Kennedy Wilson announced that it had acquired the property, in what it called "Madrid's equivalent of Picadilly Circus", for a cool €30 million.
The latest foreign investment is a further sign that Spain is emerging from economic crisis and well on the road to recovery.
The firm said it would seek planning approval to refurbish the site at Puerta del Sol number 9, before marketing it to "high-ed retailers looking for flagship accommodation".
"The acquisition of Puerta del Sol adds Madrid's renowned touristic destination, the equivalent of Piccadilly Circus in London, to our portfolio,” said Kennedy Wilson Chief Executive Mary Ricks in a statement on Thursday.
“It provides us with prime irreplaceable real estate with significant asset management potential. The supply-demand dynamics of the area have remained robust, even throughout the downturn, and occupational requirements continue to grow,"
The building of over 7,500 square meters is alongside the block topped by the iconic Tio Pepe sign and will also include some residential apartments.
Earlier this year, Amancio Ortega, Spain's richest man and the head of the fashion empire Inditex, purchased a huge building in the nearby Gran Vía.