The sale of the fabled Pebble Beach Golf Course from one group of Japanese owners to another says more about the woes of the Japanese banking industry than it does about the value of American trophy properties.
Two companies controlled by Sumitomo Bank Ltd. announced plans Thursday to buy the world-famous golf complex on California`s Monterey peninsula for about $600 million, spokesmen for the companies said.
The sale comes less than two years after the prestige property was bought for $841 million by Cosmo World Corp., a holding company controlled by Japanese investor Minoru Isutani.
That transaction drew howls of outrage around the U.S., which was then bogged down in the Persian Gulf and begging Japan for money to support the war effort.
Japanese banking industry observers say the sale, slated for mid-March, could signal a round of transactions by companies affiliated with Japan`s troubled banks that would allow the banks to postpone reporting bad loans. Falling real estate prices are putting tremendous pressure on the Japanese banking industry, which lent heavily in the late 1980s based on inflated values.
On Thursday, Taiheiyo Club Inc. and Sumitomo Credit Service Co., both closely tied to Sumitomo Bank, said they would buy Pebble Beach from Cosmo World. Taiheiyo will own 75 percent of the property, and Sumitomo Credit will own 25 percent.
A Taiheiyo spokesman said financing for the transaction will be arranged through Sumitomo Bank.
Banking observers here believe Sumitomo Bank also financed Isutani`s purchase of Pebble Beach. Itoman & Co., a well-known Japanese trading company whose finances are being reorganized by Sumitomo officials, loaned the money for the original purchase, according to Japanese press reports.
”We didn`t loan money to Cosmo,” a spokesman for Sumitomo Bank said.
”We`re not sure of the relationship between Itoman and Cosmo World.”
The spokesman said Itoman owes Sumitomo about $1.57 billion. ”We are restructuring their debt,” the spokesman said.
Isutani`s plans for Pebble Beach ran into trouble when the California Coastal Commission refused permission to sell memberships and condominiums on the property. Isutani planned to use the proceeds to pay off his loans.
Now the new owners will be stuck with the problem. The Taiheiyo spokesman said it would borrow the money to buy the property from Sumitomo. The Sumitomo spokesman said, ”It is possible we will lend money to purchase the course.” Unlike American banks, which must set aside reserves to cover non-performing loans within 90 days, Japanese banks have a year before they must report non-performing loans. Flipping delinquent properties from one owner to another gives banks another year to avoid reporting the loss.
Taiheiyo, whose three major stockholders are affiliates of Sumitomo bank, owns nine golf courses in Japan. Sumitomo Credit, 5 percent-owned by Sumitomo, is the leading issuer of Visa International credit cards in Japan. The two companies set up a holding company, Lone Cypress, to manage the 5,300-acre resort.
Sumitomo reportedly will lend Lone Cypress several million dollars to make improvements at Pebble Beach.
The new owners say they have no plans to sell memberships, but will pay for the purchase through the cash flow from hotel, golf and real estate operations at the 73-year-old resort.
Properties included in the deal are golf links and the Lodge at Pebble Beach, the Inn and Links at Spanish Bay, Spyglass Hill Golf Course, Del Monte Golf Course in Monterey, the undeveloped Old Capitol site in Monterey and the roads and undeveloped properties in Pebble Beach, an area with about 5,000 residents.
