The Real Deal New York

Abu Dhabi to shift $27B out of sovereign wealth fund: report

Emirate seeks to cover massive deficit caused by low oil prices

February 03, 2016 12:45PM

Sheikh Khalifa bin Zayed Al Nahyan, ruler of Abu Dhabi,

From left: Sheikh Khalifa bin Zayed Al Nahyan, ruler of Abu Dhabi, ADIA’s Sheikh Hamed Bin Zayed Al Nahyan and the Time Warner Center in Midtown

Abu Dhabi, facing huge budget deficits, will likely transfer as much as $27 billion out of its sovereign wealth fund – the Abu Dhabi Investment Authority – into the government treasury, according to a report by Fitch Ratings.

ADIA, the largest sovereign wealth fund in the Middle East, has over $850 million in New York City real estate holdings.

The emirate has taken major hits to its government revenues as oil prices have tanked over the past year, along with other major oil producers such as Russia and Saudi Arabia.

Abu Dhabi plans to cover some of that shortfall by drawing from ADIA, which had an estimated $502 billion in assets at the end of 2014. That number is set to drop to about $475 billion by the end of 2016, according to Fitch, thought it’s likely to recover again in 2017, Bloomberg reported.

The move is not unprecedented. The government has taken funds out of ADIA “infrequently and usually during periods of extreme or prolonged weakness in commodity prices,” according to the fund’s annual report.

The fund teamed with the Related Cos. and Singapore’s sovereign wealth fund back in 2014 to purchase a 1.1-million-square-foot office condo at the Time Warner Center. The partners paid a combined $1.3 billion.

Last year, ADIA bought the New York Edition hotel at 5 Madison Avenue in the Flatiron District for $343 million and the London NYC at 151 West 54th Street in Midtown for $382 million.

Tom Arnold, head of ADIA’s real estate business in the Americas, recently talked down the use of EB-5 financing, calling it “really controversial,” and a “cheap ticket” to American citizenship.

The Real Deal surveyed sovereign wealth activity in the city in it’s January issue. [Bloomberg]Ariel Stulberg