The Real Deal New York

Much more sovereign wealth could be headed to NYC real estate

Two-thirds of sovereign funds want to increase their exposure to the industry: report
By Konrad Putzier | April 10, 2015 08:00AM

Sovereign wealth funds made quite a splash in Manhattan real estate in 2014, with north of $2 billion in deals. But that may only be the beginning.

A growing number of government funds are looking to increase their investments in real estate worldwide, according to new data by research firm Preqin exclusively reviewed by The Real Deal. Combined with a marked growth in their balance sheets — since October 2013, sovereign wealth funds have increased their total assets from $5.38 trillion to $6.31 trillion — and New York’s attractiveness as an investment destination, this could mean more money is heading to the Big Apple.

The vast majority of sovereign wealth funds are looking to increase their exposure to real estate, according to Preqin.  All funds currently holding less than five percent of their assets in the form of bricks and mortar are looking to increase that share above five percent. An impressive 37 percent of sovereign wealth funds are planning to invest 10 to 15 percent of their total assets in real estate – a marked increase from the 14 percent that currently do.

New York real estate has been described as “a parking spot for global wealth,” due to its relative stability and ability to absorb large sums of money. In the past 12 months alone, sovereign funds have spent more than $2 billion on Manhattan commercial real estate, according to Real Capital Analytics. Norway’s Norges Bank Investment Management led the pack with investments of $1.74 billion, including stakes in the office buildings 11 Times Square and 601 Lexington Avenue. It was also in the running as a suitor for Blackstone’s 1095 Sixth Avenue, which ended up selling to Canadian investor Ivanhoe Cambridge for $2.2 billion.

Manhattan’s most recent sovereign buyer is the Abu Dhabi Investment Authority, which closed on the $337 million purchase of Ian Schrager’s New York Edition hotel at 5 Madison Avenue this week. The deal pushed the fund ahead of the Kuwait Finance House, which last year bought two Manhattan hotels, the Holiday Inn at 60 West 36th Street and the Hampton Inn at 231 East 43rd Street, for $146.5 million.