Developer Ziel Feldman honed his aggressive investment strategy on distressed deals during the 1990s.While aggressive New York City developers were snapping up properties left and right in Manhattan during the boom, Ziel Feldman turned his focus outside the city, investing, for instance, in Hard Rock Park, a South Carolina amusement park whose main attraction was a 155-foot-tall roller coaster called “Led Zeppelin — the Ride.”
That project, which Feldman’s firm HFZ Capital Group partnered with Africa Israel Investments to finance to the tune of nearly $400 million, was sold in bankruptcy court last year for just $25 million.
But Feldman, 52, was not scared off by the failed deal.
Not only is he looking to buy back the rock-and-roll themed getaway in Myrtle Beach and reopen it under a different name, he’s also diving headfirst into some hairy Manhattan investments.
Indeed, he was one of a handful of developers who vied for the site of the fatal crane collapse at 303 East 51st Street. Feldman prevailed, convincing his investors to pony up $38 million to buy the stalled development site, which had a $110 million defaulted mortgage and a series of lawsuits. He went into contract on the purchase in October, and closed on the note in April.
The play for that crane-accident property is indicative of his aggressive investment strategy, which he honed during the 1990s recession, cutting his teeth on distressed deals.
Despite all the talk about distressed sales in Manhattan, Feldman is one of only a handful of developers who have made purchases of development sites and notes over the past year. Other deals included CIM Group buying Harry Macklowe’s Drake Hotel site on Park Avenue and 56th Street for $205 million, and DDG Partners buying two sites for about $34 million, including 345 West 14th Street in the Meatpacking District. In fact, investment sales firm Massey Knakal Realty Services shows only 11 closed sales in the first half of 2010 of development sites in Manhattan.
Make no mistake. Feldman is no splashy Donald Trump remaking the city’s skyline. But he is an influential midsize developer closely watched by others, who track when and why he makes a deal. And he has amassed a small fortune in past real estate cycles (one only needs to look at his sprawling, French-chateau-style New Jersey home, which is currently on the market for about $16 million, to see that).
His Midtown office, meanwhile, is decorated with modern art, including pieces by Jenny Holzer and Steven Klein, and a huge, 19th-century Paris clock face looms over the boardroom.
Feldman estimates he’s bought and sold about 100 properties in New York City and globally with a value of more than $3.5 billion, totaling more than 7,000 apartment units and several million square feet.
“He is one of the most astute real estate investors out there, and has been tremendously successful,” said Robert Knakal, chairman of Massey Knakal, who has brokered about two dozen deals with Feldman.
Gutsy guys
Feldman has had a history of gutsy moves in Manhattan.
He’s part of an informal class of independent developers — many of them attorneys in their 50s — who began buying buildings in New York in the 1980s or early 1990s.
Like the others in his cohort — Laurence Gluck, Ofer Yardeni, Steven Witkoff and Gary Barnett, to name a few — he went on a tear during the recession in the 1990s.
Feldman, who grew up in Kew Gardens and attended Queens College and Benjamin N. Cardozo School of Law, began his career in real estate in 1984 with the law firm Fleming, Westreich, Nussbaum, Gladstone & Weiss. During the boom years of the 1980s, he watched clients get rich. In 1987, he and a partner struck out on their own, with the law firm Feldman & Joseph, where he worked until 1990.
But as the economy flailed, he decided it was time to take the plunge into real estate himself. With finance expert Kevin Maloney, he formed Property Markets Group in 1991.
“I could have been a bankruptcy attorney,” he told The Real Deal during an interview in his office last month. “[But] I thought the opportunity to purchase in 1991 would be a once-in-a-lifetime opportunity. It turns out there are many once-in-a-lifetime opportunities in the real estate business.”
With some of Feldman and Maloney’s own money and a line of credit, PMG began buying small apartment buildings in Manhattan and was one of the first to convert prewar buildings to condos. By 1999, the firm had bought about 80 buildings with about 2,000 units, the New York Times reported at the time, including 190 Riverside Drive and the Briarcliff at 171 West 57th Street, both apartment buildings that Feldman later converted to condos.
