New York hasn’t heard much from the LeFraks — one of the city’s true real estate dynasties — in a while, and there’s a reason.
Unlike a lot of developers now hawking $1 million apartments or struggling to finance half-completed projects, the LeFraks got out of the condo business just in time, instead focusing on rentals and buying up commercial properties in Los Angeles, Richard LeFrak, chairman and chief executive of the LeFrak Organization, told The Real Deal in a discussion about the market, for a cover story in the February issue.
The LeFraks, who operate a family business stretching back five generations, will soon celebrate the grand opening of the new Westin Jersey City in their Newport development, which has some 880 condos and 3,480 rental apartments, on the waterfront in Jersey City. A new rental tower, the Aquablu, is slated for occupancy this spring. Their most recent condo project, the sold-out Shore Condominium Residences at Newport, went on the market in February 2008, months before New York began feeling the effects of the nationwide housing downturn.
But once the Aquablu is completed, LeFrak will have no new construction projects underway in the New York City area.
“It’s the first time in 15 years I haven’t had a building in the ground somewhere in this market,” said LeFrak, who now heads the company founded by his great-grandfather, Aaron LeFrak. More recently, Richard’s two 30-something sons, Harrison and Jamie, have come on board as principals at the company.
It’s hard to imagine the LeFraks not building in the New York City area, where their organization has shaped so much of the landscape. Richard LeFrak’s father, Samuel, who died in 2003, was perhaps New York City’s most prolific post-World War II residential developer. Perhaps best known for LeFrak City in Queens, the LeFraks were instrumental in developing Battery Park City at the southern tip of Manhattan and transforming the once-dilapidated Jersey City waterfront, where they’ve built more than a third of the high-rise skyline that has emerged in recent years.
But for the last two years, the company has shifted focus, LeFrak said, instead buying up commercial properties in Los Angeles. In April 2008, the company bought a 63,800-square-foot Beverly Hills medical office building, the Wilshire Spalding Building, for $55 million, or $862 per square foot, on the heels of buying the tallest office building in Beverly Hills for $80 million.
“I just felt that we were too heavily concentrated in one market,” Richard LeFrak said of expanding his real estate empire to Los Angeles, a market the family has likened to New York in part for its limited space for new construction. The company has also looked at properties in London.
And besides, the wildly expensive New York housing bubble of recent years collided with the company’s trademark cautious approach.
The LeFraks are also known for being generally conservative. “Every time we go up to the plate, we bunt,” Jamie LeFrak told the Newark Star-Ledger in November.
In addition, the family is best known for its business model of hanging on to properties they build and renting them out as a source of income. The method makes them much less reliant on bank financing than other players in the real estate world.
In other words, “we’re not living on borrowed money,” LeFrak said.
The mania of the mid-2000s real estate market in New York “brought land values up to unrealistic price levels,” he said. “I think people got crazy with these condos. You know there’s something wrong when your dentist’s wife becomes a developer. Every amateur in the world decided they were going into this business.”
Of course, he’s never much cared for condos in the first place, though the LeFrak Organization has occasionally built them because “you can’t build a community without home ownership,” Richard said. “But I think it’s a totally dumb business for the developer. You go through this tremendous pregnancy and then you give the baby up for adoption.”
Nonetheless, opening a new rental project in the current market is going to be a challenge, he acknowledged. Luckily, it’s one the LeFraks are well-prepared for, after five generations in the business.
“In hindsight, would it be easier if I didn’t have it? Yes,” Richard said of Aquablu. “But you don’t build a building for a day. When you’re a developer, you have to take the risk of guessing what the world is going to look like when a project is finished, not when you start it. If you’re well-capitalized, you have the ability to transition.”
But never fear. The LeFraks haven’t given up on New York — they’re just biding their time until prices drop back down to reasonable levels.
“As soon as things readjust, we’ll go back,” LeFrak said.