While foreign investors are spending plenty of bucks in the Big Apple, they are not as aggressive as they were a year or two ago.
Despite money moving into city assets, New York’s reign as the top global destination targeted by foreign investment has ended as cheaper London rose to the No. 1 spot.
Meanwhile, for US investment, Los Angeles has tied New York, says a new survey by the Association of Foreign Investors in Real Estate (AFIRE).
That slight tilt to other locales has slowed down office investment sales, says Dustin Stolly, vice chair and co-head of Newmark Knight Frank’s debt and structured finance group.
The $2.21 billion purchase of 245 Park Ave. by the Chinese conglomerate HNA in early 2017 through CBRE was an auspicious moment for trophy city sales, which had stalled in late 2016.
A 95 percent stake in 60 Wall St. was also completed early in 2017 for $1.05 billion through HFF to US-based Paramount Group and GIC, the Singaporean sovereign wealth fund.
Yet there was no momentum until a renewed flow of institutional capital fueled strong fourth-quarter sales in 2017 — many of which were for partial stakes.
A 49 percent stake in One Liberty Plaza, sold by Brookfield to Blackstone through Cushman & Wakefield was the largest partial interest sale in downtown’s history with a value of $1.15 billion, and reflected area investments and amenities.
Farther uptown, the transfer of a 1.3 million-square-foot development slice of the St. John’s Terminal to Toronto-based Oxford Partners for $700 million through C&W will further transform the Far West Side of Manhattan, and build on the Canadian company’s earlier commitments in Hudson Yards.
In Midtown, a 43 percent stake in SL Green’s Times Square tower at 1515 Broadway was sold to the German-based Allianz Real Estate of America through C&W for $585 million and recapitalized the building at $1.95 billion.
In another partial stake deal to foreigners, SL Green sold 27.6 percent of its One Vanderbilt development to the National Pension Fund of Korea for $563.5 million. Another 1.4 percent was sold to partner Hines while CEO Marc Holliday and President Andrew Mathias bought 3 percent between them, emphasizing they were willing to put their own money into their centerpiece.
Darcy Stacom’s team at CBRE also marketed 685 Third Ave. for TH Real Estate, which was sold to a Japanese company, Unizo Holdings, for $467. 5 million.
Contracted at year end, the sale by New York REIT of 333 W. 34th St. to Brookfield through C&W closed in early January for $255 million. While thought of as local, Brookfield is based in Toronto.
“The exchange rates attracted money to other markets because currency was cheap, and it became a barrier to entry here for the Germans and Koreans,” says Stacom, chairman of capital markets at CBRE.
Some significant buys were domestic. In a deal that will close in 2018, SL Green is also in contract to sell 600 Lexington through CBRE for $305 million to a local insurance company.
And in a deal marketed by Eastdil Secured and CBRE, SL Green and Scott Rechler’s RXR Realty bought a 48.7 percent stake in One Worldwide Plaza from NY REIT, one of the city’s most active sellers in 2017 as it unwound its holdings.
The pending $905 million sale of Brooklyn housing complex Starrett City a k a Spring Creek, also through C&W — approved by a judge in early January — will provide a good kickoff to 2018’s sales.
The Gural family’s GFP Real Estate and the Northwind Group are in contract to buy 7 Hanover St. for $310 million through C&W.
Douglas Harmon, chairman of capital markets at Cushman & Wakefield, predicts 2018 will be the 10th year in a row when commercial real estate has led all asset classes in providing the strongest risk-adjusted returns and relatively high yields.
“This steady sector track record is still bringing worldwide institutional capital to the US and particularly the New York market,” Harmon says. “The current supply/ demand balance will continue to support values and deal activity.”
Foreigners from Korea, Japan and Singapore are still focused on making city buys. “They want to place their capital where it can be preserved,” says Mo Beler, managing director of JLL Capital Markets, sugggesting Lower Manhattan as a place for future upside.
Still, the consensus was that 2017 was bereft of offerings — and total sales were way off.
According to JLL, Manhattan sales added to a paltry $21 billion. Compare that with 2015’s robust $60 billion, and an average yearly norm of $30 billion.
Some office buildings that were put on the market and even sought first round bidding, including 237 Park Ave. and 1211 Ave. of Americas, were pulled or refinanced. The sale of HNA Group and Murray Hill Properties’ 1180 Sixth Ave. is also in flux.
“There are plenty of buyers, but no pricing consensus. There’s lots of debt available from both traditional and alternative lenders, so financing is quite attractive,” says Woody Heller, vice chairman of capital markets at Savills Studley. “Rather than sell into an uncertain market, they are happy to refinance.”
Market players also became the lenders.
“They were very dominant in the market,” says Stacom. “Rates were inexpensive, and the buyers became lenders on other people’s deals.”
Stolly of Newmark says he hadn’t seen the debt capital as aggressive and as strong since 2007.
“Alternative lenders have filled in for construction loans where the commercial banks have left off,” Stolly adds. Meanwhile, Heller says reluctant private sellers are stalling the market with worries about pricing and finding a replacement property to buy. The mid-term elections can also create inaction, Heller adds, so the sector is gearing up.
