Two big Manhattan property deals signal recovery, China interest

Sun Jun 2, 2013 7:12pm EDT
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By Ilaina Jonas

NEW YORK, June 2 (Reuters) - A group of investors, including Chinese real estate tycoon Zhang Xin, paid about $1 billion for a 40 percent stake in a landmark New York office building, a person familiar with the deal said on Sunday, in the latest sign of how foreign investors are fueling a U.S. commercial real estate market recovery.

The deal, which closed on Friday, comes in the same week that food company Shuanghui International Holdings Inc agreed to buy pork producer Smithfield Foods for $4.7 billion. That purchase, if approved, would be the largest ever acquisition of a U.S. company by one from China.

Later this week, a summit between U.S. President Barack Obama and Chinese counterpart Xi Jinping on trade and other issues could provide a further boost to Chinese investments.

The Sungate Trust, which is controlled by the family of Soho China Ltd Chief Executive Zhang, joined with M Safra and Co Inc, the investment firm of Brazil's Safra family, to buy the stake in the General Motors Building, which values the tower at $3.4 billion, the source said on Sunday.

The deal makes the 2 million square-foot building - a 50-story tower overlooking New York's Central Park and featuring Apple Inc's flagship Fifth Avenue store - the most expensive U.S. office building.

The news comes amid talks to sell 650 Madison Avenue, another office building close to the General Motors tower, to a group of investors for $1.29 billion, in yet another pricey transaction. New York-based Crown Acquisitions and real estate investment firm Highgate beat others, including foreign investors, to buy the 27-story office and retail tower from private equity firm Carlyle Group.

In addition to office space, the GM Building and 650 Madison contain extensive space for stores. Rents for retail stores often can be more than triple those for office space, giving both the buildings premium valuation. Still, these deals underscore how the commercial property market is benefiting from foreign investors flocking to U.S. real estate, attracted by stability, higher yields and protection against inflation.

Prices of top Manhattan office buildings have regained much of what they lost in the financial crisis. In April they were roughly 20 percent below 2007 highs but were trending up, according to the most recent figures from the Green Street Manhattan Office Price Index. Prices of office buildings in the New York Metro area were up 25 percent year over year in April, with Manhattan up 51 percent, according to Real Capital Analytics.   Continued...