Otsubo Realty President & Chairman Kenji Otsubo first traveled to the United States in the 1960s. Today he is based in New York, where he works in the consulting and real estate industries and is an established member of the American society with an astounding number of personal connections. Otsubo says everything started with his bold journey to Vietnam when he was a working university student. Toshio Motoya spoke with Otsubo about his life so far, including his unique methods for networking in the Japanese and American financial worlds.
(M) Thank you for joining me on Big Talk today. I first met you in October two years ago, when you came to my Shoheijuku school. You also attended my Wine Tasting and Discussion About Japan dinner in October of last year, and now you’re appearing on Big Talk this October. Also, thank you for treating me to a delicious meal during my recent visit to the New York Empire Steakhouse you co-own. Do you usually live in New York?
(O) Yes, and I travel between Japan and the United States several times a year.
(M) I’ve heard you work in business consulting and real estate in New York.
(O) I didn’t intend to get into the real estate business, but I ended up doing so anyway.
(M) You were born in Japan, so how did you end up living in the U.S.?
(O) I’m from a farming family in Niigata. I came to Tokyo to study at Nihon University, and I earned my tuition and living expenses by delivering newspapers because I didn’t want to depend financially on my parents. I didn’t mind waking up at 3:00 a.m., but I had to leave at 3:00 p.m. to deliver the evening edition, and I had no time to study on that schedule. I switched to milk delivery – I still had to get up at 3:00 a.m., but there was no evening delivery, which made my life a lot easier.
(M) So you struggled to put yourself through school.
(O) No, I never thought of it as a struggle. Of course a university is a place of scholarly study, but I also frequently thought about the importance of meeting people there. I joined the Politics Research Society organized by political commentator Kichizo Karashima (who was then the host of NHK’s National Diet Panel Discussion program) because I wanted to get to know students of other universities and working adults. Other members included Yohei Kono, Satsuki Eda, Noboru Takeshita, and Masayoshi Ohira, and I listened to their discussions from my place in the corner of the room. American President John F. Kennedy was assassinated in November 1963, and Lyndon B. Johnson stepped up the Vietnam war when he became president. At that time, I wanted to go to Vietnam and see with my own eyes why people wage war.
(M) That was an amazing action to take.
(O) When I spoke with other members of the Politics Research Society, they told me to go because it’s important to see different things when you are young. My boss at the milk shop also said he would deliver my milk for me while secretly paying me wages. I boarded a ship in Yokohama and went to Saigon, which was then part of South Vietnam. When I arrived on March 30, 1965, I saw that many people had died at the American embassy in a terrorist bomb attack by the Viet Cong. I stayed in Vietnam for two months. On the boat ride back, I decided I would go to the U.S. after graduating from Nihon University to become a person who could contribute to the international community in the future. Before my trip to Vietnam, I was thinking of going to southern France on the vividly blue Mediterranean. This was inspired by my love of the film Purple Noon starring Alain Delon, a French actor.
(M) Is that why you studied abroad?
(O) It is. When I went to the U.S. in 1968, the exchange rate was still 360 yen to the dollar, and the maximum amount of cash that could be brought out of Japan was 500 dollars. I thought I had to go to a place with no other Japanese people if I wanted to learn, so my first destination was Louisiana State University to study English. Louisiana is in the South, and the 1960s was still a time of strong racial prejudice. Afterwards I moved to San Francisco to study at the Stanford Business School. I wanted to save some money before starting school, so I got a part-time job at a travel agency as a sightseeing guide. I was put in charge of dealing with the Japanese consulate, which was the agency’s customer. I showed around many Japanese prime ministers; my first customer was Eisaku Sato, followed by Kakuei Tanaka, Takeo Fukuda, Kiichi Miyazawa, and others. There were no direct flights from Japan to Washington, D.C. back then, so government officials would arrive in San Francisco and spend a few days acclimating while sightseeing before going to Washington. Looking back, it was a great era.
(M) It’s true there were no direct flights back then.
(O) Tanaka, who was then the minister of international trade and industry, came to San Francisco for the U.S.-Japan textile negotiations in 1970. I was his guide around the city, and he asked me where I was from. Maybe he could tell I came from Niigata by my way of speaking. I told him I was born in Shiozawa, Minamiuonuma, Niigata Prefecture, which was in his electoral district. He was thrilled to hear this, and he invited me to a meal the following day. We went to the best traditional Japanese restaurant in San Francisco, and at the end he removed his wallet with a thick stack of bills from his breast pocket. He handed me an unwrinkled one, saying, “Here’s some pocket money.” I accompanied him to the airport, and he walked right by the mayor of San Francisco, Japanese ambassador, and other important persons to give me a firm handshake and say, “Do your best! Come visit me when you return to Japan.” I went to Japan some time later and actually called him, but he was prime minister then and I couldn’t get through (laughs).
