Boris Kuzinez takes the Fifth

Ostozhenka Street in downtown Moscow housed the headquarters of the Soviet secret police, inspired Mikhail Bulgakov’s epic “The Master and Margarita” and was home to the Institute of Red Professors, a factory of bolshevik academe. But less than a decade after the fall of the Soviet Union, Ostozhenka would begin its transition into Xanadu for oligarchs, Russia’s answer to Billionaires’ Row.

Boris Kuzinez was a big part of that. Projects like Copper House and Molochny Lane put the Ostozhenka neighborhood, and Kuzinez, on the world’s opulence map. Now, the Latvian-born Israeli national who oversaw the transformation of “The Golden Mile” wants to build what would be Manhattan’s tallest tower between Midtown and Downtown.

Kuzinez spent over $100 million putting together an assemblage at 260-264 Fifth Avenue in NoMad. His new firm, Five Points Development, is planning a 928-foot-tall condominium with just 39 apartments, property records show – meaning units would average over 3,500 square feet a piece – mansions in the sky by New York standards.

But the developer will have to reckon with a market somewhat hostile to the kind of oligarch-friendly product he’s planning: sales velocity for ultra-luxury condos is far lower than it was when he assembled the site, and competitors coming to market are pivoting to more affordable product. Moreover, he is yet to secure a construction loan and observers question whether he will get this project over the line.

Kuzinez declined to comment for this story.

Western-style buildings

In 2006, Rose Group, then a Kuzinez-led development firm known as RGI International, readied an IPO on London’s junior market exchange index. An offering memo touted Kuzinez as “one of the first developers to construct modern, Western-style buildings in Moscow” and highlighted his pedigree by noting his “working relationships with Moscow’s municipal and federal officials.” Morgan Stanley bought a 13-percent stake in RGI, and Kuzinez told the New York Times that year that his clients included the cream of Moscow’s monied crop, “mostly businessmen, bankers, in oil and metals.”

“It’s hard for oligarchs to live in a regular building,” he said.

He often worked with the acclaimed Russian architect Yuri Girgoryan and built distinctively mod shopping centers and office buildings in addition to luxury apartments. In 2007, the firm raised approximately $32 million on the Israeli bond market, now a go-to destination for American developers.

But the global financial crisis and downturn in housing markets hit RGI hard. Two years after the IPO, international real estate firm DTZ (now part of Cushman & Wakefield) marked down the value of RGI’s portfolio to $643 million from $1.91 billion, according to a report in the Russian paper Kommersant. Kuzinez’s son, Emanuel, who gave an interview to the Israeli publication Calcalist in 2009, said the firm’s stock had dropped as low as 10 cents a share.

With the troubles came feuds with partners and investors. Petr Shura, an investor who had purchased a 22 percent stake in RGI, sued in a London court in 2010 for fraud, alleging that Kuzinez was wasting money and overpaying himself and another partner, Jacob Kriesler.

“He was one of the best developers in Moscow (that’s why I invested in his company RGI),” Shura told The Real Deal over Facebook Messenger, “but he turned out to be a terrible partner.”

Stanislav Gromov, a partner involved in a long-stalled, 344,000-square-foot Moscow luxury project known as Khilkov, sued the company that was by then called Rose Group for more than $100 million over a deal that had been on the rocks for years. He claims Kuzinez mismanaged the project and failed to meet partnership agreements.

“As a result I have only huge losses… and I lost the best years of my life,” Gromov told TRD through a translator. A report in Kommersant said Rose Group had first sued Gromov in hopes of recouping $50 million from him.

By the end of 2013, Kuzinez had sold all of his and his minority partner Kriesler’s shares in Rose Group for $137 million to Globex, a subsidiary of the Russian government-controlled Vnesheconombank. Kuzinez acquired a line of educational products called the Kidum Group in Israel, where he was reportedly building one of that country’s most expensive mansions, in the coastal town of Herzliya.

If you can make it here

Unfortunately for Vnesheconombank, a big splash in the U.S. market was soon out of the question for Rose Group. Following Russia’s invasion of the Crimea region of Ukraine in 2014, Vnesheconombank and its subsidiaries were hit with U.S. sanctions. To make matters worse, Evgeny Buryakov, deputy representative of the American division of the bank, which was leasing office space at 777 Third Avenue, was revealed as a Kremlin spy and charged with espionage in 2015. He spent 16 months in prison and was then deported to Moscow.

