New York has knocked off London as the world’s premier city for foreign investment in commercial property due to fears the vote to leave the European Union would diminish the British capital’s appeal as a global financial centre.
Data on cross-border property transactions indicate greater unease among investors prior to the referendum, which voters unexpectedly approved on June 23, than had been captured in the capital markets prior to the vote.
Cross-border capital flows into London property fell 44 per cent in this year’s first six months from the same period in 2015, according to data from brokerage Jones Lang LaSalle.
Property investors feared Britain’s exit from the EU would erode London’s role as a premier financial centre and reduce the value of their investments, the majority of which are office buildings.
Norway’s sovereign wealth fund, one of Britain’s largest foreign investors, said it cut the value of its UK property portfolio by 5 per cent because of the vote.
“It would be fair to say that London bore the brunt of Brexit fears,” said David Green-Morgan, director of global capital markets research for JLL in Chicago. “The big fear is that London will lose a lot of the financial service jobs that has made it such a global financial centre.”
New York gained US$10.3 billion in cross-border investments in the first six months of the year compared with the $6.9bn that London took in, data from JLL show. In the same year-ago period, London garnered $12.4bn while $11.3bn flowed to New York, according to JLL.
The 8.9 per cent decline in cross-border investment New York experienced is in-line with the roughly 10 per cent decline major cities experienced this year when compared to 2015, a stellar year in property investment around the world.
Concerns the UK market was coming toward the end of the cycle amid signs pricing was reaching unsustainable levels only partially explains the drop-off in investment flows to Britain, the largest decline since the financial crisis.
It is now obvious that people were becoming increasingly nervous about the Brexit vote, Mr Green-Morgan said.
Britain is viewed as more investor friendly than the United States because of beneficial tax arrangements. However, underlying property fundamentals – strong demand and not too much supply – must be in place to attract capital, as now is the case for the US office and multi-family property sectors.
The uncertainties created by Brexit has made investors more cautious about Britain and to a lesser extent about Europe, said Ken McCarthy, a senior managing director and regional research director for Tri-State New York at Cushman & Wakefield. Negative interest rates across the euro zone also are driving investment to the US, he said.
“You’re going to see people look to redeploy their capital elsewhere and the big one will be the US. Most likely, given that it is overseas capital, it will focus on gateway cities,” he said, citing New York, Boston, Washington, Los Angeles and San Francisco.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
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