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A $3.4bn building that's been a curse for many buyers

July 16, 2013 16:29 IST

A $3.4bn building that's been a curse for many buyers

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Richard Beales in New York


New York's General Motors Building is proving a landmark for the times. The sale of a 40 per cent stake in the Apple Store-tenanted Fifth Avenue office tower has set a new record with a $3.4 billion implied valuation.

But the building's 45-year history is marked by buyers' curses -- and not just for the carmaker that built it. A Chinese billionaire and Brazilian bankers are the purchasers of the $1 billion slice of the edifice on the corner of Central Park.

That's a reminder of the shifting shape of the global economy and the wealth being created in the developing world.

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Image: General Motors building in New York City.
Photographs: Shannon Stapleton/Reuters

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It also calls to mind the top-of-the-market purchase of Rockefeller Center in Manhattan by Japan's Mitsubishi Estate in 1989. Yet it is hard to see the new investors as obviously dumb money.

One is a family vehicle of Zhang Xin, chief executive of Soho China, a highly successful property developer in the PRC. The other is the Brazilian Safra family of financiers.

Rather, the new record is about a commercial real estate market recovery. Prices of office buildings in the New York area were up 25 per cent year-over-year in April with Manhattan rising 51 per cent, according to Real Capital Analytics.

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Image: Rockefeller Center, centre, in front of Central Park in New York City.
Photographs: Gary Hershorn/Reuters

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A $3.4bn building that's been a curse for many buyers

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Sceptics might argue that low interest rates, courtesy of the Federal Reserve, are all that underpins this trend. But in the case of the GM Building at least, a 20 percent increase in value since the last record-breaking sale for $2.8 billion in May 2008 as the financial crisis was already taking hold is more or less in line with, say, the change in the S&P 500 Index over the same period.

All that said, the GM Building, also home to famed toy store FAO Schwarz and two million square feet of office space, has something of a checkered history for its owners.

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Image: FAO Schwarz toy store in New York City.
Photographs: Seth Wenig/Reuters

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Several have run into trouble, most recently Macklowe Properties, which was forced to sell the trophy in 2008 to pay off debt - incidentally fetching twice what it had paid less than five years earlier.

Then there's the fate of General Motors, which completed its New York headquarters in 1968. Competitive threats piled up thereafter, and the automaker mortgaged the building to raise cash in the early 1980s and sold it in 1991 for about $500 million.

Investors in GM were eventually wiped out in the company's 2009 bankruptcy. Today's owners of the eponymous building - Boston Properties and its new Bric partners - will be hoping for better.

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Image: An aerial view of the Manhattan skyline as seen from Lower Manhattan in New York City.
Photographs: Adrees Latif/Reuters

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Context news

i) A group of investors, including Chinese real estate tycoon Zhang Xin, paid about $1 billion for a 40 per cent stake in the General Motors Building, said a landmark New York office tower, a person familiar with the deal.

ii) The Sungate Trust, which is controlled by the family of Soho China Chief Executive Zhang, joined with M Safra and Co, the investment firm of Brazil's Safra family, to buy the stake in the GM Building, valuing it at $3.4 billion, the source said.

iii) The deal makes the two million square-foot building - a 50-storey tower overlooking Manhattan's Central Park and featuring Apple's flagship Fifth Avenue retail store - the most expensive US office building.


Image: Soho CEO Zhang Xin attends a session at the World Economic Forum in Davos, Switzerland.
Photographs: Christian Hartmann/Reuters

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