Park51
It happens all the time. A buyer eyeballing a significant piece of real estate loses heart because of some nagging doubt about the property or a dip in the stock market. But what happens when a deal is sabotaged for a reason having nothing to do with the price or the property? That was the case when a Saudi investor recently about-faced on a major apartment in a top Manhattan building. The reason, according to a prominent real estate lawyer, was the anti-Islamic response to Park51, the proposed downtown Islamic culture center.
Oil-rich Arab investors, many of them Muslim, have a history of parking their cash in Manhattan’s high-end properties, commercial and residential. Now some suggest the vitriol surrounding Park51 could cool Middle Eastern buyers on New York — although that assessment is by no means universal.
Arab real estate activity in New York has fluctuated in recent history, moved by both the oil market’s health and public sentiment toward the Middle East. Investment dropped off after 9/11 but surged around 2005 as the real estate market soared. Before the 2008 financial crisis, investors from Dubai, Qatar and Saudi Arabia made dramatic purchases in New York, including the Helmsley Building and the Essex House. (Even at its recent height, though, total investment in New York from the Middle East remained far behind that from Europe and Japan.)
Middle Eastern investors’ appreciation of New York real estate stretches beyond profit potential. “They like to invest here because of legal protections and freedom when you buy real estate,” said Ahmad Atwan, who until three months ago worked as a senior financial executive for Dubai investment bank Millennium Finance Corporation. He’s now a managing director for BlackRock, an international asset management firm, in New York.
Atwan said he’s noticed some hesitation from Middle Eastern investors, both in real estate and other markets. He believes that any current concerns stemming from Park51 are temporary, but he remains cautious. “It would be a shame if this is one of the forces to slow down the recovery,” he said. Atwan noted that Qataris and Saudis should continue to be assertive in pursuing deals. “Go to The Plaza Hotel, and see who’s sitting in the lobby. It’s 80 percent Saudis. They’re here, they’re looking, they want to buy.” Interest from Arab investors in New York real estate could also heat up if oil prices rise from the current low $80s per barrel toward the high of $145 reached in the summer of 2008.
A broad departure of Arab Muslim investors from New York real estate has yet to surface, and would be difficult to quantify. But Edward Mermelstein, a partner with Rheem Bell & Mermelstein who has significant experience working with foreign real estate investors, said a real risk lingers that buyers will be scared off if, for example, vocal objections to new mosques continue.
“How does the Downtown mosque situation affect the perception of the U.S. market? There’s obviously a backlash and a negative connotation,” said Mermelstein, who recounted the story of the Saudi apartment buyer who recently walked from a deal. “We’ve definitely gotten a black eye in the Arabic world.”
The controversy extends beyond the physical presence of the Park51 building. Opponents continue to press for answers on where the money for the community center will come from, and whether donors will have ties to radical Islamic groups in the Middle East and beyond. Sharif El-Gamal, the project’s developer, said at a forum sponsored by The Real Deal last month that no funds have been raised yet to build it; he said in a separate interview that he will not take money from organizations that have “un-American values.”
Park51 wasn’t the only recent deal to stir up questions about Arab investors. Fox News singled out the Related Companies’ financial ties to two Arab investment groups when the firm was a finalist for a 1 World Trade Center partnership with the Port Authority of New York & New Jersey. Related ultimately lost to the Durst Organization, but it showed that real estate deals near ground zero would come with a vetting for Arab connections.
The strife may be confined to Downtown. Other real estate professionals said they haven’t seen an extensive Middle Eastern snubbing of New York real estate. “The issue never comes up,” said Paula Del Nunzio, a senior vice president and managing director at Brown Harris Stevens. “It’s an issue of quality of the property.” She said she knew of three deals in the $20 million neighborhood that involved Arab buyers.
Inquiries to numerous other brokers yielded similar opinions. “Most Middle Easterners aren’t paying much attention to the controversy,” said Timour Shafran, a vice president of investment sales at Capin and Associates who regularly works with foreign investors purchasing large apartment and mixed-use buildings.
“It’s a political year, a hot-button issue,” said Aaron Jungreis, president of Rosewood Realty Group, who noted that deals usually come down to one thing: “All anyone cares about is whether the dollar amount is right.”
El-Gamal expects that mind-set to be the overriding force in the market. “I consider myself one of the gatekeepers of New York City,” he said, explaining that he’s talking to many investors from the Middle East. “Being at the center of the storm, people start off the conversation about Park51. They then transition to, ‘What’s out there, how do we get involved?'”
Still, Mermelstein said that the stakes in this matter extend beyond real estate valuations.
“We have to be sensitive to the fact that America, which has always presented itself as open and tolerant, is very much perceived as contradicting those ideals right now.”