Dubai World's overseas investment arm has lost its second prime New York property after defaulting on payments to Danske Bank, an executive at the lender said, raising questions over the future of its remaining U.S. assets.
Istithmar World, whose parent company shocked global markets in November by demanding a standstill on $22 billion in debt, bought the former Knickerbocker Hotel in Times Square for $300 million in June 2006, when it was on the acquisition trail.
Danske Bank has now taken over the property and hired Jones Lang LaSalle to market it, Henrik Hoffmann, executive vice president for group credits at Danske Bank told Reuters on Thursday.
The building is the latest property Istithmar has given up in Manhattan since LEM Mezzanine bought the W New York Union Square hotel from Istithmar in December for $2 million in a New York foreclosure sale. Istithmar had bought the hotel for $282 million in 2006, the midst of an oil and property boom that saw Dubai embark on ambitious development projects.
Set up in 2003, private equity firm Istithmar spearheaded Dubai's aggressive overseas expansion strategy, including the purchase of luxury U.S. retailer Barney's New York and a stake in Standard Chartered.
Hoffmann said Danske, Denmark's largest bank, had taken over Istithmar's mortgage from Lehman Brothers after its collapse in Sept 2008.
"I don't think it's a Dubai World issue," said Saud Masud, head of research and senior real estate analyst for the Middle East at UBS. "Dubai World has to focus a lot more on its domestic challenges rather than internationally. They can't put out all their fires."
A spokeswoman for Dubai World declined to comment
BIG AMBITIONS
Just weeks before the collapse of Lehman, Istithmar set up offices in New York to target investment opportunities in a bid to become a "global investment firm from the Gulf region."
At the time, it claimed to have $12 billion of assets under management.
"It's not necessarily correct that this is in foreclosure ... (the property) is up for sale but this is a co-operative deal with the borrower," said one source close to the matter. The source said the sale was part of Istithmar's property restructuring programme.
Istithmar's U.S. property portfolio includes the W Washington DC and Mandarin Oriental New York, but its prize asset is Barneys.
Supermarket mogul Ron Burkle and his investment vehicle Yucaipa Cos has proposed taking a controlling stake in Barneys in exchange for a $50 million cash infusion, a source told the Wall Street Journal in January.
Istithmar hired restructuring advisory firm Perella Weinberg, in which it has a stake, last year to help it look at options to shore up Barneys financial position.
Dubai World is seeking to offload assets as part of a restructuring plan, but has said Istithmar and its assets would not be included.
Istithmar sold its entire holding in Indian budget airline SpiceJet this year for $35.23 million. It also plans to sell port and shipping agent Inchcape Shipping Services (ISS) for up to $700 million.
