Two big Manhattan property deals signal rally, China interest

By Ilaina Jonas, Reuters/New York

A group of investors, including Chinese real estate tycoon Zhang Xin, paid about $1bn for a 40% stake in a landmark New York office building, a person familiar with the deal said, in the latest sign of how foreign investors are fuelling a US commercial real estate market recovery.

The deal, which closed on Friday, comes in the same week that food company Shuanghui International Holdings agreed to buy meat producer Smithfield Foods for $4.7bn. That purchase, if approved, would be the largest ever acquisition of a US company by one from China.

Later this week, a summit between US President Barack Obama and Chinese counterpart Xi Jinping on trade and other issues could provide a further boost to Chinese investments.

The Sungate Trust, which is controlled by the family of Soho China Ltd Chief Executive Zhang, joined with M Safra and Co, the investment firm of Brazil’s Safra family, to buy the stake in the General Motors Building, which values the tower at $3.4bn, the source said on Sunday.

The deal makes the 2mn square-foot building — a 50-storey tower overlooking New York’s Central Park and featuring Apple’s flagship Fifth Avenue store — the most expensive US office building.

The news comes amid talks to sell 650 Madison Avenue, another office building close to the General Motors tower, to a group of investors for $1.29bn, in yet another pricey transaction. New York-based Crown Acquisitions and real estate investment firm Highgate beat others, including foreign investors, to buy the 27-story office and retail tower from private equity firm Carlyle Group.

In addition to office space, the GM Building and 650 Madison contain extensive space for stores. Rents for retail stores often can be more than triple those for office space, giving both the buildings premium valuation. Still, these deals underscore how the commercial property market is benefiting from foreign investors flocking to US real estate, attracted by stability, higher yields and protection against inflation.

Prices of top Manhattan office buildings have regained much of what they lost in the financial crisis. In April they were roughly 20% below 2007 highs but were trending up, according to the most recent figures from the Green Street Manhattan Office Price Index. Prices of office buildings in the New York Metro area were up 25% year over year in April, with Manhattan up 51%, according to Real Capital Analytics.

“It’s pretty clear to us that New York is one of the safest havens for investment around the world around today,” Haim Chera, principal of Crown, said. “The theory goes that rental growth in hard assets of this quality will be a safe place to protect.”

Chinese investment in US real estate, already on the rise over the past four years, could increase further. Beijing’s State Administration of Foreign Exchange, which manages more than $3.31tn, was reported to be exploring investing in US commercial real estate.

All the interest is good news for the US commercial real estate market. In just the past three days, New York office properties have attracted about $2.8bn of investment commitments.

Besides the GM building and 650 Madison Avenue, the source said broker CBRE sold Australian bank Macquarie’s New York headquarters building at 125 West 55th Street in Midtown Manhattan on Friday for more than $450mn.

The sellers of the 40% stake in the GM building, also called 767 Fifth Avenue, were Goldman Sachs Group’s US Real Estate Opportunities Fund and Meraas Capital on the behalf of Middle Eastern investors. The other 60% is owned by landlord Boston Properties, which together with its partners, paid about $2.8bn to acquire the GM building from Macklowe Properties in 2008.

The names of the Middle Eastern investors could not be learned. But the sovereign wealth funds of Qatar and Kuwait invested in the original deal through the Goldman entity, as did a private equity firm affiliated with the ruling family of Dubai.

Zhang planned to invest in the GM building with her own personal wealth, not Soho China’s funds, a source has previously said.

Zhang’s family acquired a 49% stake in Park Avenue Plaza in 2011 for nearly $600mn. She also tried to provide $800mn in financing for Vornado Realty Trust to build an office tower above the Port Authority bus terminal in Midtown Manhattan, but that was project was ultimately scrapped.

Darcy Stacom, one of the CBRE brokers on the GM deal, which was first reported by the Wall Street Journal, could not be reached for comment. Zhang and M Safra and Co also could not be reached for comment. The deal for the GM stake closed on Friday.

Eastdil Secured handled the sale of 650 Madison Avenue for private equity firm Carlyle Group.

Other bidders included Vornado and a consortium of General Growth Properties and Brookfield Office Properties, Reuters previously reported. The news of the final sale was earlier reported by Bloomberg.