None of that had anything do with Boris. He was a free agent living in Israel, getting ready for his next crack at New York.

Back in November of 2008, as the financial crisis clamped down on the real estate market and RGI’s stock was close to rock bottom, Gromov says Kuzinez dispatched him to Manhattan to scout discounted deals. The partners didn’t start any projects then, however.

In 2014, Real Estate Weekly reported that an “unnamed Russian-Israeli billionaire” had bought a development site at 264 Fifth Avenue, paying $25.5 million in an all-cash deal. It was the beginning of a $100 million assemblage play that included three parcels plus air rights from nearby landlords. Helping Kuzinez stitch the site together was Yoram Barel, an associate of Eddie Shapiro, the founder of the brokerage firm Nest Seekers International and the LEV Development company.

Then came building plans, but not much else. In February, Kuzinez filed for what’s known as a CPS-1, or “test the market application” with the New York State Attorney General’s office, but is yet to file an offering plan.

Kuzinez will face experienced competition in the Flatiron and NoMad area. Victor Group secured $369 million in financing for the 130-unit condo at 281 Fifth Avenue, which will be designed by Rafael Viñoly, the architect of 432 Park Avenue.  At a condo conversion of 212 Fifth Avenue, Robert Gladstone is already closing condo sales, most of which are priced well under $10 million. And others have decided that now is not the time to be starting a new luxury project. Chinese developer CL Investment Group scrapped a $300 million condo-conversion plan at 287 Park Avenue South last year and will instead opt to rejuvenate the existing office space. The closest thing that exists in the Flatiron to what Kuzinez might build is Related Companies and HFZ Capital Group’s One Madison, a 53-unit luxury high-rise on Madison Square Park, where Rupert Murdoch bought a triplex penthouse for $57.3 million in 2014. Kuzinez’s project would have 14 fewer units and top out over 300 feet taller.

Kuzinez still needs a fat construction loan to build such an ambitious tower, likely to be among the costliest ever built in the area. He has a $21.4 million, non-revolving credit line mortgage with Goldman Sachs, property records show. A source who requested anonymity said that Kuzinez is in talks with Goldman for a construction loan, but was stalling due to an unwillingness to take on the debt until he’s ready to begin construction in earnest. Another source who requested anonymity, and who is closer to Kuzinez, said that no new debt talks have taken place with Goldman Sachs, and that Kuzinez is not yet ready to begin such talks.

No I in team

It’s unclear if Kuzinez has any U.S. equity partners or is going solo. A source close to Kuzinez here said the developer was in talks with several potential local equity partners, but none were yet confirmed.

Y. David Scharf, an attorney who’s done workouts involving foreign real estate clients, said doing the project solo would be unprecedented.

“The Chinese money we saw coming in four or five years ago, we saw them teaming up with U.S. investors, same thing with Middle Eastern money,” he said. “Certainly with the magnitude of a 1,000-foot tower, I don’t think we’ve seen any foreign investors really do that alone.”

“If it’s successful it could lead to more Russian money coming into the United States,” said Petro Zinkovetsky, a Ukrainian-born real estate attorney who’s done deals for oligarchs in New York City. The market saw a wave of Russian capital at the beginning of this cycle, but it largely flowed into residential properties and homes for the super rich. On the development front, however, there hasn’t been that much action – the best known Russian real estate investor in New York at the moment is Vladislav Doronin, the founder of hotel group Aman and the money behind Michael Shvo’s planned condominium conversion of the upper floors of the Crown Building, which the pair bought for $500 million in 2015.

Ed Mermelstein, a Ukrainian-born real estate attorney who works extensively with Russian investors,
said it will be hard for Kuzinez to pull this off without significant local capital with the know-how to pull off large-scale residential projects.

“The problem is no one is going to partner up with a Russian developer who thinks he knows everything,” Mermelstein said. “And, as you well know, every Russian thinks he knows everything.”

(To see TRData’s chart of 10 years of condominium filing activity in Manhattan, click here. To see a quarterly summary of approved condos — including total value of those projects — click here.)