. Not the custom in Japan. So you'd have to sort of walk them through it and explain what to do. And the other thing is there would be no, in Japan there are no escrows, which is quite familiar for Americans doing real estate transactions. So we had to explain what an escrow is and how transactions were closed because I understand in Japan if you're dealing with some of the smaller transactions they would actually bring suitcases of cash on the table exchanging with what they call the kendisho which is sort of equivalent to the deed but that evidences ownership of the property. So you exchange the money and the deed at the table, which is something we would never do here as well. So the bubble burst and things went south. Is that right? They did. And investment stopped for a while. What happened? When the bubble burst and the banks were in trouble, of course they tried to resolve the issues themselves but it really wasn't possible. They didn't want to write off all of these loans that they made. Then the Japanese government got involved in the 90s after the bubble burst. They set up a government entity called the Resolution and Collection Corporation to assist these banks in collecting these bad debts. The RCC, as we referred to them, would take these properties under their wing and would get the parties together to resolve how the bad debts, if they could be collected, would be collected. Of course it wasn't possible to get a dollar for a dollar so they tried to do their best. That's when they started mortgaging the Hawaii and U.S. properties. Eventually the U.S. properties would be sold off. A lot of the people, the Japan companies that came in during the bubble, ended up losing all of their properties and some of their properties in Japan, if not all. A lot of the Japan properties would be reorganized and so forth. It was a bad situation for all of the Japanese involved. We only got about a couple minutes left. What's the current status? What do things look like now for Japanese investment in Hawaii specifically? How are things going? After the bubble burst there was a period where there were very little in the way of investments from Japan but things started coming back again because the Japanese continued to love Hawaii. They're looking at investments in the 2000s again but the layman shock was another little bump along the way. Even after that now the Japanese are coming back and I'm keeping busy with helping newer investors, the newer companies who are coming in who again feel that Japan is not big enough for them so they need to go overseas. A lot have gone to China and Southeast Asia but a lot of them still feel the U.S. Hawaii is a safe place to invest. I want to thank you and I want to invite you back sometime so we can talk about the future, not just the past. Thank you very much.