(M) That sounds like something Tanaka would do!
(O) There’s more. Around three years ago I was watching an NHK show about the 70 years after World War II. I was sure I recognized the white-haired man who said he wrote the Treatise on Reconstructing the Archipelago. I looked him up, and it was Keiichi Konaga, the secretary who was always by Tanaka’s side in San Francisco. Afterwards he served as secretary to the prime minister, and then he became the president of the Arabian Oil Company after retiring from office. Today he is an attorney. After seeing the show, I immediately contacted his office. He got back to me within a few hours, and we agreed to dine together next time I’m in Japan. When I told him that Tanaka had given me pocket money, Konaga said Tanaka dealt with everyone equally, whether they were students or ministers. I thought that’s the kind of man I want to be.
(M) You’ve had some amazing life experiences. Was your trip to Vietnam a major turning point?
(O) Yes, I think so.
(M) I’ve visited 82 countries around the world. Maybe my work or other reasons would have taken me to 50 or so, but more than that requires a strong motivation, like a spirit of inquiry and curiosity. I went to Uzbekistan in May of this year. The capital city of Toshkent is home to the Navoi Theater that was built by some former Japanese soldiers interned in Siberia. I learned that it previously had a plaque saying the theater was built by Japanese prisoners of war, but after Uzbekistan’s independence in 1999, the first President Islam Karimov said the term “prisoners of war” was inappropriate because Japan and Uzbekistan had never been at war and never would be. He had the plaque changed to “Japanese citizens.” Uzbekistan is a very pro-Japanese country. I also met with the minister of tourism who studied abroad in Japan and speaks fluent Japanese. One of my Words to Live By is, “Invention is proportional to distance traveled.” I’ve fully practiced this. My knowledge is backed up by my travels abroad, and I use it in my business and also share it with many people through my Apple Town essays and other mediums.
(O) I’m impressed that you have time to write while being so busy with your work.
(M) I’m always pressed for time until the deadline (laughs). But I’ve continued publishing Apple Town for almost 30 years, and it provides a lot of business advantages. This issue marks the 330th Big Talk interview and the 186th Wine Tasting and Discussion About Japan article. An average of four guests attend each discussion, which means over 1,000 people have appeared in Apple Town (330 + [186 x 4] = 1,074). A total of 18,000 people have also attended the Shoheijuku school meetings, which are held in three locations every month. Many people are drawn by my transmission of information in Apple Town, and in turn they share information with me. This data helps me predict the future and is the source of my business success. My business has grown so large thanks to this magazine. In your case, I’m sure your success is driven by your connections with many influential people.
(O) That may be true.
(M) I really enjoyed the delicious steak at the restaurant you co-own.
(O) I am a co-owner of Empire Steakhouse, but only in terms of its overseas business, including Japan. Prime Minister Shinzo Abe dined there when he visited New York for the UN General Assembly in September, and Hillary Clinton held a party at the restaurant last month.
(M) I imagine this restaurant has broadened your network as well.
(O) It has, but the main way I’ve connected with people is through golf. After working for several years, I graduated from the University of Washington’s School of Law in Seattle in 1981. My goal at that time was to become a United Nations legal affairs officer in Vienna, Austria. I meant to travel from Seattle to Vienna via New York, but when I stopped in New York I saw it was a very lively place. I decided it was more interesting than Vienna, so I started working as a business consultant there. At first I helped Japanese companies like Panasonic and Sony open local offices. I received more requests to help them find offices and company housing, which is how I got involved in real estate. The Japanese asset price bubble was still intact in the 1980s, and my real estate company grew to have 100 employees in the blink of an eye.
(M) So that’s how it happened.
