Saddled with debts, investors flee

With the closure of almost 1,000 businesses on the island amid Asia’s financial crisis, foreign investors fled the island leaving behind millions of dollars in unpaid land leases.

In 1997, when the economic problems in the region began, landowners filed some 39 cases against foreign businessmen, mostly Koreans, for non-payment of leases. Twenty-four similar cases have been filed for this year.

Unfortunately, most landowners were not successful in recovering payments since the foreign investors have filed bankruptcy. “The most that landowners usually get is the recovery of the title of their land. That in itself could be considered a success because they can find other investors to lease the land again,” said lawyer
Robert O’ Connor, who has handled a number of land disputes.

Landowner Stanley Torres said he was forced to sue two Korean investors who have been in default in their payment of leases.

“It is definitely an additional expense for landowners who in the first place did not get any advance payment at all,” he said.

However, landowners who could not afford to hire the services of a lawyer try to find ways to settle the problem amicably by asking businessmen to produce whatever amount of money they have and provide them longer period to settle their accounts, said Tony Glad, president of Glad’s Saipan Inc., a real estate firm.

“They are so desperate to get any amount that in many instances, they’ve asked me to talk to the investor who obtained leases on their property. Even if they only get $500 a month or $1,000 as long as they get paid,” said Glad.

Lease system

During the peak years of the real estate business, investors who had wanted to acquire land used to pay in cash for the whole term of their lease agreement, said Roy Alexander, president of Alexander Realty. “Now, I doubt if you will even get lumpsum payment for land leases,” he said, adding that the crisis will change the manner in which people address the leasehold system.

“The value of land is now gauged on how much the person is willing to pay for the business he intends to put up,” he added.

Since land prices have dropped by as much as 90 percent, Alexander said real estate developers are hoping this would attract businessmen to acquire property on the island. On the other hand, businessmen would still have second thoughts in investing since nobody knows when the economy will recover.

Tim Goodwin, owner of real estate company Pacific Rim International, said the CNMI government can help investors who are leasing lands by giving them additional years since they cannot develop their businesses fully with the downturn of the tourism economy.

“If they got the property in the ’80s and they are doing badly now in their businesses, they have only a few years remaining to recover their investment which puts them in a losing situation,” said Goodwin.

Despite the crisis, Goodwin believes that the Northern Marianas will still be an attractive place for Japanese investors to do business since it is just three hours away from Tokyo.

“It will take time but we all have to look at things on a long-term basis,” he added.

Osam Taniguchi, operation manager of Niizeki International, a real estate developer, said Koreans and not Japanese were the ones caught in the land lease problems simply because they have a different way of conducting businesses.

“Japanese will look at the overall price while Koreans will focus on the monthly payment. So when they defaulted, they just packed their bags and went home,” said Taniguchi, adding that this situation will now change the leasehold system in the CNMI.

Wanted investors

In a bid to help landowners and businessmen dispose of their properties, Glad traveled to the United Arab Emirates in search for investors. In fact, prospective investors came to Saipan four times to negotiate for the immediate acquisition of two Korean-owned hotels.

“But when they came here, I was so embarrassed because they found out for themselves that there are just so many restrictions to do business on this island,” he said.

If the CNMI government wants foreign investors to come back, it should carry out various reforms to make the island a conducive place to do business, according to real estate developers.

“It has become more and more difficult to do business here as there are so many issues that hinder the entry of foreign investors,” said Alexander. He said U.S. citizens must be allowed to own properties on the island to attract more Americans to invest here. In fact, U.S. citizens do not understand the leasehold system in the CNMI, he added.

“Saipan must be the doorstep in investing to Asia and the United States and this can happen if American companies start coming in. Unless you get American investors, businessmen from Asia will remain scarce,” said Alexander.

Among the factors that affect the entry of foreign business are the $100,000 security deposit, moratorium on the hiring of workers and stringent labor requirements.

“I have always believed that there’s a light at the end of the tunnel. But in the case of the CNMI, I don’t see any because the officials are moving very slow to change the system,” said Glad.

A Japanese executive who works in a real estate firm that has been doing business here for more than 10 years now, said many investors from Japan are still interested to set up their offices but are discouraged by the law on the moratorium on hiring of workers.

“Saipan is not a good place to do business because they keep on changing policies even before investors could recover their money,” he said.