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By Jeffer, Mangels, Butler & Marmaro LLP, February, 1998

Looking for bargains in hotels and resorts or other real estate-related assets? The action now looks to be in Japan as the dogged problems of the past few years suddenly demand reckoning. If you missed the bargains with the RTC earlier this decade, and if you now find deals too thin in the United States, or even in Canada, Mexico
and Latin America, then consider Japan. The time may be close at hand.

Why Now?
During the past several years, many observers of the Japanese scene have predicted RTCstyle massive dispositions and "dumping" of Japanese assets, but such fire sales never occurred. The Japanese have generally displayed a patient approach that has worked to their benefit. They have delayed distressed dispositions and tended to work out troubled properties, often with Japanese borrowers in the quiet back rooms of Tokyo. Why is anything different now?

The Japanese government has now acknowledged a serious problem. Some Japanese financial institutions have started to talk of a "liquidity problem." Many Japanese financial institutions and companies are withdrawing completely from the United States (and other foreign countries) to reduce capital requirements from 8% to 4%. Look at the withdrawals and cutbacks by Nippon Credit Bank and several of the trust banks. Sumitomo has announced the sale of its California jewel, The Sumitomo Bank of California. All of this was un-thinkable even a year ago!

It seems that the threshold for action has been crossed, and the next few months will see the Japanese use a very different approach to dealing with distressed hotels and real estate-related assets.

Select the right team for introduction and guidance.
To be successful, you must recognize significant cultural differences and find ways to bridge the gap. For example, it is difficult to do business without the confidence of your Japanese counterpart. Because it takes a long time to demonstrate that you deserve this confidence, it is best to find someone who already has earned this confidence (generally over many years), and to work sensitively with and through such a person.

If you want to buy Japanese assets, you will need an American and a Japanese lawyer familiar with Japanese and American business practices - who have put in the years of building relationships. They will help you meet the right people to explore opportunities, and provide inter~cultural interpretation. An example of the cultural differences can be seen in the case of a major U.S. based bank which spent months working on a particular loan program that was not feasible because of the filing fees imposed on perfecting security interests. The Japanese lawyers working on the matter were very competent and knew all along about the fee issue, but in Japan it is impolite to raise such issues because it would insult the businessman's judgment. You must know how to remove these and many other barriers.

Select a reliable Japanese partner.
If you intend to buy Japanese assets, you may be wise to select a reliable Japanese partner who will invest with you and assist you in selecting, overseeing, managing and disposing of your assets. The issues on structuring such a relationship are important and complex if you are to have sufficient freedom to deal with an asset or to free yourself of it. This puts great importance on the proper structure and terms of the venture that deal with many business and cultural issues novel to the first time investor in Japan.

There will be a number of points of access to opportunities that will be strongly driven by relationships and proven trustworthiness. The best deals will probably not be at public auction and the hidden costs are often more important than the obvious ones. Great opportunity awaits those who proceed.

JMBM is a full-service, business law firm of more than 140 attorneys with offices in Los Angeles and San Francisco and with an independent network of over 1,600 lawyers in more than 75 cities world-wide. We have been involved in hundreds of transactions spanning the globe and representing over $12 billion in total sales, financings, and acquisitions of lodging and leisure properties and companies. We handle: financing, acquisition, sale, bankruptcy, ownership structure and dispute issues, securities, litigation, mergers and acquisitions of companies, union and employment matters, employee benefits, repositionings, management of franchise matters, recreational use agreements, trademarks, litigation of any sort, insurance claim, disaster, timeshare and vacation ownership, tax, foreclosure, and virtually every other challenge.