An Analysis of Japanese Hotel Investment in Hawaii

Abstract

The Japanese investment phenomenon has been a controversial issue in recent years. Much of the Japanese investment in the United States has disproportionately occurred in Hawaii and caused many difficulties for the investors themselves, as well as for the state's residents. There has already been extensive study on the effects of foreign investment on the Hawaiian Islands. However, there has been a lack of study done from the Japanese perspective on the topic. The objective of this paper was to accomplish this task. The primary question that needed to be answered was why did the Japanese pay so much for their real estate investments, particularly in the Hawaii hotel market. The answer was the result of several different factors. These included: the Japanese bubble economy, the Plaza Accord Agreement, and the Japanese Banking System. These factors enabled Japanese investors to pay high prices using overvalued assets as collateral for loans, while at the same time taking advantage of the yen's strong purchasing power and easy credit from Japanese financial institutions. Furthermore, in order to explain why Japanese investors spent so much on hotel properties it was necessary to explain their motivations for investing. The intentions of Japanese investors discussed in this study include financial and cultural motives, in addition to some misunderstandings that contributed to misguided investments. These played a role in the reasons investors were willing to pay premium prices for Hawaii real estate in the Japanese bubble period of the late l980s and early 1990s.