Gary Barnett, head of Extell DevelopmentAlso in 1993, Feldman began teaming up with Barnett, now president of Extell Development, today one of the city’s major developers. Barnett, who at the time was living in Belgium and working in the diamond business, brought foreign investors while Feldman found the projects.
“Ziel came to me with some deals and asked me to find capital for him,” said Barnett, noting that the projects were financially successful.
One of the most prominent deals they did was in 1994, when PMG, with foreign investors arranged by Barnett, paid $15 million for the 226-unit Belnord on West 86th Street.
The building had been embroiled in a 20-year-long rent strike, but while it was under contract, Feldman’s firm pledged to pay at least $4 million to tenants and spend millions on upgrades in exchange for raising rents. The move ended the tenant dispute and returned the building to profitability.
“I cured the rent strike that was going on for many years during the contract period,” Feldman said.
Despite the successful run, a few years later, Feldman and Barnett stopped teaming up. Feldman noted that Barnett had returned from Belgium and could run deals himself. For his part, Barnett said it was a “natural evolution,” as his group sought to have more control of its own deals.
Back in action
Over the past decade, PMG has developed projects such as high-end condos at 823 Park Avenue on the Upper East Side and 173 MacDougal Street in Greenwich Village. The company also dove into hotel development, with projects such as Hotel Thirty Thirty at 30 East 30th Street.
In 2005, Feldman stepped down from a management role in PMG and formed HFZ Capital, where he is managing principal. And in 2007 he bought Polar Investments, a real estate investment company listed on the Tel Aviv stock exchange, that as of May 2009 had a market value of approximately $56 million.
But it’s his most recent purchases — the fatal crane site at 303 East 51st Street and the Bryant Park site at 14-20 West 40th Street, as well as developer Trevor Davis’ stalled site on Lexington Avenue at 65th Street, which sources say Feldman is in contract to buy — that are making a mark among insiders in the city.
Turning the East 51st Street project around will not be easy, said Barry LePatner, a partner with construction law firm LePatner & Associates, who was not involved in HFZ Capital’s purchase.
Buyers of stalled sites “now have some major hurdles to overcome if they want to see a profit,” including managing construction costs, LePatner said.
Meanwhile, in June, Feldman picked up the Bryant Park development site for $52.9 million. Ascent Real Estate Advisors had planned to build a 189,000-square-foot hotel and condo that was to have been the first green luxury hotel in New York City.
Brokers said Feldman was able to convince Ascent’s lender, an affiliate of Andrew Stone’s Petra Capital Management, to finance the sale to Feldman rather than accepting a smaller amount of money between $35 and $41 million from other bidders right away. The deal also involved paying Ascent $5 million to get them on board.
Feldman said the deal hinged on the lender trusting that he would deliver what he promised.
Somewhere in the middle
From left to right: Hard Rock Park, a South Carolina amusement park that Feldman’s firm HFZ Capital Group partnered with Africa Israel Investments to finance, was sold in bankruptcy court last year for just $25 million; in April, Feldman gained control of the site of the fatal crane collapse at 303 East 51st Street; sources say Feldman is in contract to buy developer Trevor Davis’ stalled site on Lexinton Avenue at 65th Street
Like many developers, Feldman often does not put much of his own money into deals. For instance, he said HFZ Capital lost only $5 million on the Hard Rock Park project, which was built on time and on budget, but opened during the height of the recession in 2008.
Yet it is an illustration of how a distressed-deal investor can get stung by the market.
In addition to the amusement park, Feldman has also had trouble unloading his Englewood, N.J., house.
He and his wife of 23 years, Helene, a former prosecutor with the Brooklyn district attorney’s office, put the home on the market for $19.5 million, but recently chopped the asking price to $16.5 million.
In his career of buying and selling commercial properties, Feldman acknowledged that it’s been difficult to time the market. In the 1970s, he said, some cycles lasted just two or three years. But even if an investor is off by a bit, he said, there is still an enormous potential for profits.
“I can’t [time] the top of the market and I can’t [time] the bottom of the market, but if you are somewhere in the middle, you are very successful in this business.”