Tuesday, Mar 18, 2008
(This story was originally published on Monday.)
By Stefania Bianchi
Of ZAWYA DOW JONES
NEW YORK (Zawya Dow Jones)-Middle East investors, flush with petrodollars, are buying chunks of Manhattan's skyline as the U.S. dollar plummets and Wall Street loses its appeal.
"In many cases real estate is replacing investment in falling U.S. stock markets," Gregory Heym, executive vice president at New York real estate firm Halstead Properties, told Zawya Dow Jones in an interview.
Mideast buyers of U.S. property rose 20% last year, according to a February report by Washington-based Association of Foreign Investors in Real Estate. They, along with Australians and Germans, now dominate the market for foreign investment in the U.S.
Investors from the oil-rich Gulf region, where currencies are mostly pegged to the greenback at a fixed rate, are being lured to Manhattan's skyline at a delicate juncture for the U.S. economy.
At a time when the U.S. lurches towards a recession, the Arab sheikdom's of the Persian Gulf are enjoying an economic boom spurred by oil prices above $100 a barrel.
Unlike European property, U.S. real estate holds no foreign exchange risk for Gulf investors as the dollar hovers near record lows against the euro.
"Middle Eastern investors see that prices could go up in the long term when prices rise against the euro," says Heym.
The region's property investors may also help cushion New York's property market from the current downturn in the U.S. economy. Layoffs expected at Wall Street's biggest investment banks and lower bonus packages for the city's bankers could see property prices in New York tumble this year.
To be sure, the city has so far escaped the worse of the U.S. subprime mortgage crisis that has sent property prices slump across the U.S. The value of single-family homes in U.S. cities fell 5.8% on average in the fourth quarter, compared with the same period in 2006, according to the National Association of Realtors. Hall Willkie, president of New York property agent Brown Harris Stevens, says Manhattan is becoming a "safe haven" for Middle East money as stocks on Wall Street tumble.
The Dow Jones Industrial Average has slid 10% this year, while the U.S. dollar has lost about 18% of its value over the last year.
Trophy Assets
"Middle Eastern investors are looking for trophy properties and not distressed assets," says Henri Alster, chairman of the Global Real Estate Institute. "They have easy access to cash and so are looking at high-end assets."
Luxury New York developments such as The Plaza, where studios sell for $1.5 million and three bedroom apartments can fetch up to $10 million, are in demand amongst Mideast buyers, says Halstead's Heym.
The building, jointly owned by the Elad Group and Saudi Arabian billionaire Prince Alwaleed bin Talal, overlooks Manhattan's Central Park, with 130 hotel rooms and 182 private condominiums.
But the desire to buy Manhattan's iconic skyline isn't just limited to wealthy individual sheiks. Middle East sovereign wealth funds are active buyers.
Istithmar, an investment fund controlled by the government of Dubai, United Arab Emirates, has embarked on a Manhattan buying splurge over the last two years.
The company now owns some of the city's most prestigious addresses including the W Hotel on Union Square; the Mandarin Oriental at Columbus Circle; and the former Knickerbocker Hotel building at 6 Times Square.
Last year, it sold 230 Park Avenue to a group including a fund managed by Goldman Sachs Group for $1.15 billion and 280 Park Avenue to Broadway Properties for $1.35 billion.
However, analyst say that the sales don't mean a slow down in Middle Eastern appetite for Manhattan properties.
"We'll see a lot more Middle Eastern deals here," says Frank Liantonio, executive vice president for global capital markets at real estate broker Cushman & Wakefield.
-By Stefania Bianchi, Dow Jones Newswires; +9714 364 4967; stefania.bianchi.dowjones.com
Copyright (c) 2008 Dow Jones & Company, Inc.
(END) Dow Jones Newswires
18-03-08 0421GMT
