$1-Billion Tokyo Bond Issue Studied by County

TOKYO — Los Angeles County may raise as much as $1 billion in yen on the Japanese bond market this year, Chief Administrative Officer Richard B. Dixon said here Thursday.

That will be conditional on the Japanese offering “a good deal,” said Dixon, a member of a Los Angeles area economic development mission that has just ended a week of meetings here.

If the fund raising occurs, the county would be the first municipal government in the United States to issue bonds in Tokyo. Such a development could pave the way for local governments across the country.

Dixon said the county discussed “draft documents” for bond issues with Japanese financial institutions during the mission’s visit.

“During 1987, I would be very surprised if we didn’t have a successful issue,” he said.

The 1986 U.S. tax reforms, Dixon said, make “traditional domestic tax-exempt financing more expensive and more restrictive. Therefore, we are looking at taxable financing.”

“One of the most attractive sources of financing is the Tokyo market,” Dixon said Thursday.

He noted that the county sold $500 million worth of tax-exempt pension obligation bonds last year but that the bonds are not allowed under the new U.S. tax code. He added: “We may very well be looking at a similar size issue in 1987” in the Tokyo market.

The county also may seek “several hundreds of millions of dollars” worth of shorter-term financing in tax anticipation and revenue anticipation bonds in the Japanese market in 1987, he said.

“We can readily accommodate $1 billion, if the right market opportunity develops,” Dixon said of the sums that might be borrowed.

The county already has substantial dealings with Japanese financial institutions, Dixon said.

About 80% of the county’s international banking relationships are with Japanese banks, he said. About one-fourth of the $4 billion held in “a county treasury pool” on any given day is also invested in Japanese banks, and the county has cut some of its borrowing costs by obtaining guarantees for its bond issues from Japanese banks with AAA credit ratings, which are “as common here as gas stations,” Dixon said.

Only one American bank has such a rating, he noted.

“But at this point, we are looking not just for credit enhancement but actual private placements and public offerings of our debt” in yen in Japan, he added.

‘Considerable Control’

Tax and revenue anticipation notes and pension obligation bonds “are potentially attractive credits, somewhat easier for the Japanese financial community to understand than some of our other credits, and they are credits over which we have considerable control as to timing and size. So we can put the basics of the deal together and wait for a favorable market opportunity,” Dixon said.

Pension obligation bonds are sold by the county to make up for unfunded liability in the county employees’ pension system. Tax and revenue anticipation bonds are short-term notes used by government agencies to pay bills during periods of shortfall from regular sources of revenue, before collection of property taxes, for example.

On another issue, county officials and businessmen on the mission responded to Japanese fears that restrictions might be placed on future real estate acquisitions in Los Angeles as a result of rising friction in overall U.S.-Japan economic relations by giving assurances that “the door is open and they are still welcome to invest and expand their business interests in Los Angeles County,” said Gary John Fowler, president of Chesshire Gibson Fowler, international real estate consultants.

Fowler said one real estate seminar the mission staged for potential investors in Los Angeles properties attracted a “standing room only” crowd and ran nearly an hour longer than the scheduled two hours.

‘Second Tier’ Land

Smaller Japanese real estate firms are becoming interested in what Philip E. Himelstein, senior partner in the law firm of Cox, Castle & Nicholson, called the “second tier” of “slightly below prime office land” available in the Los Angeles area. Interest was expressed, in particular, in the South Bay area, the San Fernando Valley and Beverly Hills.

Supervisor Pete Schabarum attributed the explosion of Japanese real estate investment in Los Angeles to Japanese being “willing to accept a lower yield, and therefore pay a higher price, than anybody else.”

Himelstein agreed. Japanese, he said, take “a much longer view.” They consider many of their purchases as property “that can’t be duplicated” in the future. Japanese, he said, are willing to accept a 4% or 5% yield on their real estate investments “that the American investor will not accept.”

Ten years from now, the Japanese may prove that their investments in Los Angeles were “prophetic,” Himelstein said. “But American competitors are not really able to play that game.”

“Let’s face it. This is a half-price sale” to the Japanese, Fowler said. “The yen is twice as strong as a year ago. So they are buying at (the equivalent of) fire sale prices.”

Fowler added that land prices and rents in Tokyo are “four to five times” the standard for prime areas in Los Angeles. Mission members, he said, found real estate prices here “just staggering.”

First to Tokyo

Although similar county economic development missions visited Britain in 1985 and 1986, this was the first such mission to Tokyo.

“We would like to return again next year and follow up our efforts,” said Fowler, who, as chairman of the foreign trade and investment committee of the Economic Development Corp. of Los Angeles, led the government-business mission.

He added that the mission might consider visiting South Korea as well in 1988.