BEIJING - China Investment Corp (CIC) helped refinance a Manhattan office tower co-owned by Carlyle Group last year, another sign that the $300 billion sovereign wealth fund is stepping up its US real estate investments.
CIC joined forces with AREA Real Estate Finance Corp of New York to buy an unspecified preferred equity stake in 650 Madison Ave, the 27-storey building that is headquarters of Polo Ralph Lauren Corp, said Bradford Wildauer, AREA's president. CIC also owns 35 percent of Industrial and Commercial Bank of China Ltd (ICBC), one of two lenders that provided Carlyle with a new first mortgage on the property in June.
"CIC is very bullish on investing in real estate in the United States," as are major Chinese banks, Jeffrey Lenobel, chairman of the real estate group at the New York law firm Schulte Roth & Zabel LLP, said in a telephone interview. "There is every reason to think you will see them together more often."
The US commercial real estate industry, which had $3.2 trillion in mortgage debt outstanding as of Sept 30, will need to raise almost $1 trillion in additional equity, New York-based brokerage Keefe, Bruyette & Woods said on Dec 14. Foreign purchases, including a sevenfold jump from China, may help close the gap. Acquisitions of US commercial property by buyers from the 15 largest outside countries rose to about $6.7 billion last year from $3.8 billion in 2009, according to Real Capital Analytics Inc, a research company with offices in New York.
Chinese purchases jumped to $127 million last year from $18 million in 2009, Real Capital says, including a $46 million deal by SouFun Holdings Ltd of Beijing to buy a Lower Manhattan building once owned by insurer American International Group Inc. The report doesn't include purchases through property funds, a route that Chinese buyers prefer, said Ben Carlos Thypin, a senior market analyst at Real Capital.
"They are investing through conduits a lot of the time," Thypin said. "The fund investment market is much more opaque." CIC acquired a 7.6 percent stake in General Growth Properties Inc in November through a fund manager that participated in the bankruptcy reorganization for the second-largest US mall owner. A CIC subsidiary holds a controlling stake in Beijing's Bank of China Ltd, which agreed in November to lend investors $800 million to refinance an office building on Manhattan's Park Avenue.
The Madison Avenue property may represent CIC's first publicly disclosed direct investment in a North American office building, according to Thypin.
"It's a tremendous piece of real estate and has great retail", including housewares seller Crate & Barrel and shoemaker Tod's, said Howard Michaels, chairman of Carlton Group Ltd, a New York-based real estate investment bank that runs sales for lenders. "It's the kind of investment that institutional investors" prefer, Michaels said.
Christopher Ullman, a spokesman for Washington-based Carlyle, the world's second-largest private-equity company, declined to comment, as did a CIC spokeswoman in Beijing.
Carlyle and New York-based Ashkenazy Acquisition Corp formed a partnership to buy the tower for $680 million in 2008. They originally financed the deal with a $325 million first mortgage and $225 million of mezzanine debt from a lending group that included Wachovia Corp, which is now part of San Francisco-based Wells Fargo, as well as Shorenstein Properties LLC, and Natixis Real Estate Capital LLC, according to Robert Underhill, the head of Shorenstein's New York office.
Wells Fargo and ICBC, the world's largest bank by market value, replaced the existing first mortgage with a new $355 million loan in June, New York City real estate records show. Carlyle and Ashkenazy used the money received from AREA to help retire the mezzanine loans, Underhill said.
"They refinanced the property and reconstituted the entire capital stack," Underhill said in a phone interview. AREA provided preferred equity and the partnership of Carlyle and Ashkenazy contributed additional capital, he said.