(O) I met my wife, who is from Nagaoka, Niigata Prefecture, in San Francisco. She suggested that I should play either golf or Mahjong if I wanted to sell real estate to Japanese people. I wasn’t interested in Mahjong, so I started golfing. I took up the game at age 40, and I thought taking lessons would be a good way to master it quickly. I first went to Jack Nicklaus’ golf course in Florida. I visited many courses after that, including in California, Arizona, and South Carolina. I played golf every day – I hit balls at the practice ground in the morning and evening, and played the course during the day. My real estate business was going well, and I was mentioned in media like TV programs and The New York Times. Seeing this, an American person visited my company to suggest doing business together. When our conversation turned to golf, he invited me to Shinnecock Hills, an historic golf club that has hosted four U.S. Opens. I definitely wanted to go, but I hesitated because it was a round trip of about four hours. He asked me where I lived, and I replied, “Fort Lee, New Jersey.” He told me he had a private jet airfield nearby and would come pick me up. He also said the jet could hold about 10 people, so I could bring friends. I invited a Japanese bank branch manager who also liked golf, and we went to Shinnecock Hills by private jet. The three of us visited several golf courses afterwards. Thanks to this, the bank bought a great deal of company housing. The American businessman came to pick me up in a helicopter afterwards and asked me to stop by a new golf course in New Jersey. It was the greatest golf club I had ever seen. When I went home and told my wife that it was a wonderful club and I wanted to become a member, she calmly replied there was no way a Japanese person could become a member of a famous American golf club. However, since she knew that I liked it so much, she told me it would be better to wait until I was approached, rather than saying I wanted to become a member myself. Each time I went, I praised it as a great club, which led to the suggestion that I become a member. I was also the only Asian person, and I quickly became a director. The other directors and I called each other by our first names on the course. We never exchanged business cards or used each other’s titles. At one board of directors meeting at a top-class restaurant in Manhattan, I asked about their jobs. They all served in influential positions like president of The New York Times, chairman of Goldman Sachs, and chairperson of the Republican National Committee. Getting to know these people made it easier for me to become established in the American society, and I also broadened my network.
(M) You were very fortunate. Did you get to know Donald J. Trump through your real estate business in New York?
(O) I met him at a golf tournament. We’ve eaten together, but we’ve never done business together. Ivanka, his oldest daughter, is three years younger than my daughter. Trump invited my family to a Yankees baseball game. Soon after Trump bought his resort Mar-a-Lago – where Abe golfed with Trump last year – he invited my family to visit and said he’d take us there and back on his jet. However, I was very busy with work and golf, and we ended up gradually falling out of contact. In any case, golf is definitely the foundation of my personal network.
(M) The top floors of the Trump Tower in New York are condominiums, and a Japanese bank asked me to purchase one a long time ago. It was owned by a Japanese person who wanted to sell it. I ended up declining because New York was so far away and has such cold winters.
(O) If you had a Trump Tower condominium today, it would be hard to live there with such strict security (laughs).
(M) (Laughs) Instead, I bought a home with a boat house in Huntington Harbor, an ultra-high-end residential area of Los Angeles. I kept it for over 10 years, but I ended up selling it because I didn’t use it much and the maintenance costs were rising. If I still had these properties in Trump Tower and Huntington Harbor, they would be worth a great deal today.
(O) New York’s real estate prices are soaring. A few years ago you could buy a building for 10 billion yen, but today some rooms cost that much. Still, rich people from around the world are purchasing them anyway.
(M) I started my business with order-made housing before moving into ready-built homes, rental condominiums, condominium sales, and hotels. This was a way to save money on taxes. I changed my business as a means of tax planning, through the aggregation of profits and losses, including deficits from selling off assets with earnings. As a result, we became the top hotel chain in Japan with the world’s highest profit rate. This was enabled by the new standard we created, called the “New Urban Style Hotel.” What makes APA Hotel different is the relationships between our employees and customers. Traditional hotels emulate the relationship between a European master and servant. When I stayed at a hotel in India, I was shocked that my room came with a servant.
(O) That’s true of the best rooms in luxury New York hotels as well, like the St. Regis.
(M) Hotel employees that freely enter the rooms and act like servants do make guests feel like aristocrats, but I think privacy is most valued in our contemporary era. APA Hotel employees and guests are equal, and absolutely no one will enter the guest’s room without permission. Many customers like this format, which has helped our steady advance.
(O) How did you come up with this idea?
(M) I developed this concept by staying at hotels in 82 different countries.
(O) I see.
