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Inside the Gulf – Part 4 – This series of articles will explore several major projects taking place in the Persian Gulf countries.
While much of the news coming out of Qatar over the last few years has been its recent battle with its neighbors in Saudi Arabia and the United Arab Emirates who established a blockade against it last summer and its preparation for the upcoming 2022 FIFI World Cup, the tiny Arab nation in the Persian Gulf has been quietly establishing a substantial real estate portfolio of US properties through its sovereign wealth fund.
Backed by Qatar’s rich natural gas reserves, the Qatar Investment Authority (QIA), which was founded in 2005, has established itself within a relatively short period of time as one of the world’s major investment funds. Ranked as the world’s 10thlargest sovereignwealth fund, it currently manages assets totaling around $300 billion. It also manages a real estate investment group, Qatari Diar, that invests in real estate projects within Qatar and abroad. As of 2017, Qatari Diar has invested in 39 projects at home and in 21 countries around the world.
Qatar has been investing billions in properties across Europe for quite some time. In 2011 it purchased the high-end Porto Tarraco Marina in Tarragona, Spain, south of Barcelona. After a two-year renovation Qatari Diar reopened the luxury hotel Le Royal Monceau in Paris. In 2013, the hotel was awarded “Palace Distinction”, ranking it one of the top six hotels in Paris. In 2015 it partnered with Hines to acquire a 100% interest in the prestigious $2.4 billion Porta Nuova development in Milan Italy.
Qatar is considered one of London’s biggest land owners. It is estimated that the fund owns over 23 million square feet of space in the city, valued at over $48
billion. Its holdings include some of London’s most notable properties such as Olympic Village, the Shard, Claridges Hotel, the Park Lane Inter-Continental Hotel, the Berkeley Hotel, the Connaught Hotel, and Harrods department store. Qatari Diar is currently planning the redevelopment of the US embassy site in Grosvenor Square into a luxury hotel.
After much success in purchasing and developing iconic properties in Europe, Qatar has set its eyes on the US market. Its foray into the US market began back in 2010 when it gave Hines a $650 million injection into its Washington DC City Center project. That investment allowed QIA to become the primary stakeholder in the $1 billion project on the site of the former Washington Convention Center in downtown DC.
Now that Qatar has turned its focus towards the US, it has begun to focus on the New York market which began in 2014 with the purchase of the InterContinental Barclay Hotel at 111 East 48th St for $300 million. In September of 2015, it opened an office in New York of with goal of investing $35 billion in US real estate by 2020. In the same year, it purchased a 44% stake in Manhattan West, Brookfield Properties’ 7 million square feet mixed use property which is valued at over $8 billion.
In 2016 QIA acquired a 9.9% stake in Empire Realty Trust. At the time this purchase in stock was seen as a rare occurrence as wealth funds typically purchase stake in individual buildings. However, the purchase allowed QIA to diversify its portfolio, giving it a small stake in several New York properties including the Empire State Building, as well 13 other office and six retail properties. QIA also holds $161.5 million in mezzanine debt on 111 West 57th St, a supertall condo development scheduled to be completed in 2019.
In addition to its purchases in DC and New York, QIA will probably continue its buying spree in other major US markets. The group as has also begun to make moves into the Los Angles market. In 2016 it partnered with Douglas Emmett, the Santa Monica based REIT, on its $1.3 billion purchase of a California office portfolio from the Blackstone Group. The QIA portion of that deal included the $139 million purchase of 233 Wilshire Boulevard, a nine-story office building in Santa Monica.
The Impact of Middle Eastern Sovereign Wealth Funds
The move by the Qatar Investment Authority into the US real estate market is not a new thing for other sovereign wealth funds from the oil rich Gulf states. Of the top ten sovereign wealth funds, three are from the Gulf. Many of these funds have been making investments for decades, with the Kuwait Investment Authority being the oldest sovereign wealth fund in the world, dating back to 1953.
Many of these funds have substantial investments in US real estate. The Abu Dhabi Investment Authority (ADIA), which strictly invest outside of Abu Dhabi, is said to have over $850 million is New York real estate holdings. In 2014 it partnered to with Related Companies and GIC, the Singapore sovereign wealth fund, to purchase the Time Warner Center for $1.3 billion. Both ADIA and the Kuwait Investment Authority (KIA) have purchased stakes in Related’s Hudson Yards project. In 2011 KIA purchased 750 Seventh Avenue from Hines for $485 million, through its US real estate arm Fosterlane Management Corp.
The New Kid on the Block
Although Gulf wealth funds have been investing in US real estate for decades now, there may be another buying spree on the horizon coming from the Saudi Arabia Public Investment Fund (PIF).
Originally established in 1971, the PIF has recently undergone dramatic changes that may have significant effects. In 2015, the PIF’s oversight was moved from the Ministry of Finance to the Council of Economic and Development Affairs (CEDA), which is now chaired by Crown Prince Muhammad bin Salman, who has been making massive changes in the country’s development.
Although the PIF currently manages assets of over $220 billion, that amount is expected to jump dramatically in the near future due to the ownership of Saudi Aramco, the world’s largest corporation, being transferred to the PIF in 2016. Saudi Arabia is looking to list 5% of the company through an impending IPO. Once the IPO is complete the value of the PIF is expected to exceed $2 trillion, instantly making it the world’s largest investment fund. Much of this money will go towards funding major projects inside the country as part of Saudi Arabia’s Vision 2030, but a significant amount could be headed abroad. A sign that the PIF may have its eye set on Western markets is that in October of last year, it hired Greg Bankhurst of Qatari Diar as its chief development officer. With continued investments from established Gulf wealth funds, the increased activity by the QIA and the potential of the PIF, investments in US real estate by the Gulf states does not look to be slowing down anytime soon.