Africa Israel loses big on U.S. investments

From left: Lev Leviev, 5 Madison Avenue, 229 West 43rd Street, the Apthorp and the Marquis Miami

If the goal of real estate investors is to buy low and sell high, then, according to the Wall Street Journal, Africa Israel’s U.S. investments have failed miserably. Like Japanese real estate investors that lost big on late 1980s purchases of the Pebble Beach golf resort and Rockefeller Center when a recession hit a few years later, Africa Israel’s purchases of the Clocktower Office Building near Madison Square Park, the former New York Times headquarters on West 43rd Street, the Apthorp on the Upper West Side and the Marquis Miami Condo-Hotel will likely result in big losses. For example, the company is in contract to sell the Clocktower building to Tommy Hilfiger for $170 million, despite paying $200 million for the building and spending millions more to convert it to condominiums. Worse, the company is selling 11 of the 16 floors of the Times headquarters to Blackstone Group for $160 million, despite paying $525 million for the entire building in 2007.

The company, founded in 1934 by South African Jews, and purchased by diamond billionaire Lev Leviev in 1997, has reported losses of more than $1 billion since 2008 — and debt restructurings are the only reason the number isn’t even higher. The company said improving markets, as well as a desire to “cash out,” are prompting the sales. But the Journal chalks it up to a long-held mistaken sense among foreign investors that the U.S. real estate market is safe. “The U.S. market is one of the most transparent; the government is stable and foreigners often invest with a long-term horizon,” said Mark Edelstein, head of the real estate group at law firm Morrison & Foerster. “The problem is they often buy near the top of the market and overpay.” [WSJ]