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NY real estate millionaire investor extends empire to South Florida

W South Beach

David Edelstein entered the real estate industry in the 1970s as a part-time real estate salesman who drove a cab at night to pay the rent. He made his first big move in New York City real estate in 1980 with the purchase of two commercial buildings in Manhattan, just north of the 59th Street Bridge, for $155,000. But his big break came when another developer approached him to buy his air rights in order to build a vertical health club. Edelstein paid off his commercial building mortgages and invested the $35,000 profit into buildings on First Avenue from 59th to 86th streets. His dealings made him a millionaire.

Today his real estate empire extends to South Florida. His latest project is the W South Beach Hotel & Residences, a 408-unit condo hotel with one- and two-bedroom residences, beach bungalows and penthouses ranging from the mid $700,000s to $8 million. The project opens in spring 2009.

Despite the lackluster real estate climate nationwide, the W South Beach has achieved record sales. The Real Deal's South Florida Web site caught up with Edelstein to discuss the W, the state of the South Beach market and what the future holds for South Florida developers.

TRD: When you broke ground on W, did you anticipate a slowdown in the real estate markets?

Edelstein: No. I started the process in the summer of 2002. The parcel used to be home to a 250-room Holiday Inn on a three-acre site. It was the only piece of land that size on South Beach and I paid $150 million for it. But I didn't sign on that property until August of 2004 and it took a couple of years to get the approvals we needed to break ground. No, I didn't see this coming. I will say, though, that the South Beach market for pure commercial real estate won't be impacted nearly as much as what we've seen in Downtown Miami or the rest of the country.

TRD: So you are confident in the W's chances in this market because of its location? Or will you make concessions?

Edelstein: We are not going to do any price cuts. I am confident that the final product will exceed anybody's expectations in terms of the public spaces, the overall property, the amenities and the hotel and residential units themselves. It will it take longer to complete the sell out than we had hoped, but it will sell. 

TRD: Who's buying at the W South Beach?

Edelstein: We recently did a couple of transactions in Milan, and another in Maryland. We're seeing a lot of European buyers, as well as sports figures. Twenty-five professional athletes from across the country have bought into the W South Beach, including NFL All-Pro players, NBA superstars and baseball hall-of-famers.

TRD: Besides the overbuilding and besides the lack of the capital, what do you see as the biggest challenges for developers who still have projects halfway up?

Edelstein: Confidence -- overall confidence. The general psyche of the international public has been beaten down to the point that we are lacking any confidence in terms of an upturn in the housing market for a long time. If you are midway through construction, it's a fine line between success and failure in real estate development and so it comes down to timing.

TRD: What caused this mess? Did developers just get greedy, negligent?

Edelstein: It's always been the case that builders build and bankers show restraint and lenders are prudent. In this case, the traditional lending formula over the last 100 years changed in the mid-1990s. The lending was done by investment banking houses that used a simple concept, which is a securitization concept to take loans, securitize them, bundle them and sell them as bonds. That concept is good as long as they were forced to keep a little skin in the game. 

In this cycle, it got to the point where investment bankers had to keep going because they were forced to show earnings to Wall Street. There were no longer any real checks and balances on the system. The buyer, the speculator, the banker -- they all got caught short because you can't just keep building 20,000 new condos in Downtown Miami where there were traditionally 500 to 1,000 people without jobs. 

TRD: You've come through all of this well. What's the secret to your success?

Edelstein: I love what I do and I am relentless. You have to be able to cut a step back and take a look at the big picture and that allows you to take the risk on given opportunities. Everybody has the ability to take advantage of opportunities, but not everybody does. I don't believe that people just get lucky. I believe they get good timing and that works out obviously beneficially. But if you are in the game enough, you are going to get the breaks. You are going to get the dramatic shifts in the market that create enormous wealth. It's not a single deal. Real estate is an opportunity to invest and hold and take advantage of the shifts in the market that create enormous wealth.