The quiet financier behind New York’s second-tallest condo project: Qatar

Sovereign wealth fund holds $162M in mezzanine debt on 111 West 57th Street

TRD New York /
Aug.August 03, 2017 04:30 PM

Rendering of 111 West 57th and Sheikh Abdullah Bin Mohammed Bin Saud Al Thani

The most ostentatious projects in Manhattan may reflect the wildest ambitions of local developers, but they’re increasingly bankrolled by centers of wealth and power from all across the globe. And nowhere is that truer than on 57th Street.

Qatar’s sovereign wealth is quietly backing Michael Stern and Kevin Maloney’s supertall condo development at 111 West 57th Street, The Real Deal has learned. The wealthy Middle Eastern country’s investment arm, the Qatar Investment Authority, holds $161.5 million in mezzanine debt on the under-construction luxury project.

The QIA investment comes to light as the developers are locked in a high-stakes legal dispute with their equity partner, Ambase Corporation. But the investment itself dates back to 2015: In June of that year, the developers landed a $400 million senior construction loan from AIG and a $325 million mezzanine loan from Apollo Commercial Real Estate Finance, a real estate investment trust managed by private equity firm Apollo Global Management. In the fourth quarter of 2015, the Apollo-controlled REIT sold off a $50 million portion of the mezzanine loan to other Apollo debt funds and a $200 million portion to an Apollo fund managing QIA’s money, keeping $75 million on its own books, according to sources familiar with the moves and public records. The deal made QIA the second-biggest investor in the project behind AIG.

Here’s where it gets complicated. Last month, the capital stack got a minor shake-up, as the Apollo REIT’s CEO Stuart Rothstein explained during an earnings call Wednesday (without mentioning QIA by name): Apollo bought $25 million of QIA’s part of the debt, reducing QIA’s position to $175 million. Then, Apollo and QIA sold a $25 million junior mezzanine portion of the debt to real estate investment firm Spruce Capital Partners, further reducing Qatar’s stake to around $161.5 million.

JDS, PMG and Apollo declined to comment. Representatives for QIA couldn’t be reached.

The mezzanine loan is out of balance, and the developers are trying to raise additional capital to pay for what sources said were cost overruns.

Spruce, now the most junior lender on the project, recently moved to foreclose on the project, in a move that could wipe out Ambase’s equity stake in the project. Last week, Ambase sued to block the foreclosure in the latest bout of legal drama at the project.

Ambase first sued JDS and PMG last year, accusing them of trying to dilute its stake through what it said were frivolous capital calls.  The developers countersued, accusing Ambase of withholding crucial funding.

In public at least, Apollo hasn’t expressed any concern. During the earnings call, Rothstein said that the firm is “confident with the progress of construction towards completion” and disclosed that the first condos went into contract.

Once completed, the 1,418-foot-tall tower will briefly be the tallest residential building in the city by roof height until Gary Barnett’s Central Park Tower tops out. The project has a projected sellout of $1.45 billion.

QIA’s involvement in the tower underscores Qatar’s emergence as a major New York real estate investor. The sovereign wealth fund also owns a stake in Brookfield Property Partners’ Manhattan West project and last year bought $622 million worth of shares in Empire State Realty Trust.  Meanwhile a former QIA head, Sheikh Hamad Bin Jassim Bin Jaber al-Thani, is an investor in Harry Macklowe’s condo conversion project One Wall Street and the retail portion of 432 Park Avenue. The billionaire, known as HBJ, also reportedly came close to investing $500 million in Kushner Companies’ planned redevelopment of 666 Fifth Avenue.

In 2015, QIA said it planned to invest $35 billion in the U.S. over the next five years.  Qatar is now in the midst of a diplomatic crisis with its neighbors in the Gulf, including Saudi Arabia and the United Arab Emirates, that could threaten the health of its economy.

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