Qatar Fund Buys 9.9% Stake in Empire State Building Owner

(Bloomberg) -- Qatar Investment Authority, the Middle Eastern country’s sovereign wealth fund, bought almost 10 percent of Empire State Building owner Empire State Realty Trust as it boosts investments in North America and the Asia Pacific region.

The fund acquired 29.6 million newly issued Class A common shares at $21 each and will have a 9.9 percent economic and voting interest in the real estate investment trust. The acquisition translates into a new $622 million investment in Empire State Realty, the company said in a statement on Tuesday.

The cash infusion may signal that the REIT is ready to buy new properties, KeyBanc analyst Craig Mailman said in a research note.

“Acquisition activity may be on the horizon,” he wrote. “The direct investment further bolsters Empire State Realty’s already ample balance-sheet capacity.”

For Empire State Realty, the investment will help it “plan for the future, now with more capital and one of the most sophisticated and reliable real estate investors in the world as our partner,” John Kessler, the company’s president, said in the statement.

Shares of Empire State Realty climbed as much as 3.3 percent in New York trading and the stock was up 10 cents at $20.62 as of 9:33 a.m.

The company didn’t say how it will use the money raised from the stake sale. Chief Financial Officer David Karp said that the company recently expanded its revolving credit line to $1.1 billion. Those funds, combined with Qatar’s infusion, will enhance the company’s “ability to drive long-term value” for shareholders, he said.

Empire State Realty Trust has been a publicly traded REIT since October 2013, following two years during which Empire State Building supervisors Peter Malkin and his son Anthony battled with some of the tower’s longtime investors over going public. The shares closed yesterday at $20.52, up 14 percent this year. The company owns 10.1 million square feet (938,000 square meters) of office and retail properties, mostly in Manhattan, with the rest in New York’s northern suburbs.

Since going public, the company has largely concentrated on renovating portions of its buildings, including the 2.8 million square-foot Empire State Building, and re-leasing them for higher rents, often by combining smaller offices.

Last October, Qatar Investment Authority and Brookfield Property Partners LP formed a joint venture on Manhattan West, an $8.6 billion mixed-use project on New York’s far west side. QIA, which was established in 2005, is the world’s ninth-largest sovereign wealth fund with assets valued at $335 billion, according to rankings by the Sovereign Wealth Institute.

The QIA “is re-balancing its geographical exposure towards the U.S. and Asia because they were over exposed to Europe at one point,” Fadi Moussalli, MENA head of International Capital Group at JLL, said in a phone interview. “When Qataris invest in the U.S. they reduce their currency exposure because their riyal is pegged to the U.S. dollar, which isn’t the case with European investments.”

More investments in U.S. real estate are sure to follow, he said. “The U.S. real estate market is offering fantastic opportunities for equity-rich investors right now.”

The fund has been adding to its real estate assets this year. In June it agreed to buy Singapore’s Asia Square Tower 1 from BlackRock Inc. in Asia Pacific’s largest single-tower sale, according to JLL. QIA has invested about $40 billion in property around the world, with about $22 billion in office transactions and $7.5 billion for hotels, including the 2014 purchase of the St. Regis Rome, according to Real Capital Analytics Inc.

To contact the reporters on this story: David M. Levitt in New York at dlevitt@bloomberg.net, Zainab Fattah in Dubai at zfattah@bloomberg.net. To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net, Ross Larsen, Andrew Blackman