Wednesday, January 15, 2014

Abu Dhabi to buy Time Warner Headquarters in Singapore

When Related Cos. needed financing for its $1.3 billion bid for Manhattan's Time Warner Center,  it turned to a ready source of money: foreign buyers.

It found willing backers in sovereign-wealth funds from Abu Dhabi and Singapore, which agreed to finance more than 80% of the purchase, according to people with knowledge of discussions.

The Related-led group and Time Warner Inc., which owns the building, are now close to a deal and an agreement could be announced as soon as Thursday, the people said.

The transaction would be one of the biggest in a surge of deals involving foreign investors in U.S. commercial real estate. Increased demand from overseas has helped drive U.S. commercial property values to record levels, particularly in major cities favored by global firms.

Foreign buyers are seeking out the U.S. as a place to spend their growing piles of cash, particularly as other markets such as Europe remain anemic. Non-U.S. buyers purchased more than $46 billion of property 2013, up from $35 billion in 2012 and the most since 2007, according to real-estate data firm Real Capital Analytics Inc.

Deals included Singapore-based OUE Ltd's purchase of the U.S. Bank Tower in Los Angeles, the tallest tower on the West Coast, and Canadian investor Ivanhoe Cambridge Inc.'s $390 million acquisition of the Wells Fargo Center in Seattle.

Foreign investment in U.S. real estate accounted for 11.9% of total purchases in 2013, also a postcrisis high, according to Real Capital's numbers, which are preliminary and don't include foreign investments through private-equity funds. The figure was 9.8% in 2012.

"Probably 50% of our interest came from foreigners," says Douglas Harmon, a senior managing director at real-estate services firm Eastdil Secured LLC who represented Time Warner on the sale.

While the Abu Dhabi Investment Authority and the Government of Singapore Investment Corp. will own most of the joint venture, Related will manage the tower on the corner of Central Park, the people said.

As part of the deal, Time Warner would move to a new tower that Related plans to develop in its sprawling Hudson Yards project on Manhattan's far West Side. Related hasn't completed financing for that building.

Time Warner spent about $520 million to construct its current headquarters about a decade ago. The company is using profits from the current sale to consolidate many of its New York operations, including Home Box Office Inc. and Turner Broadcasting, under one roof.

Other sellers also have enjoyed large profits due to interest from overseas. In October, for example, Boston Properties sold a 45% stake in the office tower at 7 Times Square for $684 million to the Norwegian Government Pension Fund Global, the largest sovereign-wealth fund in the world. Boston Properties reported a $386 million profit on the sale.

Some foreign investors have been buyers in the country for years, including the Abu Dhabi and Singapore funds. Canada last year accounted for more U.S. investment than any other country, with $14 billion, according to Real Capital.

But new foreign investors are making their American debuts. After years of looking at the U.S., Chinese investors last year spent more than $4.3 billion in the U.S., more than the total for the previous decade, according to Real Capital.

Shanghai-based Fosun International Ltd. 0656.HK +5.57%  , paid $725 million in December for One Chase Manhattan Plaza after looking for four years.

Now it is on the hunt for more deals, targeting locations including New York and San Francisco. "We're really confident about the recovery of the American economy," Guo Guangchang, Fosun's chairman, said in a December interview.

Other new investors include Norway's sovereign-wealth fund, which in the past year bought large stakes in properties with a total value of over $5 billion.

"If we're going to be a long-term investor and be diversified, we'll never get away from the U.S.," said Karsten Kallevig, chief investment officer at Norges Bank Investment Management, manager of the $800 billion fund.

The high prices paid by overseas investors have chased some U.S. buyers to the sidelines. Michael Franco, executive vice president at Vornado Realty Trust, cited high prices as a reason that Vornado was missing out on some deals. "I think it will continue to be tough to buy high-quality assets," he said on a November conference call.

Still, rising prices can mean bigger losses if the economy turns. Japanese investors bought landmarks such as Rockefeller Center in the late 1980s and early 1990s, just before the property market crashed.

For now, the buyers of Time Warner's headquarters have a strong tenant. Time Warner plans to lease its current space for five years, people familiar with the transaction said.

But filling the building after that could be difficult. The new owners likely will need to charge more than $100 a square foot to make a profit given a sale price of more than $1.3 billion, said bidders who looked at the property.

Average rents for top-quality office space in Midtown are $74.12 a square foot, according to statistics released Tuesday by Cushman & Wakefield Inc. That is up 2.2% from a year earlier.

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