Foreign commercial property investors that had been filling the gap left by American firms burned by the subprime mortgage crisis have cut back purchases in Manhattan as the Wall Street crisis has deepened and overseas banks have faced liquidity problems of their own, lending experts said.
Terrence Oved, a real estate partner at Manhattan law firm Oved & Oved, gave an example of a foreign-born hedge fund investor who came to the United States a year ago and with overseas partners had been looking to spend some $10 million on properties. That search halted last month because of recent losses they suffered in the American equities markets.
“When he got hit… he lost a lot of money,” Oved said of the hedge funder. “His partners went down when the market went down, and [now] they are just sitting on the sidelines. They tell me they are waiting but you don’t know the extent of their losses.”
Earlier this year, foreign banks were seen as a lifeline to the New York City market, but recently they have been dragged into a global credit crunch.
Foreign lenders such as Germany’s Hypo Real Estate Holding have been stung by the American mortgage meltdown. Hypo Real Estate Capital, a banking subsidiary of the holding company, closed on a $130 million loan in August to redevelop 681 Fifth Avenue, which will house the Tommy Hilfiger flagship store. However, on Monday, the German government and private banks arranged $51.2 billion to prop up the lender.
The following day, the French and Belgian governments bailed out Dexia, the second Belgian bank to need federal help in two days, and the Irish government said it would back all depositors and creditors in six banks in Ireland.
Scott Singer, executive vice president at the Singer and Bassuk Organization, which arranges debt and equity financing, said the decision by lenders to invest in projects was made not by geography, but by economic conditions.
“I would say every segment of the financial market has seen certain investors pull back over the last 18 months, the last six months, maybe even the last week,” Singer said. “Each institution is making independent decisions about how generous or conservative to be in this environment.”
Commercial real estate research firm Real Capital Analytics said foreign investment purchases in Manhattan grew in 2007 to $8.1 billion, from $4.8 billion the year before. But in the first eight months of 2008, before the financial crisis hit Wall Street, only $3.88 billion had been invested in the borough, according to the latest data available.
Although it is too early to quantify all the loans made over the past month, because not all contracts signed have been filed, a review by The Real Deal of mortgages for sales and development recorded with the city’s Department of Finance between August 27 and the end of September show of the eight loans greater than $20 million made by private lenders, four were made by foreign entities, totaling $333 million.
The American banks lent a total of $192.67 million in loans at four projects valued at more than $20 million during the same period.
The largest foreign loan was from the Royal Bank of Scotland, which lent a total of about $155 million for the refinancing of a retail condominium owned by SL Green Realty at 717 Fifth Avenue, according to Department of Finance records. Other mortgages included the Bank of China loaning $23 million for a property at 6 West 48th Street; the Governor and Company of the Bank of Ireland invested $55 million for 396 Second Avenue; and DekaBank Group lent $100 million for 28 West 44th Street, records showed.
During the same period, the largest American loan was $68.67 lent by Bank of America for 111 West 31st Street.
Dan Fasulo, managing director of research at Real Capital Analytics, said he did not expect Hypo to default on projects here, but the fact it needed a bailout might crimp its investments in the future.
“I would have to assume that in this type of scenario Hypo would revisit and reevaluate their existing commitments or future commitments in New York City,” Fasulo said.
“But I don’t think they will run into trouble. In the short term, the crisis seems to have been averted by the German government.”