Sanwa Bank this week became the latest Japanese institution to unload a high profile U.S. property, announcing the sale of a million-square-foot New York office tower for $128 million, or about 36% of the original loan amount.

The property, Financial Square, is a state-of-the-art facility for banks and brokerages that was seized from developer Howard Ronson in 1990 after he defaulted on a roughly $350 million loan. The building remains 40% vacant.

The buyer is Paramount Group Inc., the U.S. arm of a German institutional investor, which takes advantage of favorable currency exchange rates and increases its New York real estate holdings to about 4 million square feet.

The "hotly contested" purchase signals a turnaround for one of the most troubled real estate markets in the nation - and a positive sign for banks in general, said Ira Schuman, managing director of Julien J. Studley Inc., which brokered the deal.

"It's telling about the confidence in downtown that the property attracted a significant amount of money, albeit at less than replacement cost," he said.

What's more, he added, "this is a forerunner of what will happen with other foreign investors who are underwater. The writedowns may have been taken - probably by American banks. This is where the cash comes home."

Japanese lenders have lagged behind their U.S. counterparts in booking losses on real estate assets. But last year, Sumitomo Bank established a $6 billion loan-loss reserve, setting a precedent for its peers to start liquidating.

Jack Rodman, managing director of Kenneth Leventhal & Co., Los Angeles, said Japanese banks have been active sellers in the West: Dai-Ichi Kangyo Bank recently sold the Ritz Carlton hotel in Pasadena, Calif., for about 35% of the original loan, and Long-Term Credit Bank of Japan Ltd. sold a La Jolla, Calif., office and hotel complex for roughly 50 cents on the dollar.

In another major sale, Fuji Bank took about 60 cents on the dollar for a Chicago office building, he said. Leventhal estimates Japanese banks hold about $176 billion face value of U.S. real estate debt.

Sales by Japanese lenders can be expected in most major U.S. cities, said Matthew E. Galligan, a division executive at Bank of Boston Corp. He said low sales prices wouldn't hurt U.S. banks, however, because the carrying value for U.S. banks' real estate is "already discounted."

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