World Snaps Up City Property

APR 2010

29

Foreign governments have emerged as an engine of growth as the city's real estate market struggles to shrug off the doldrums, becoming major buyers of townhouses, office condominiums and other properties.

Sri Lanka's Permanent Mission to the United Nations is looking to spend about $6 million to purchase Manhattan office space, brokers say. Laos in February paid $4.2 million, all cash, for a five-story townhouse in Murray Hill.

Even the Western Hemisphere's poorest country—Haiti—was gearing up to bid on a Second Avenue office condominium when the earthquake struck and derailed its plans.

Foreign governments "are almost the only game in town," says Ken Krasnow, a managing director with building-sale specialist Massey Knakal.

During the boom, foreign governments seeking to buy real estate for consulates and U.N. missions had a hard time competing with faster-moving private developers. But since early 2009, Senegal, Singapore, South Korea and the United Arab Emirates have all bought property they plan to redevelop.

These days, those governments are among the only buyers still willing to pay top dollar, almost always in cash, for vacant office space or land sites—especially for properties within walking distance from the U.N. complex in Turtle Bay. The trend underscores the bench strength of New York real estate: When certain buying groups move to the sidelines, others are waiting to take their place.

Sellers sometimes shy away from dealing with foreign bureaucracies, which often make decisions at a glacial pace and have special security concerns. Deals can be toppled at the last moment by elections or coups. But of late, "people are patiently waiting for them to close," Mr. Krasnow says.

Case in point: It took landlord Philips International three years of negotiations until a deal with the Ivory Coast for an $8 million office condominium at 800 Second Ave. finally closed last September, according to Vice President Andrew Aberham. Total time in escrow: an eye-popping 377 days.

Bangladesh and Afghanistan have also bought Manhattan office condos in the past year, with Afghanistan paying $5.4 million for 9,600 square feet at 633 Third Ave. Philips is now marketing a renovated office-condo building at 110 E. 40th St. to government buyers. Mr. Aberham says he also has several foreign governments looking at the last unsold floor of his office-condo building at 820 Second Ave., including Sri Lanka.

"It's a good time to buy," says an employee at Sri Lanka's mission who declined to be identified. "The prices of property here were rather prohibitive for a long time." He says the mission was looking for about 10,000 square feet.

Governments see an opportunity to pick up prestigious Manhattan real estate at a good price, brokers say. "Smaller countries do the majority of the buying because they like to feel that they own something in New York City," says Gil Robinov, who specializes in deals with foreign governments for brokerage NAI Global New York City.

Mr. Robinov says he helped Haiti look into consolidating its U.N. mission and its New York consulate in a single space. "I was working with the ambassador," he says. "We were all set to move forward but once there was an earthquake I couldn't even get him on the phone." Haiti's U.N. ambassador didn't return a request for comment.

On East 32nd Street, construction should start next year on a new, eight-story cultural center for South Korea, says a spokesman for the cultural center, Michael Hagen. The building will include a theater, a gallery, space for cooking classes, and a traditional South Korean guest room. The country bought the site for $16 million in March 2009, according to data firm CoStar Group.

A dozen blocks north, on East 44th Street, Senegal bought a site on which it plans to build a home for its U.N. mission as well as cultural and business facilities.

In a sign of the complexity of deals with foreign governments, Senegal's acquisition of that site last year was briefly tied up in court when the seller filed a lawsuit accusing Senegal representatives of failing to fund the deal and "essentially acting like the notorious deadbeat who swears that 'the check is in the mail.'" Twelve days later, a press release announced that the deal had closed, the lawsuit was being withdrawn and the sellers apologized "for any unnecessary publicity" the suit may have caused.

Kenneth Fisher, a lawyer for the country, said on Wednesday that the "Maison du Senegal" project is going forward. A lawyer for the sellers of the site, Hotel E 44th St LLC and East 46th Street Development Company LLC, didn't return a request for comment.

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