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Another Japanese Acquisition Gone Bad: Rockefeller Center

May 12, 1995

TOKYO (AP) _ Flush with cash at the height of Japan’s 1980s ``bubble economy,″ Japanese companies snapped up U.S. movie studios and real estate.

The economic bubble burst years ago, but the bills for those trophy properties are still coming due. The latest Japanese company to feel the fallout is Mitsubishi Estate, the real estate arm of the giant Mitsubishi Group.

Mitsubishi Estate owns an 80 percent share of the Rockefeller Group, which set up a pair of partnerships that own the New York City landmark Rockefeller Center. The two partnerships filed for bankruptcy court protection Thursday.

It is just the latest in a string of high-profile Japanese acquisitions to turn sour.

In 1989, Sony Corp. bought the Hollywood studio owner Columbia Pictures Entertainment Inc. for $3.4 billion. But last December, the Japanese consumer electronics company wrote off a staggering $3 billion related to its investment in Hollywood.

Another Japanese electronics company, Matsushita Electric Industrial Co., bought another U.S. entertainment concern, MCA Inc., for $6.6 billion in 1990.

But last month, Matsushita agreed to sell 80 percent of MCA for $5.7 billion to The Seagram Co. Ltd., the distilled spirits company from Montreal.

Mitsubishi Estate bought when the New York real estate market was at its height. Now Rockefeller Center is worth about half what it was.

Mitsubishi Estate said it had been unable to renegotiate the properties’ $1.3 billion mortgage. It paid $1.4 billion for its 80 percent share six years ago.

Analysts said Mitsubishi Estate will take a hit in the Rockefeller Center deal, but not a truly crucial one.

``This is by far the biggest default of its kind from a 1980s bubble economy purchase, but the damage to Mitsubishi is far from life-threatening,″ said real estate analyst Jun Konomi of the Nomura Research Institute, a think-tank. ``They can probably manage to buy themselves out of trouble.″

Before the announcement, Mitsubishi Estate said it expected net profits for fiscal 1994 to be $297.62 million.

Mitsubishi Estate President Takeshi Fukuzawa said it was too early to say how the Rockefeller Center problems would affect 1995 earnings. Fukuzawa said the company did not intend to sell its stake.

Konomi said Mitsubishi Estate has about $2.38 billion in cash it can use to get credit for a loan makeover.

``Even if they really get themselves into a fix, they can always sell a building or two in Japan,″ he said.

He said that when Mitsubishi Estate originally planned for the purchase, it expected prime office space in New York to hover at around $100 per square foot until the end of the century.

It is now at about $30, he said _ far short of covering yearly loan payments of more than $1 billion.

Analysts say investors and others with stakes in Mitsubishi Estate saw the Rockefeller Center bankruptcy protection move coming two years ago. They expect defaults over other deflated properties in New York, California and Hawaii.

Mitsubishi Estate stock lost 28 yen per share on the news, closing today at 967 yen. The Japan Bond Research Institute said it was reviewing Mitsubishi Estate’s triple-A bond rating.

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