Although a diverse crowd of foreign investors has been feasting on New York properties for decades, a new wave of Middle Eastern buyers appears to have an insatiable appetite for the Big Apple’s biggest buildings.
But where does all their cash come from?
Israeli billionaires Lev Leviev and Yitzhak Tshuva have been grabbing headlines lately with their eye-popping buys, joining Middle Eastern players like Dubai’s Istithmar and Kuwait-based Fosterlane Management on the city’s real estate scene. While some of these investors are relatively new to New York, all of them have powerful assets sprinkled around the world.
In short, their reputations — and seemingly limitless coffers — precede them.
“The fact of the matter is, we are talking about investors from the Arab countries, and Israelis, where there is too much cash,” said Dan Fasulo, managing director of Real Capital Analytics, which tracks real estate transactions nationwide.
All that cash comes from a labyrinth of international investments. The companies have holdings in oil, foreign real estate, global finance, construction, diamonds and other lucrative investments.
Leviev: From 7-Eleven to diamond mines
Lev Leviev is one of the richest men in the world. He heads Africa Israel Investments and has been receiving front-page media attention for his high-stakes shopping spree over the past six months. Africa Israel snapped up a 50 percent stake in the Apthorp, an icon on West 86th Street, for $213 million. It also bought the old New York Times building on West 43rd Street for $525 million and the Clock Tower at Five Madison Avenue for $200 million.
Leviev was born in Uzbekistan and has lived in Israel since 1971. With an estimated net worth of $2.6 billion, he ranks 278th on Forbes’ list of the world’s richest people.
Beyond New York properties, Leviev’s empire includes investment companies, a toll highway in Israel, 7-Eleven convenience stores, 1,700 gas stations in America’s Southwest, the swimsuit company Gottex, and shopping malls from Amsterdam to Toronto. Leviev is said to be the biggest owner of real estate in Russia. Through a company called Ascorp, he is also at the top of one of the largest diamond cutting and polishing operations in the world. Leviev runs this operation as a joint venture with the Angolan government.
Alleged labor and human rights abuses at his Angolan diamond operation have raised concerns, however, according to published reports.
Leviev’s security company in Angola, K & P Mineira, controls a 7,000-square-kilometer mining region. The company has been accused of abuses toward civilians who live and work in the mining area.
“Essentially Leviev is the kingpin of the diamond industry in Angola,” wrote Rafael Marques de Morais, who won the 2006 Civil Courage Prize for his efforts to document alleged abuses.
But the Leviev Group of Companies, a partial owner of Ascorp, says it is a participant in the Kimberley Process, an initiative aiming to end the flow of so-called blood diamonds to the West, and has denied the allegations.
“Ascorp assisted in creating and improving transparency in the Angolan diamond industry and created methods and tools to combat illicit trade of diamonds and to reduce as much as possible smuggling of diamonds… [and] to guarantee that diamonds sold by the government are not ‘blood diamonds,'” the company said in a statement.
Leviev is marketing his own brand of particularly large diamonds that have average sale prices of around $20,000 per carat. In late May 2006, Leviev Diamonds opened a store on Old Bond Street in London a few doors down from Tiffany & Co. and Cartier. Another store has been slated for New York, at 698 Madison Avenue near 62nd Street.
Calls to Leviev’s operation in the U.S. were not returned.
Elad: The fortune behind the Plaza Hotel’s owner
Like Leviev’s company, fellow Israeli firm Elad Properties is no stranger to criticism, at least in New York. When Elad bought the Plaza Hotel for $675 million, it incurred a firestorm of protests from preservationists and labor leaders by shuttering the landmark and remaining vague about its condo conversion plans.
While the Plaza’s transformation since the 2004 deal has played out in public, not as much is known about Elad, which is itself a subsidiary of the Delek Group, a publicly traded Israeli company.
Yoav Oelsner of Cushman & Wakefield, who worked on the sale of the Plaza Hotel, said Elad is open about its holdings and that the firm has made money mainly through real estate transactions in other countries. “The U.S. will not allow any dirty money to come in,” said Oelsner. “But mostly we care that our buyers are coming to the table with the necessary amount of money to close the transaction,” he noted.
Yitzhak Tshuva, the 58-year-old owner and founder of Elad (the company is named after his 26-year-old son and heir), is a self-made billionaire who made his fortune in real estate. Delek also operates gas stations and has interests in car dealerships, cable television, insurance and energy companies.
Tshuva, whose assets are thought to be around $4 billion, is listed at No. 214 on the Forbes list of the world’s wealthiest people.
The company’s biggest New York deal has been the Plaza conversion, which will leave the 1907 classic with 152 upgraded hotel rooms, 182 condos and 160,000 square feet of retail space. The historic Grand Ballroom, Palm Court and Oak Room will be retained and refurbished. Last month, Elad announced a sale in the building for more than $50 million, the highest price ever paid for a New York City residence.
