Sure, We'll Take Manhattan

By John Greenwald

Since its cluster of art deco edifices was completed on Nov. 1, 1939, Rockefeller Center has been hailed as an urban masterpiece. Tourists flock to its ice rink to watch skaters twirl and to Radio City Music Hall to see the Rockettes do their high kicks with uncanny precision. But last week the Manhattan landmark, which houses U.S. companies ranging from General Electric to Simon & Schuster, took on a fresh symbolism. Control of the 19-building center passed into foreign hands when Japan's Mitsubishi Estate Co. agreed to pay $846 million for a 51% share of the Rockefeller Group, which owns most of the complex.

For many Americans the deal was an unsettling reminder of the decline of ^ U.S. financial dominance and Japan's simultaneous rise. Connecticut's Democratic Senator Joseph Lieberman cited the transaction as evidence that the U.S. must redouble its efforts to become more competitive. Said he: "This year when they turn on the lights of that Christmas tree in Rockefeller Center, we Americans are going to have to come to grips with the reality that this great national celebration is actually occurring on Japanese property."

The acquisition comes amid a surge of Japanese investment fueled largely by Tokyo's $52 billion trade surplus with the U.S. In September Sony agreed to acquire Columbia Pictures Entertainment for $3.4 billion. And just three days after the Rockefeller Center sale, a consortium led by Japan's Mori Building Development paid $300 million for 85% of Houston's Four Oaks Place office center.

The Japanese have now surpassed the Dutch as the second greatest foreign holders of U.S. property. The British are No. 1, yet Japanese investments create the largest public stir, in part because Japan is the greater economic rival -- and in part because some racially insensitive Americans apply different standards to European and Asian investment. Japanese direct investment in U.S. companies and real estate increased from $35.2 billion in 1987 to $53.4 billion last year, a gain of 52%. British investment climbed from $79.7 billion to $101.9 billion over the same period, for a 27.9% increase.

The Rockefeller Group deal is designed to diversify the holdings in the trusts that John D. Rockefeller Jr. created in 1934 for his heirs. As the Manhattan real estate boom swelled the value of the Rockefeller Group's properties from 25% of the trust's assets a few years ago to 50% today, trust administrators saw the need to spread the money around.

The deal was the second to diversify Rockefeller holdings since 1985, when the group issued a $1.3 billion mortgage on Rockefeller Center to outside investors. The mortgage holders can convert the loan into a 71.5% equity stake in twelve of Rockefeller Center's buildings in the year 2000. If the holders execute that option, Mitsubishi Estate's ownership in the storied center will slip into minority status -- and any fears that the towering Christmas tree in Rockefeller Center will be replaced by a tiny bonsai plant in Mitsubishi Center will prove to have been misplaced.

With reporting by Seiichi Kanise/Tokyo and Naushad S. Mehta/New York