N.Y. Landmarks for Sale to Foreigners?

June 12, 2008— -- Is another New York landmark being sold to foreign investors?

The New York Post reported Wednesday that the Abu Dhabi Investment Council, a fund based in the United Arab Emirates, is in negotiations on an $800 million deal to buy a 75 percent stake in Manhattan's Chrysler Building. The report was based on information from unnamed sources.

Potential players in the deal weren't talking Wednesday. Theresa Miller, a spokeswoman for Prudential Real Estate Investors -- which owns a 75 percent stake in the building -- declined to comment on whether a sale was in the works.

The Post had reported that the Atlanta-based company TMW was the prospective seller, but Miller said TMW had been fully integrated into Prudential since the latter bought TMW several years ago.

An attempt to reach Abu Dhabi Investment Council was unsuccessful. Real estate company Tischman Speyer, which owns the remaining 25 percent stake in the building, declined to comment.

It's the second time this week that news has broken of a foreign buyer investing big-time in a prominent New York address. Time magazine reported on Tuesday that Sorgente Group, the company led by Italian real estate investor Valter Mainetti, has acquired a majority share of Manhattan's famed Flatiron Building, a historic structure known for its triangular shape.

Foreign buyers "love to come to New York," said Anne Marie Moriarty, a vice president at Corcoran Reality. Moriarty, who deals in residential New York real estate, said that her business from European buyers has doubled since January 2007.

With the weak dollar, American real estate can be a bargain for overseas shoppers, and New York, she said, proves especially attractive.

"When you think about it, New York really is not that large," Moriarty said. "There's not that much inventory, so I think they feel it's a very solid investment."

According to Dan Fasulo, managing director of Real Capital Analytics, New York last year was the most popular U.S. city for foreign buyers of commercial real estate. Twenty percent of the U.S. commercial real estate bought by foreign buyers, he said, was in New York.

Fasulo said that New York's appeal to foreigners has to do with familiarity.

"Foreign investors like to buy what they know," he said. "They like the postcard assets that they can bring home and show to their constituents and have a recognizable value overseas."

One of the most well-known examples of a foreign purchase of New York real estate dates back to 1989. That year, the Rockefeller family sold the landmark Rockefeller Center to Japan's Mitsubishi Estate Company.

Fasulo said foreign companies purchasing U.S. real estate often do so in an effort to diversify their portfolios.

"There's a major wave of geographical diversification going on globally right now by many different international property investors, whether it's sovereign wealth funds from the Middle East, or a pension fund from Korea, or high net-worth individuals from Europe," he said.

American companies and investment funds, meanwhile, have the same motivation for buying real estate abroad. Fasulo said that the California Public Employees' Retirement System recently announced it would invest half of its $20 billion real estate portfolio to foreign investments.

"It's going both ways," Fasulo said.

Foreign buyers accounted for $52.1 billion in U.S. commercial real estate last year, according to Real Capital Analytics, roughly double the dollar volume of deals made in 2006.

Middle Eastern funds accounted for about 16 percent, or $8.2 billion, of last year's spending.

"All these oil-rich countries in the Middle East -- their coffers are flush with capital and they need places to park that capital," Fasulo said. "Real estate's certainly part of that allocation."

But Middle Eastern real estate investments paled last year to those stemming from other regions. Investors from Australia and Europe purchased $13.9 billion and $12.2 billion, respectively, in U.S. commercial real estate.

Recent headlines about New York purchases notwithstanding, foreign real estate spending in the U.S. this year may not hit 2007's scale. Fasulo said that between January and March, deals totaled less than $4.2 billion. During the same period last year, that figure was more than $7 billion.

Fasulo explained that today's credit crunch is to blame. It makes it harder for companies, he said, to finance deals to purchase real estate.

"Acquisitions are down across the board for all capital groups, including foreign investors," he said. The challenging debt markets, he added, "don't discriminate by the type of buyer."