The company also has a real estate presence in Las Vegas. It recently spent $1.2 billion to acquire the 34.5-acre New Frontier Hotel and Casino property there. Capitalizing on the Plaza Hotel brand, Elad has plans to convert that space into a massive $5 billion project with a 3,500-room hotel, along with a convention center and high-end hotel-condo residences.
Istithmar: A big player moves from commercial to hotels
Istithmar, part of the Dubai World group, an investment house wholly owned by Dubai’s royal family, also played a role in some of New York’s biggest recent real estate deals.
In April 2006, it bought 6 Times Square for $300 million. Last summer it spent $1.2 billion on 280 Park Avenue and $600 million on 450 Lexington Avenue. When Istithmar recently sold 280 Park Avenue to Broadway Partners, many analysts wondered if it did so at a loss.
“They have been really tight-lipped, and no one is really sure what their strategy is,” said Fasulo.
The Persian Gulf-based entity has also moved into hotels. It bought the W Hotel Union Square for $285 million, the Knickerbocker Hotel for $300 million and the Mandarin Oriental hotel in the Time Warner Center for $278 million. It also has its name on the former Essex House, a pillar of Central Park South.
“I am not sure it is appropriate to make a blanket statement that they are exiting the office [market],” said Craig Evans, senior managing director at Colliers ABR. “If they had better opportunities in another segment in the market, or if they believe prices are peaking out right now, why not sell?”
More likely, the moves are signaling the company’s belief that hotels and resorts are the way to go. Calls to Istithmar were not returned.
Outside of New York, the firm is involved in myriad business ventures that help fund its buys in the city.
In April 2006, the company started Istithmar Hotels FZE, a hospitality and leisure investment group. Its portfolio includes golf resorts, a portion of the Atlantis chain of hotels, and the Middle East, North Africa, India and Pakistan franchise for EasyHotels. Istithmar also announced plans to expand the W Hotel brand throughout the world.
When Istithmar Hotels was launched, CEO Muneef Tarmoom gave some clues about the group’s direction.
“Our idea in the hotel sectors is to focus our hospitality-related investments at the very top end as well as the budget end, eschewing the mid-market hotel sector, which we believe to be highly competitive and generally lacking innovation,” he said.
Istithmar’s investment portfolio isn’t limited to real estate and hotels. Istithmar is in the process of buying retailer Barneys New York. The investment house also has strong holdings in financial services, including Sharia-banking houses, which incorporate Islamic financial practices (Muslims are not supposed to borrow money, so these banks find ways for them to do so while observing religious law), health services and education.
Last year, the company began expanding into new areas of growth, investing $15 billion in the Dubai Aerospace Enterprise, a $1 billion stake in international bank Standard Charter PLC and a $480 million interest in Metromedia International Group in Georgia, Eastern Europe. They have also placed $100 million in the $2 billion private equity fund of Perella Weinberg Partners.
Fosterlane: big bucks from Kuwait
Like Istithmar, Fosterlane Management has been an active buyer of New York City real estate — getting its money from the Kuwaiti government.
Since 1983, the government of Kuwait has been investing primarily in U.S. real estate through Fosterlane.
However, starting in 2004, Fosterlane started selling off its U.S. real estate. Analysts say the company has been moving its cash to real estate investment funds.
In 2004, Fosterlane sold the Lipstick Building, at 53rd Street and Third Avenue, to Tishman Speyer for between $235 and $300 million. It also sold two large commercial office buildings in Chicago and one in Connecticut.
Then, last November, Fosterlane sold the 538,000-square-foot 350 Park Avenue to Vornado Realty Trust for $542 million, or more than $1,000 a square foot.
The conglomerate’s strategic shift leaves market watchers unsure of its next moves. Calls to Fosterlane’s Atlanta offices, and to previous employees of the company, were not returned.
Not unlike national buyers
While these big international buyers have lots of money to spend in New York, they still have to pony up for their buildings in the same way domestic buyers do, with 5 to 10 percent down and the remainder financed by an international bank. Because so many international banks have a U.S. presence, and because the Middle Eastern companies have deep assets, obtaining U.S. financing is not difficult.
“They are buying deals like any other domestic investor, and they bring a portion of the equity to the deal as needed,” noted Oelsner of Cushman & Wakefield, who said that “99 out of 100 international buyers are already real estate investors in their home country.”
Amid the boom in New York, every foreign buyer knows one iron law of a boom market: Money talks and creates a level playing field here.
“What is so great about the U.S. or New York is that any foreign investor can come to the city, and he can be treated as equal,” said Oelsner. “You do not need to know the mayor or the governor; it is open to everybody, and the regulations apply to everyone — the locals and the foreigners.”