In 1990, when the U.S. government was struggling with a debt load in the trillions of dollars, it could have wiped clean as much as a third of this debt by selling the land surrounding the U.S. Embassy in downtown Tokyo. At several million dollars per square foot, downtown Tokyo was, at the time, valued as much as the entire state of California. Some people would have taken that trade. Among the most expensive was real estate in Ginza.
Fast forward to today: It's 13 years later, and Japan's stock market remains about 80% below its 1990 highs. As far as the folks in Japan's real estate are concerned, shareholders got off light by comparison. But Ginza is still there, brash and tony as ever. Imagine, if you will, Japan's version of Rodeo Drive, the Magnificent Mile, and Fifth Avenue -- it's high-price, prestigious real estate, not immune to bubbles, but also fairly immune from total collapse.
Tiffany & Co.
While we can't be certain that the Japanese stock or real estate markets will be improving anytime soon, this strikes us as an immensely sensible purchase. Tiffany got bridge financing from a Japanese bank to do the deal, and is currently working on securing long-term financing. Anything you can say about the environment for borrowers in the U.S. can be multiplied in Japan -- it is a buyers' market, with borrowing rates lower than they have been at any point since World War II.
Someday, the Japanese economy will rebound, its real estate markets will recover, and its most prestigious areas will begin to see some appreciation in value and in lease rates. And Tiffany won't be a tenant -- it will be an owner, in the most prime location in Japan, perhaps the world.
Bill Mann owns shares in Tiffany.