(M) In January of last year, APA Hotel was involved in a scandal about a book I wrote. Chinese people stopped booking rooms, and the number of Chinese tourists staying with us fell drastically. However, today we have more European and North American guests. There are more foreign tourists overall, who currently comprise 25% of our guests and will reach 50% during the Tokyo Olympics. I predict that the overall ratio will be 50% as a whole and 70% in Tokyo. In the past the Japanese hotel business has been a very domestic industry, but going forward foreign guests will outnumber Japanese ones. We also have to change our room design concepts. The newest APA Hotels have high beds with storage underneath that can hold large suitcases, as well as bright lights like an office. This makes it easier for people to read on the large beds, organize their luggage, and do various types of work. APA Hotel offers high quality, high functionality, and environmental friendliness. Our rooms are compact but of high quality, and we are offering a wide range of functions. Rather than selling space, our policy is to sell satisfaction.
(O) That’s a wonderful way of thinking.
(M) APA Hotels produce just one third the CO2 emissions of regular urban hotels – we make our rooms compact while installing insulated curtains, aerated showerheads, and environmentally friendly bathtubs. This keeps running costs down, and our profit margin exceeds 30%.
(O) That’s amazing.
(M) Interest rates are low today, so I thought we should embark on a strategy of increasing our assets. We are currently building and designing 51 hotels. Three of them have over 30 floors, and five have more than 20. Some people say a hotel surplus will occur after the Olympics, and occupancy rates will fall all at once, but I think that will be temporary and that occupancy rates will quickly recover. Because APA Hotel buys land in cash when prices are low, we can withstand slight decreases in our lodging unit prices. As part of our Summit project, I have stepped up our land buying in Tokyo since 2010. Land prices are triple what they were back then. Other companies buy sites when prices are high and pay expensive construction prices to build hotels. If they borrow money from banks to do this, even if the interest rates are low, reduced occupancy rates mean they can’t repay. This becomes bad debt, and they have to borrow more from banks. After some time passes, hotels naturally experience breakdowns and damage. They must be remodeled, which requires money. The hotels become more run-down, guests stop coming, and banks encourage them to sell in the end. That’s when APA Hotel steps in (laughs). The hotel surplus will affect everyone, so the issue is who can withstand it. APA Hotel is strong because we can survive even if our profit is halved.
(O) So that’s what your aim is.
(M) This is a major opportunity for APA Hotel. We’ve invested money in newly built hotels in Tokyo and Osaka, and have also bought many hotels in Hokkaido, Tohoku, Chugoku, Shikoku, and other regions. We’ve also started acquiring North American hotels. We don’t currently need bank loans for small hotels, which we can buy with our assets to hand. If more hotels go on sale, we will use our financial clout to push forward with a buying strategy to boost our share. APA Hotel is Japan’s top chain, but our domestic hotel share is just 4%. Most of the hotels in Japan are individually operated, and the total share for all chains is around 40%. To increase our share, we will use a global strategy after the Olympics. I hope you will share information to help us increase our hotels in North America, where we have already set up operations.
(O) Yes, leave it to me.
(M) After that I think we’ll expand into Taiwan, Thailand, Malaysia, and other nearby Asian countries. Perhaps Europe after that.
(O) I hope you’ll choose Montenegro, where I am honorary consul!
(M) Thank you for the suggestion! At the end of the interview, I always ask for a “word for the youth.”
(O) I’ve heard that today’s young people are too fond of Japan and don’t want to travel overseas. The world is globalizing, so they must be bold and go to see the wider world. But there are also issues with the Japanese government. Even students who pay expensive tuition at American universities, study hard, and graduate successfully are kept at arm’s length and not hired by top Japanese corporations. That’s why excellent human resources who graduated overseas end up in foreign-owned enterprises. Japan will be left behind by South Korea and China in the international community if we don’t create a system where people can proactively use their study-abroad experience. We must build an environment where many young people can go abroad and share the great qualities of Japan.
(M) That’s true. I look forward to seeing what you do in the future, as a man with a vast personal network. Thank you for joining me today.
(O) Thank you.
Date of dialogue: October 17, 2018
Born in Minamiuonuma-gun, Niigata Prefecture in 1944. After graduating from the Department of Business Law, College of Law at Nihon University in 1966, he went to the United States and graduated from Louisiana State University, Stanford Business School, and the University of Washington School of Law. Based in New York, Otsubo is involved in many businesses. He founded Otsubo International, a business consulting company, in 1981, and Otsubo Realty in 1985. In 2012, he was appointed honorary consul of Montenegro. Otsubo is an honorary ambassador of the Niigata Sake Brewers Association; exchange ambassador of Minamiuonuma City, Niigata Prefecture; goodwill ambassador of the Culinary Institute of America (CIA; known as the “Harvard of the culinary world”), and chairman of the New York Niigata Kenjin Kai.