Michael Weiser Quoted in The Real Deal: “Who are real estate’s quiet money backers?” August 2, 2016

The Real Deal | August 1st, 2016

 

Back in 1980 — as oil prices were peaking in the aftermath of the Iranian Revolution — Israeli shipping magnate Sammy Ofer felt the itch to diversify his billion-dollar maritime empire.

Enlisting his then 30-year-old son, Eyal, as his proxy, Ofer waded into New York’s real estate market, paying $800,000 for a brownstone on 42nd Street near Fifth Avenue that he quickly flipped for $1.8 million.

Over the next three decades, the Ofers steadily expanded their core shipping business as well as their real estate investments in New York and across the United States. Since the early aughts, the family’s Global Holdings has backed marquee condos developed by the Zeckendorf family, including 15 Central Park West, 520 Park Avenue, 50 United Nations Plaza and 18 Gramercy Park, as well as the Rudin family’s Greenwich Lane, among other New York City properties.

But belying its large investments, the family always took second billing — if that — and has gone to great lengths to maintain anonymity. In 2007, Eyal Ofer lambasted the Times of London for printing his name in a list of the 10 richest families in the U.K. In a three-minute interview the following year with Israeli newspaper Ha’aretz, he said: “I have no good reason to stand out in front … I’m good at business, not at talking.”

But the Ofer family, which is reportedly worth billions — Forbes pegged Eyal’s net worth alone at $8.9 billion — is now stepping into a more visible role. In June, for example, Global Holdings made a splash when it went into contract to buy 1250 Broadway for $565 million. And sources say Global Holdings is preparing to expand its New York City office.

While it’s nearly impossible to quantify the pool of silent real estate investors, behind-the-scenes backers like Global Holdings have, of course, quietly funded New York developments and acquisitions for decades.

Simon Ziff, president of capital advisory firm Ackman-Ziff Real Estate Group, said these wealthy investors are highly sophisticated — even if developers simply see dollar signs.

“For nearly 30 years I have been asked to find the ‘dumb billionaire’ family office,” Ziff told The Real Deal. “Generally, successful family offices have access to the best intelligence.”

money-1Some of those players today include Israeli diamond magnate Beny Steinmetz, who frequently bankrolls projects by HFZ Capital’sZiel Feldman, and Morad Ghadamian, who regularly partners with developer Joseph Moinian and made his fortune importing rugs. The Cohen family, which founded Duane Reade, is also heavily invested in New York real estate as are the Gindis, who own the discount department store Century 21.

Like Ofer, some of these deep-pocketed players have recently become more willing to reveal themselves.

In some cases, they’ve been forced into the spotlight as their appetite for investment has shifted from private equity to real estate, where they are seeing greater returns and are less shackled by strict investment timelines. The same goes for newly minted high-net-worth individuals who are more willing to be publicly identified if it means getting a bigger piece of the action.

“They tend to stay under the radar… but they’ve allocated more money to real estate as an asset class over the last 10 years,” said a consultant who works with a dozen ultra-wealthy families with New York real estate holdings. “The reality is that as they invest north of $100 million, things get out.”

Off the grid

To be sure, while many once-under-the-radar investors are showing their faces, there are still plenty of individuals who want to remain truly private, with their names rarely appearing on deeds, loans or other documents.

And in today’s market, many of them are writing the kinds of checks that developers lust after, particularly as traditional lenders tighten their purse strings.

Take Steinmetz. The frequent HFZ backer has a fortune worth an estimated $1.23 billion, but he’s best known for being the largest buyer of rough diamonds for the Luxembourg-headquartered diamond company De Beers and for his company’s controversial mining contracts in Africa.

Outside of Feldman, few know how much real estate BSG Capital Group — the investment arm of Steinmetz’s mining company — has backed. But Steinmetz’s presence at HFZ’s Midtown headquarters is so ubiquitous that he’s said to have his own office there. That could be a function of Steinmetz’s near-constant jet-setting. He has a home in Tel Aviv and a legal residence in Geneva, and his mining business is headquartered in London. Both Feldman and Steinmetz declined to comment, but in a rare interview with the Financial Times in 2012, the quiet mogul Steinmetz summed up the hard-charging style that’s led to his success. “You have to get your hands dirty,” he said.

And although he’s often described as tousled with movie-star looks, Steinmetz’s friend and the former Israeli Prime Minister Ehud Olmert told the New Yorker in 2013 that he shouldn’t be underestimated. Steinmetz, he said, is “the last guy you want as your enemy.”

