Foreigners pull back on U.S. realty

Armed with oil profits, Middle East buyers recently snapped up New York's Chrysler Building and General Motors Building for an estimated $3.7 billion. But their acquisitions of the two trophy offices belies their waning interest in U.S. commercial real estate this year as the U.S. economy stumbles and property prices dip.

Earlier this month, Abu Dhabi Investment Council, one of the world's largest sovereign wealth funds, bought a 75 percent stake in the Chrysler Building for an estimated $900million.

In June, Dubai-based Meraas Capital LLC was part of a joint venture that bought the General Motors Building for about $2.8 billion.

But Middle East investment is expected to be flat or down this year compared with 2007. More than halfway through the year, Mideast investors have shelled out $2.7billion for U.S. assets, according to Real Estate Analytics Inc., a New York-based real estate research firm.

At that pace, this year's total sales will likely fall far below last year's $8.2 billion in deals.

Other countries have similarly pulled back their investment in U.S. real estate. Retail property sales were down 62 percent; industrial sales, down by half; and apartment sales, down by 45 percent.

Prices, especially in suburban markets, have started to slip, making many investors jittery about getting into a sliding market. And the economy, on uncertain footing, could hurt property occupancy rates and rents.

But the investment conditions have pluses for cash-rich Middle East investors who have been able to grab landmark buildings.

“They're using this environment to win deals that they might not have won last year,” said Dan Fasulo, managing director of Real Capital Analytics.

These investors are zeroing in on New York City, which accounted for nearly a quarter of all office sales in the first half of the year.

New York ranked as the top spot worldwide for foreign commercial real estate dollars, according to a survey conducted last year, up from No. 2 the year before.

“There's a notion it's a safe haven, that markets like New York City are ultimately going to retain their value,” said Joseph Gulant, a partner at law firm Blank Rome LLP, which helps negotiate commercial real estate transactions.