US back in favour with UAE property investors

London loses its lustre on property front as Emirati investors are once again targeting commercial property in the United States.

The Abu Dhabi Investment Council paid $800 million for a 90 per cent stake in the Chrysler Building in New York. Stan Honda / AFP

After a two-year lull, UAE investors are back in the hunt for trophy properties in the US, analysts say.

Although there have not been any high-profile purchases in recent months, Emirates groups have been investigating deals in New York and Washington, according to property executives.

"Some of the sovereign funds have reappeared," said Dan Fasulo, the managing director of Real Capital Analytics (RCA). "We expect Abu Dhabi to be very active [in the US] in 2011."

In 2007 and 2008, UAE groups were the largest foreign investors in US commercial property, investing more than US$12 billion (Dh44bn), according to data compiled by RCA.

Headline-making deals included the Abu Dhabi Investment Council paying $800 million for a 90 per cent stake in the Chrysler Building in New York and Nakheel spending $375m for 50 per cent of the Fontainebleau Hotel in Miami Beach.

But UAE buyers virtually disappeared from the market in 2009 and last year, investing less than $300m, according to RCA data.

Instead of buying, UAE groups were busy divesting US property.

Istithmar World Capital, the investment arm of Dubai World, lost the former Knickerbocker Hotel and the W Hotel in Union Square, both in New York, to lenders.

London and Paris attracted the bulk of foreign investors last year. Groups associated with the Qatari government were particularly active in London, buying the Harrods department store, developing the Chelsea Barracks project and funding construction of the Shard, the Renzo Piano-designed tower that will be the capital's tallest.

But rising prices in Europe have caused UAE investors to turn back to the US, property experts say.

A survey of international investors released this month by the US-based Association of Foreign Investors in Real Estate found New York and Washingtonto be the most popular targets, surpassing London.

"We see [UAE investors] here looking, but we have not yet seen them aggressively bidding yet," said Darcy Stacom, the vice chairman in New York of the property services group CB Richard Ellis.

UAE investors tend to prefer "trophy" office properties, but there are few of those types of buildings on the market, said Ms Stacom. "I think like many people in the world they are very frustrated with Manhattan right now," she added.

There has already been a sharp rise in international interest in US commercial property. Last year foreign investments more than doubled over 2009, rising to $9.7bn, according to RCA data.

The international activity was still a fraction of the record $39.8bn of foreign investment in 2007, but the market has changed, said Mr Fasulo, the RCA managing director. "The general feeling among international investors, including sovereign wealth funds, is that the US looks like a relative value versus other locations."

With oil prices rising, "there is a lot of money sloshing around", said Ray Torto, the global chief economist for CB Richard Ellis. "There is less uncertainty about the future of economies globally," Mr Torto said. "People who were sitting on their hands are getting off their hands."

International investors see the US as a "safe haven", said Steve Collins, the head of Jones Lang LaSalle's International Capital Group. He has seen a sharp increase in international interest, including from the Middle East, where investors are "familiar with New York and comfortable with the game", Mr Collins said.

But the game has changed, he said. With few trophy properties available, Mr Collins expects UAE investors to widen their horizons. "What is going to be potentially interesting is that we should see more firms buying debt instruments," he said.

Overall, the US commercial sector is showing signs of recovery. Commercial property transactions jumped to $60bn in the first three quarters of last year, an 83 per cent increase from the same period the previous year, Jones Lang LaSalle reported.