NY Sun: Overseas, Manhattan Is Seen as a Bargain
Thursday, September 27, 2007
Overseas, Manhattan Is Seen as a Bargain
BY MICHAEL STOLER
September 27, 2007
URL: http://www.nysun.com/article/63475
The credit crisis has not diminished foreign investors' fervor to own commercial and residential real estate in Manhattan.
"With the euro priced at $1.40, the British pound at $2, and the Canadian dollar at par for the first time in 31 years, it doesn't take a crystal ball to see that America is going on sale," the principal and co-founder of Murray Hill Properties, Norman Sturner, said. "Our domestic inability to finance large mortgages due to the lack of securitization has decreased the domestic buyer population, and overseas wealth can pick up properties without a lot of competition from us."
The attractiveness of New York City real estate is being regularly profiled in the foreign press. Last Friday, a BBC News segment was titled "Investors see Manhattan as a safe haven."
"If you are a European investor worried about the security of your money at home, why not look for a bargain in Manhattan?" the segment said. "In this era of bank scares and crunching credit, that is exactly what hundreds of visitors are doing each week, fueled by the historically weak dollar." Anglo Irish Bank is an active lender and investment adviser to prominent Irish investors who have purchased properties in New York. Investor groups represented by the bank have purchased in joint venture with local operators the Beekman and Eastgate Hotels and the office building at 222 E. 41st St. The executive vice president of Anglo Irish Bank, Paul Brophy, said the dollar's weakness "relative to the sterling and the euro is making the U.S. and New York a specifically attractive alternative from the perspective of European investors. However, from an investment return perspective, it is too early to say whether or not euro or sterling investors can expect better returns now that the leverage levels and debt terms have changed and may in fact reduce or eliminate the benefit of a weaker dollar."
He added, "For European investors there is definitely a heightened sense of interest but people are wary of the financial markets right now so a lot of longer-term investors may just stay in the sidelines for the next few months and see what shakes out. Those who have bought here already and perhaps have a better understanding of market dynamics are probably more likely to buy as those who have yet to make a move."
Jamestown Properties is an established investment leader among international real estate funds investing in American real estate. In New York, the company has ownership interests in 111 Eighth Ave., One Times Square, and Chelsea Market. "I think you will see the foreigners very active in New York City in the near term," the managing director of Jamestown Properties, Matthew Bronfman, said. A lot of us were not willing to leer up as much and so we lost a lot of bids over the years to domestic buyers utilizing substantial debt. With the highly leveraged crowd presumably on the sidelines for a while, I am certain that you will see a lot of activity from foreign investors."
The president of SJP Residential, Allen Goldman, said there is "no question" that foreign buyers or those backed by foreign investors "will dominate the market near term. The weakening dollar will likely decline even further, making these investments seem like a once in a lifetime opportunity to buy quality assets on the cheap without nearly as much competition as recently as six months ago, particularly since domestic buyers are being forced to finance acquisitions with lower leverage. Foreign investors using tons of equity can and will accept low, low returns far longer than we can. They've got the cheap money, we don't."
The executive vice president of ABPInvestmentsUS, BardenGale, said: "Don't look for a foreign bailout on commercial real estate in the U.S. The weak dollar helps but the big, unleveraged, low-return buyers are few and far between. The loss of momentum and tougher lending standards both here and abroad are the major factors on the reduction of sales."
The chairman of Massey Knakal Realty Services, Robert Knakal, said that with almost all economies growing around the world, a significant amount of capital has been created and much of it is targeted for American investment. "One of the most popular U.S. investments is New York City real estate," he said. "The fact that the dollar is weak is accretive to this dynamic for sure, but we must remember that the foreign buyer's cash flow and profits on a sale are also in the form of our weakened dollar. Exchange rates are not the sole reason why so much foreign capital is being deployed into our market."
Prominent foreign investors are evaluating the benefits of owning Manhattan real estate. The president and chief executive of the Paramount Group, Albert Behler, speaking at a real estate symposium last week, said, "German investors are quite happy to earn a modest return for Class A office buildings in major central business districts in the United States. The majority of investors in the Paramount Group are wealthy foreign investors from Germany who have seen their wealth disappear due to two wars, and prefer safety, modest returns, and long-term gain." Earlier this year, Paramount purchased the 46-story, 1.6 million-square-foot 60 Wall St., the North American headquarters of Deutsche Bank. It paid $1.2 billion, or $737 a square foot, the highest price ever paid for an office building in Lower Manhattan. The seller, Deutsche Bank, entered into a 15-year leaseback with Paramount for the entire facility. This summer, Paramount sold the office building at 32 Old Slip for $750 million. Now, the company is testing the sales market and retaining an investment banker to solicit offers for the sale of its 47-story, 1 million-square-foot office tower at 1177 Avenue of the Americas. Industry leaders expect this Class A property to fetch close to $1 billion. This would represent a return of close to 200% for Paramount's foreign investors.
