Mideast wealth funds eye New York property

Mideast wealth funds eye New York property

By Dan Pimlott in New York

Published: May 23 2008 20:39 | Last updated: May 23 2008 20:39

Middle Eastern investors in New York may be shifting their sights from banks to buildings.

The city’s real estate industry is looking to the region to replicate the capital infusions that Gulf and Asian sovereign wealth funds made into Wall Street banks struggling with subprime losses, by seeking stakes in big real estate assets on the cheap.

This week sovereign wealth funds from Kuwait and Qatar emerged among a group of investors led by Boston Properties in talks to buy the GM building, a prize asset overlooking Central Park, as well four other Manhattan skyscrapers, from Harry Macklowe, the struggling New York property tycoon.

Mr Macklowe has been caught short by the credit squeeze, and is desperately selling off buildings in order to pay off creditors. The deal would be a big moment for investors from the region.

The suggested $2.8bn (£1.4bn, €1.8bn) price for the GM building alone would be the highest price paid for a single building in the US.

It would also be one of the highest-profile foreign property acquisitions in the city since Mitsubishi took a stake in the Rockefeller Centre in the late 1980s, a moment that came to symbolise the soaring confidence of Japanese investors in the US. “It’s a very apt comparison,” said Richard Warshauer, senior managing director of broker GVA Williams. “It would be a watershed transaction.”

The Abu Dhabi Investment Authority, as well as Meraas, the new real estate company of the Dubai ruler Sheikh Mohammed bin Rashid Al-Maktoum, are among investors from the region that have also looked at the portfolio, according to a person familiar with the matter.

A spokesman for Mr Macklowe declined to comment, while Boston Properties and the sovereign funds could not be reached for comment.

In recent years Middle Eastern investors have already taken hold of a number of landmark New York buildings.

In 2005 and 2006 the region was responsible for more property investment in New York than European sources of cash, according to research by Jones Lang LaSalle.

Nakheel, the property investment arm of Dubai World, a Dubai government fund, took a 73 per cent stake in the luxurious Mandarin Oriental hotel in Columbus Circle, overlooking Central Park, in the middle of last year in a deal worth $248m.

It also owns more than 90 per cent of the trendy W Hotel Union Square, which it bought in October 2006 for $285m.

Investcorp and Broadway Partners bought 280 Park Avenue from Istithmar in January of this year for $1.28bn.

“I think there is very high interest in investing in NY assets,” says a private equity investor, adding that with oil at record prices he did not see the trend coming to an end so soon.

The attraction of New York property, as well as other US gateway cities such as Washington, Los Angeles, San Francisco and Boston, is that the market is well known to Middle Eastern investors and among America’s most liquid.

With the shrivelling of the market for mortgage-backed securities, a greater reluctance on the part of banks to lend and greater economic insecurity, sources of debt have also dried up, leaving those with cash in a better position than they have been for years.

Nonetheless, some industry figures argue there may be an element of wishful thinking in hopes of a major injection of Middle Eastern money.

“The only real avenue that could undertake the real headline-grabbing deals is the Middle Eastern investors,” says Colin Thomasson, a managing director at DTZ, the real estate adviser.

But asking prices have largely not yet fallen far enough to attract such deals.

“Buyers and sellers aren’t on the same page yet,” he said.