The Real Deal New York

The Saudis in the shadows: A look at the Olayan Group, the soon-to-be owners of the Sony Building

Global firm is a quiet force in New York's property market

April 27, 2016 10:31AM
By Hiten Samtani Twitter_logo_blue copy

From left: Suliman Olayan, the Sony Building and Hutham Olayan

It’s a classic rags-to-riches story. An orphan from a small town mortgages his house to buy a handful of trucks, which allow him to pull off his first major deal. He hustles hard, becomes the go-to guy for the world’s biggest conglomerates, and in time, comes to build one himself.

What makes the tale of Suliman Olayan remarkable is that it begins in Saudi Arabia, where wealth is a function of royal family connections — and Suliman had none. Today, the company he founded, the Olayan Group, is a blue-chip investor with significant stakes in firms such as Credit Suisse, the U.K.’s National Grid and Coca-Cola. It is also a major player in real estate, with a stake in the Related Companies, a seat on the board of Blackstone Group’s real estate funds and a property portfolio spanning Europe and the U.S. Come May, it will own a new trophy: the Sony Building at 550 Madison Avenue.

Why then, does nearly no one in the industry know its name?

The silent majority

In February 2015, Chinese insurer Sunshine Group agreed to pay north of $230 million, or a record-breaking $2 million per room, for the Baccarat Hotel in Midtown. The deal was considered a major coup for the hotel’s developers, Starwood Capital and Tribeca Associates, who patted each other on the back in the press. Absent from the conversation was Olayan, a key investor in the project.

“They generally take majority stakes in investments — they’re the capital,” said an unaffiliated private equity investor with ties to Middle Eastern money who is active in New York. “But they’re very in the background — they don’t splash their name all over stuff.”

“They haven’t sought notoriety,” added another source, who heads a major global investment firm.

Representatives for Olayan didn’t respond to requests for comment for this story.

Real Capital Analytics classifies the group as an “active investor,” with acquisitions of 20 properties worth roughly $2.8 billion and no dispositions in the past two years. Its holdings include the 167-key Hotel Ritz in Madrid and the 23-building Knightsbridge Estate in London, which it acquired for $862.7 million in 2010, RCA data show. In the U.S., it owns nearly 3,000 residential units across Maryland.

But behind the scenes, Olayan’s portfolio may be far greater. The tally does not count, for example, its involvement in projects with the Related Companies, in which it has a sizable debt stake and a commitment dating back to 2007 to pledge further funds for Related’s projects. Representatives for the Stephen Ross-led firm declined to comment.

One source speculated that the post 9/11 backlash against Saudi influence on the U.S. led Olayan and other Middle East investors to maintain a low profile here. Some of the biggest developers in New York are funded by capital from the wealthy Gulf states — United Arab Emirates, Qatar, Kuwait and Saudi Arabia — but these backers, unlike those from countries such as Canada and Norway, prefer staying behind the curtain.

Clan with a plan

Suliman Olayan died in 2002 at the age of 83, leaving behind a fortune Forbes pegged at $8 billion. His four children — Olayan’s chairman Khaled and his sisters Lubna, Hutham and Hayat — work out of offices in Athens, Riyadh, London and New York and run the business along with CEO Aziz Syriani.

An investor who’s observed them in action noted that the siblings refer to each other by their initials: KSO, LSO and HSO — no word on whether it’s Hutham or Hayat who misses out. Of the four, Riyadh-based Lubna is the most visible: A regular at Davos, she gained attention in the West for her push to champion more women in big business, quite a task in her ultra-conservative homeland. A Bloomberg profile of her from 2015 was titled “This Saudi Billionaire Can Run a Business But Not Drive.”

In the U.S, Olayan’s operations are overseen by 61-year-old Hutham, while Anthony Fusco, a native New Yorker who joined the firm in 1986, handles real estate. Fusco sits on the board of the Blackstone LP‘s Advisory Council.

“Tony’s in the flow,” said Jonathan Gray, who leads the Blackstone Group‘s real estate division and counts Olayan among his investors. “He knows people and is a really experienced investor.”

Gray described Hutham, who also sits on the board of IBM, as “one of the most capable, thoughtful investors I’ve ever worked with.”

Multiple sources described Olayan’s real estate investing approach as measured and generally conservative.

“People hear Middle Eastern backers and they assume deep pockets and dumb money,” the unaffiliated private equity investor said. “I tell them, ‘the first one’s true, the second definitely isn’t.'”

A trophy on Madison

Olayan’s most frequent partner, including on the $1.4 billion acquisition of the Sony Building, is Chelsfield, a London-based real estate investor and developer. Chelsfield will take a small stake in the property and serve as the operating partner, sources said.

It’ll be an interesting undertaking, as it’s the Sony Building’s debut in the office market — from the time it was completed in 1984, it has been entirely owner-occupied, first by AT&T, and then by Sony.

Olayan “bought it with some conservative assumptions” about rents, said a source familiar with the deal. Technically, the property lies within the Fifth/Madison office corridor, where average asking rents are in the low $80s per square foot, according to CBRE. But it’s right on the cusp of the pricier Plaza District, where average rents hit around $130 per square foot.

“It’s main and main,” said Dan Fasulo, director of real estate product at market intelligence firm dmg:information, of the property’s prime address. Though observers balked at the $1.1 billion price tag that the Chetrit Group and David Bistricer paid in 2013 for the property, “it’s amazing how it only takes a couple years for a once-exorbitant price to look reasonable in New York,” Fasulo said.

And while Chetrit and Bistricer paid the nearly $1,300 a foot with a plan to cash in on the luxury condo boom — or whatever was left of it — Olayan didn’t mind coughing up a 25 percent premium on that price without the same upside in mind. One deal insider said Olayan emerged as the most attractive buyer because its plan carried “the least amount of risk.”

Representatives for Chetrit declined to comment. JLL’s Yoron Cohen, who represented Olayan, declined to comment. Eastdil Secured’s Adam Spies and Doug Harmon, who represented the seller, couldn’t be reached for comment.

But sources said that unlike Chetrit, the Saudi firm isn’t in a hurry to make money, and the Sony Building is simply another bet on a market they believe in.

“For them, it’s not such a big deal,” another insider said. “What looks really huge to us is not really huge to them.”

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