The New York Sun has learned that the owners of the former Deutsche Bank building at 31 W. 52nd St., the 30-story, 660,000-square-foot building built in 1985, have retained an investment banker to sell the property. More than 50% of the building is leased to the international law firm of Clifford Chance. Real estate sources say this property can command close to $800 million, or $1,100 a square foot.
An executive vice president at Cushman & Wakefield, Scott Latham, said sales activity "continues to be very strong. Pricing has not yet pulled back in a notable way; however, the investors who are active in the bidding process
are well-capitalized investors and institutions. Due to the credit crisis, the highly leveraged buyers have moved to the sidelines for the moment. There is definitely more activity from European investors, while the disparity in the currencies as they focus on the real estate fundamentals is still growing."
Over the past 18 months, foreign investors have been purchasing residential rental apartment buildings and condominiums. In March, London-based Dawnay, Day Group, a diversified international financial and property group, paid $250 million for a portfolio of 47 buildings and seven condominium units in East Harlem, with a total of 1,137 residential rental apartment units and 55 commercial units located throughout the area between East 100th and 120th streets.
"All I can say is that in the past few weeks we had groups from Spain, Italy, United Kingdom, and Israel looking at real estate investments, the majority being portfolios of residential rental apartment buildings", the senior partner at Massey Knakal Realty Services, Shimon Shkury, said.
Mr. Knakal said that for quite a while "we have seen transparent foreign investment in office properties and hotels. An interesting point about the appetite of this capital is its attraction to multifamily properties, which is not as obvious. Much foreign capital is provided to local operators in the form of equity financing. The rent regulation system in New York makes multifamily a more difficult investment for the foreign market on a direct basis which has been a catalyst for the many partnerships that exist today between locallybased operators of this product type and overseas investors who want to capitalize on the tremendous upside potential inherent in many multifamily assets."
As many local investors sit on the sidelines, expect the trend of foreign investors with cheap money to purchase residential apartments and office buildings in our city. Nevertheless, I agree with Norman Sturner when he says, "In the months ahead when the liquidity panic subsides, there will be a lot of local investors saying, ‘We shoulda, woulda, and coulda purchased properties in 2007.'"
Mr. Stoler, a contributing editor to The New York Sun, is a television and radio broadcaster and senior principal at a real estate investment fund. He can be reached at mstoler@newyorkrealestatetv.com.
September 27, 2007 Edition > Section: Real Estate > Printer-Friendly Version
BY MICHAEL STOLER
September 27, 2007
URL: http://www.nysun.com/article/63475
The credit crisis has not diminished foreign investors' fervor to own commercial and residential real estate in Manhattan.
"With the euro priced at $1.40, the British pound at $2, and the Canadian dollar at par for the first time in 31 years, it doesn't take a crystal ball to see that America is going on sale," the principal and co-founder of Murray Hill Properties, Norman Sturner, said. "Our domestic inability to finance large mortgages due to the lack of securitization has decreased the domestic buyer population, and overseas wealth can pick up properties without a lot of competition from us."
The attractiveness of New York City real estate is being regularly profiled in the foreign press. Last Friday, a BBC News segment was titled "Investors see Manhattan as a safe haven."
"If you are a European investor worried about the security of your money at home, why not look for a bargain in Manhattan?" the segment said. "In this era of bank scares and crunching credit, that is exactly what hundreds of visitors are doing each week, fueled by the historically weak dollar." Anglo Irish Bank is an active lender and investment adviser to prominent Irish investors who have purchased properties in New York. Investor groups represented by the bank have purchased in joint venture with local operators the Beekman and Eastgate Hotels and the office building at 222 E. 41st St. The executive vice president of Anglo Irish Bank, Paul Brophy, said the dollar's weakness "relative to the sterling and the euro is making the U.S. and New York a specifically attractive alternative from the perspective of European investors. However, from an investment return perspective, it is too early to say whether or not euro or sterling investors can expect better returns now that the leverage levels and debt terms have changed and may in fact reduce or eliminate the benefit of a weaker dollar."
He added, "For European investors there is definitely a heightened sense of interest but people are wary of the financial markets right now so a lot of longer-term investors may just stay in the sidelines for the next few months and see what shakes out. Those who have bought here already and perhaps have a better understanding of market dynamics are probably more likely to buy as those who have yet to make a move."
Jamestown Properties is an established investment leader among international real estate funds investing in American real estate. In New York, the company has ownership interests in 111 Eighth Ave., One Times Square, and Chelsea Market. "I think you will see the foreigners very active in New York City in the near term," the managing director of Jamestown Properties, Matthew Bronfman, said. A lot of us were not willing to leer up as much and so we lost a lot of bids over the years to domestic buyers utilizing substantial debt. With the highly leveraged crowd presumably on the sidelines for a while, I am certain that you will see a lot of activity from foreign investors."