David-Schwartz-quoteSimilarly private is technology executive Arthur Becker — ex-husband to designer Vera Wang and former CEO of NaviSite, a web hosting company acquired by Time Warner Cable in 2011 for $230 million. He has quietly invested alongside JDS Development, Property Markets Group and Ambase Corporation at 111 West 57th Street, according to real estate research firm Real Capital Analytics. Becker’s Atlantic Associates LLC was a joint venture partner on the site’s acquisition and financing. In addition, Becker — who did not respond to a request for comment — has also backed PMG and Madison Equities’ condo development at 124 Sixth Avenue, a former carwash. Madison’s Robert Gladstone called Becker a “seasoned investor” who is also “one of the most delightful and interesting people you will ever meet.”

Yet there’s scant evidence of Becker’s other real estate investments and, for the most part, he (like other silent investors) has done his best to keep it that way.

With larger equity slugs, these financial backers want oversight in their investment but are rarely involved in daily operations, according to industry sources. “There’s always some sort of control built into their agreement. But for the most part, it’s passive,” said Ariel Property Advisors founding member Victor Sozio.

But even investors who want to remain anonymous are finding it increasingly difficult to do so, thanks to better online access to public records and companies that put massive amounts of data at users’ fingertips.

David Friedman, president of Wealth-X, which collects data on ultra-high-net-worth individuals, said that with the “proliferation of more open-source data” along with a global push toward transparency in reporting, it’s become harder for wealthy global citizens to stay anonymous.

But he added: “You still can’t cold-call these individuals even if you have identified them.”

Gaining a voice

While it’s nearly impossible to quantify the amount of private cash flowing into New York commercial real estate, cracks in the global economy have prompted wealthy players worldwide to turn to the sector as an investment vehicle.

That, of course, translates into a larger pool of behind-the-scenes partners that New York City developers can tap into, and it means silent backers are allocating more dollars to real estate than they have in the past.

Industry insiders told TRD the paradigm shifted during the financial crisis, when many ultra-wealthy families lost significant sums of cash because they were invested in seemingly sophisticated financial products saddled with risky underlying collateral. As a result, sources said, these investors grew increasingly eager to make direct investments.

“They don’t want to pay fees to someone to manage their money, they want to be directly involved,” said attorney Ed Mermelstein, who has represented several such investors.

While high-net-worth backers are clearly focused on preserving and growing their wealth, some also hope to wring tax benefits out of their investment, according to sources.

money-2For example, certain commercial properties are subject to tax breaks over time, and 1031 exchanges are a standard for investors looking to avoid — or limit — the amount of capital gains taxes they owe. In addition, some investors borrow (tax deferred) against their properties.

For many investors, real estate has long been a way to leverage fortunes made in other industries and/or an opportunity to diversify their holdings.

For example, Harbor Group International’s Jordan Slone — now a well-known syndicator and investor with offices in New York and Virginia — made his fortune by starting a box spring manufacturing company, which he sold for an undisclosed amount in 1986. Today, Harbor’s real estate portfolio is worth an estimated $4.2 billion, according to the firm. Fast-forward to this past March and Harbor Group along with York Equities, an investor group led by Isaac Kassirer,dropped $140 million on a 38-building multifamily portfolio in the Bronx — the largest investment sale in the borough since 2013.

The burgeoning new population of wealthy (and often foreign) money has created a ripple effect of new opportunities throughout the industry.

The family-run mortgage brokerage Singer & Bassuk Organization, for example, has tapped into the trend by rolling out a “pledge” fund over the past year, aimed at connecting high-net-worth investors with the firm’s longtime developer clients.

“We’ve seen that people of means — who are not in real estate — have an overwhelming interest in taking a portion of their assets and getting into real estate,” said Singer & Bassuk’s president, Scott Singer. “For us, that’s created an opportunity.”

Large banks, including Credit Suisse and Deutsche Bank, have also launched digital platforms to connect high-net-worth clients. And members of ultra-wealthy families are personally attending networking conferences (instead of sending representatives) in order to sniff out investment opportunities, said Wealth-X’s Friedman, who’s organizing one such Manhattan meetup for 61 families in October.

Friedman and Singer both said some domestic families, which historically operated lean investment operations, are expanding their family offices to manage their portfolios and to attract more deals.

“Sometimes it’s about ego,” said Michael Weiser, president of GFI Realty Services, referring to investors who’ve stepped out of the shadows. “But more often than not it’s letting people know, ‘Hey, I’m here. I’ve got money to put out.’”

Similar to Global Holdings, the Cohen family, which founded the pharmacy chain Duane Reade, has invested quietly in real estate nationally for years through its Carlton Associates, run by David Cohen. (The family sold Duane Reade in 1992, and the chain had a series of owners before Walgreens scooped it up for a reported $1.1 billion in 2010.)

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