The Kuwait Investment Authority (KIA) is investing in the $15bn Hudson Yards office property project in Manhattan in a deal that illustrates how conservative sovereign wealth funds are taking on greater risk in the pursuit of higher returns.
Sovereign wealth funds typically buy premier buildings for their rental yields or invest in real estate funds managed by private equity groups, according to The Financial Times.
But with rental yields hovering around 4 per cent, sovereign wealth funds are now taking on development and construction risk on new buildings in the hope of earning double-digit returns on such investments.
Hudson Yards is a new development on Manhattan’s barren far West Side that is adding office space in New York for the first time in years. It is the largest privately funded office development in the US since the economic downturn.
Construction began on the 26-acre office, retail, residential and cultural space in December. It is being financed by Steve Ross’s Related Companies and Oxford Properties.
The KIA, a long standing investor in Related Companies, has a reputation for investing in prestigious properties in big cities such as London.
The initial stage of the Hudson Yards project involves construction of the first of several towers, including an office tower with a $1.4bn price tag.
The KIA’s investment in Hudson Yards comes at a time when real estate globally is expected to be a big beneficiary of the easy money conditions created by many of the world’s biggest central banks.
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