The president of SJP Residential, Allen Goldman, said there is "no question" that foreign buyers or those backed by foreign investors "will dominate the market near term. The weakening dollar will likely decline even further, making these investments seem like a once in a lifetime opportunity to buy quality assets on the cheap without nearly as much competition as recently as six months ago, particularly since domestic buyers are being forced to finance acquisitions with lower leverage. Foreign investors using tons of equity can and will accept low, low returns far longer than we can. They've got the cheap money, we don't."
The executive vice president of ABPInvestmentsUS, BardenGale, said: "Don't look for a foreign bailout on commercial real estate in the U.S. The weak dollar helps but the big, unleveraged, low-return buyers are few and far between. The loss of momentum and tougher lending standards both here and abroad are the major factors on the reduction of sales."
The chairman of Massey Knakal Realty Services, Robert Knakal, said that with almost all economies growing around the world, a significant amount of capital has been created and much of it is targeted for American investment. "One of the most popular U.S. investments is New York City real estate," he said. "The fact that the dollar is weak is accretive to this dynamic for sure, but we must remember that the foreign buyer's cash flow and profits on a sale are also in the form of our weakened dollar. Exchange rates are not the sole reason why so much foreign capital is being deployed into our market."
Prominent foreign investors are evaluating the benefits of owning Manhattan real estate. The president and chief executive of the Paramount Group, Albert Behler, speaking at a real estate symposium last week, said, "German investors are quite happy to earn a modest return for Class A office buildings in major central business districts in the United States. The majority of investors in the Paramount Group are wealthy foreign investors from Germany who have seen their wealth disappear due to two wars, and prefer safety, modest returns, and long-term gain." Earlier this year, Paramount purchased the 46-story, 1.6 million-square-foot 60 Wall St., the North American headquarters of Deutsche Bank. It paid $1.2 billion, or $737 a square foot, the highest price ever paid for an office building in Lower Manhattan. The seller, Deutsche Bank, entered into a 15-year leaseback with Paramount for the entire facility. This summer, Paramount sold the office building at 32 Old Slip for $750 million. Now, the company is testing the sales market and retaining an investment banker to solicit offers for the sale of its 47-story, 1 million-square-foot office tower at 1177 Avenue of the Americas. Industry leaders expect this Class A property to fetch close to $1 billion. This would represent a return of close to 200% for Paramount's foreign investors.
The New York Sun has learned that the owners of the former Deutsche Bank building at 31 W. 52nd St., the 30-story, 660,000-square-foot building built in 1985, have retained an investment banker to sell the property. More than 50% of the building is leased to the international law firm of Clifford Chance. Real estate sources say this property can command close to $800 million, or $1,100 a square foot.
An executive vice president at Cushman & Wakefield, Scott Latham, said sales activity "continues to be very strong. Pricing has not yet pulled back in a notable way; however, the investors who are active in the bidding process
are well-capitalized investors and institutions. Due to the credit crisis, the highly leveraged buyers have moved to the sidelines for the moment. There is definitely more activity from European investors, while the disparity in the currencies as they focus on the real estate fundamentals is still growing."
Over the past 18 months, foreign investors have been purchasing residential rental apartment buildings and condominiums. In March, London-based Dawnay, Day Group, a diversified international financial and property group, paid $250 million for a portfolio of 47 buildings and seven condominium units in East Harlem, with a total of 1,137 residential rental apartment units and 55 commercial units located throughout the area between East 100th and 120th streets.
"All I can say is that in the past few weeks we had groups from Spain, Italy, United Kingdom, and Israel looking at real estate investments, the majority being portfolios of residential rental apartment buildings", the senior partner at Massey Knakal Realty Services, Shimon Shkury, said.
Mr. Knakal said that for quite a while "we have seen transparent foreign investment in office properties and hotels. An interesting point about the appetite of this capital is its attraction to multifamily properties, which is not as obvious. Much foreign capital is provided to local operators in the form of equity financing. The rent regulation system in New York makes multifamily a more difficult investment for the foreign market on a direct basis which has been a catalyst for the many partnerships that exist today between locallybased operators of this product type and overseas investors who want to capitalize on the tremendous upside potential inherent in many multifamily assets."
As many local investors sit on the sidelines, expect the trend of foreign investors with cheap money to purchase residential apartments and office buildings in our city. Nevertheless, I agree with Norman Sturner when he says, "In the months ahead when the liquidity panic subsides, there will be a lot of local investors saying, ‘We shoulda, woulda, and coulda purchased properties in 2007.'"
Mr. Stoler, a contributing editor to The New York Sun, is a television and radio broadcaster and senior principal at a real estate investment fund. He can be reached at mstoler@newyorkrealestatetv.com.
September 27, 2007 Edition > Section: Real Estate > Printer-Friendly Version
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