Sunday, September 09, 2007


Midtown’s Biggest Fans May Be Foreign Buyers - New York Times

An Israeli-led group paid $648 million for a 70 percent stake in the Lipstick Building, at 885 Third Avenue.

Foreign investors, emboldened by the cheap dollar, are gobbling up Manhattan real estate. They are different investors in many ways. They prefer to be conservative, laying down more cash and taking on less debt. They invest for the long term.

“The global capital markets are flush with strong currency buyers who see our shores as a relative bargain,” said Douglas Harmon, the senior managing director at Eastdil Secured, a real estate investment bank based in New York.

Foreign investors, according to Mr. Harmon and others in the industry, are generally more conservative in their financing, putting up more cash and relying less on debt. They also tend to be longer-term investors. By contrast, big domestic buyers, including the Blackstone Group, Tishman Speyer and Harry Macklowe, have used heavy levels of debt — up to 95 percent of the purchase price, in some cases — and relied on a steep increase in real estate prices and rents to justify the deals.

Foreign investment has picked up sharply. In May, there was the $1.18 billion sale of the Deutsche Bank building at 60 Wall Street to the Paramount Group of Germany.

In June, the Italian real estate investor Luigi Zunino made a foray into the New York market with the purchase of 660 Madison Avenue, the stylish office tower atop Barneys New York, for $375 million. At $1,488 a square foot, according to Mr. Harmon, it set a record for Manhattan commercial real estate. The deal, which closed on Aug. 30, was leveraged at a more modest 70 percent, with Deutsche Bank providing the financing, according to Mr. Harmon, who was the exclusive adviser for the transaction. That record was broken just four weeks later, when Somerset Partners, backed by European investors, paid $510 million — or just under $1,600 a square foot — for a 33-story office tower at 450 Park Avenue, according to Mr. Harmon, who also advised that deal. Somerset Partners assumed an existing commercial mortgage-backed security loan of $175 million, and used its own equity for the balance.

Israeli investors were also active. An Israeli-led investor group paid $648 million for a 70 percent stake in the Lipstick Building, Philip Johnson’s landmark at 885 Third Avenue near 53rd Street. And Africa Israel USA, a subsidiary of an Israel-based international holding and investment company, bought the former headquarters of The New York Times Company on West 43rd Street from Tishman Speyer for $525 million, three times the $175 million that Tishman Speyer paid in November 2004. Africa Israel also bought the Clock Tower building in Madison Square Park for $200 million and a portion of the Apthorp Apartments on the Upper West Side for $426 million.

In late August, the Dubai investment company Istithmar beat out the Fast Retailing Company, the Asian apparel retailer, with a $942.3 million bid for Barneys New York, being sold by Jones New York.

All told, there were 46 transactions totaling $5.27 billion by foreign buyers of commercial real estate in Manhattan through August, up from 28 for all of 2006, according to Real Capital Analytics in New York. “The global economic expansion is creating a tremendous amount of surplus capital,” said Dan Fasulo, a managing director of Real Capital Analytics, which tracks real estate deals. Much of that capital, he said, “wants and needs to be here.”


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