Qatar's national wealth fund has partnered with a private-sector company to buy out several top-notch properties in central New York. The $5.56-billion deal with Big Apple-based investment company Vornado Realty Trust was announced by the Qataris Friday.
According to Vornado's statement Thursday, the Qatari deal involves a non-controlling stake in several real estate objects on Fifth Avenue and Broadway in Times Square. Vornado will receive $1.2 billion as a result of the transaction.
The Qatari Investment Authority (QIA) and the oil-rich nation's investment company Crown Acquisitions — who also provided advice on the deal — have each purchased a 24-percent stake in the aforementioned properties.
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The deal come as part of a broader push from oil-rich kingdoms in the Middle East to diversify their portfolios to hedge their risks against a possible slump in oil prices in the future.
"This investment underlines QIA's ambition to substantially increase our US investments over the coming years, and our belief in the exciting long-term possibilities offered by New York City", QIA's CEO Mansoor bin Ebrahim Al-Mahmoud said.
Among the real estate acquired by the Qataris are five ground-level shops, that are currently home to several top brands, including Forever 21, Polo, Disney, and Salvatore Ferragamo. It is still unclear whether the properties will continue to operate in their current capacity.
Qatar has recently acquired multiple similar assets all around the world, including the Shard in London — which is the tallest structure in Europe. The QIA believes such assets will inevitably go up in price if the global economy continues to grow — while in case of a recession, prime real estate tends to retain most of its value.
For US-based Vornado, the deal appears to be an opportunity to raise cash, while maintaining controlling stakes in all the properties involved in the transaction.
"They (Vornado) have, over time, offloaded various segments of the company. It's their latest attempt to demonstrate the actual market value of their assets in an effort to close the gap between where the stock market is valuing those assets versus the private market", Jeffrey Langbaum of Bloomberg Intelligence said.
The deal is structured to include $950 million in mortgage debt, $1.83 billion in preferred equity — held by Vornado — and $2.78 billion in common equity, 51 percent of which is also held by Vornado. Some say the transaction looks more like a Qatari bailout of a struggling New York landlord.
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Vornado will also continue to serve as the general manager of all said properties. However, the $1.2-billion in additional revenues, which are expected to boost the company's 2Q19 profit to $2.6 billion, could diminish its say on what ultimately will happen to the properties.
The company also enjoyed a boost to its stock value, which rose to $67.01 per share Thursday, but is still far below its all-time high of roughly $93 posted in January 2015.
"Our stock price for the last five years has been disappointing and, in my mind, disconnected from the value of our assets", Vornado chief executive Steven Roth said. "Something is obviously wrong".
In light of this, the Qatari investment has helped to greatly improve Vornado's positions on the market, boosting its influence among other New York landlords in the commercial real estate segment.
For its part, Qatar — which managed some $300 billion is assets across the globe — added another piece of prime-location real estate to its collection — which it hopes will generate greater revenues over time.
QIA said it will continue to focus on "classic" investment in Europe and North America, which they say includes properties and financial institutions such as banks. Qatar is also expected to boost investment in Western technology and health care — two highly-profitable industries due to the ongoing rise in tech company throughput costs, as well as the skyrocketing costs of medical services.
Qatari officials believe such investments could bring larger and quicker profits — as opposed to the low-yielding government bonds and increasingly fragile stocks.