Manhattan Transfer

Joining the burgeoning wave of construction in the Big Apple these days are Israeli-born real-estate moguls, who are investing billions of dollars in high-profile structures of every stripe.

NEW YORK - Chances are you haven't heard of Moshe Dan Azogui. His name may be more familiar to the thousands of people who live near Lincoln Center in Manhattan, particularly those who take an interest in the building plans for the area. The meteoric surge of residential real-estate prices in New York City has given rise to an extraordinary construction boom. Land owners in the area around Lincoln Center on the West Side are seeking to take advantage of the sizzling-hot market to build big high-rise apartment buildings, and the neighborhood committee fears that this will adversely impact the quality of life in the area. The committee recently published an advertisement that included a map of the various building plans, and Azogui was listed as the owner of several properties.

Azogui's project is supposed to be constructed in a "dead" zone - on West 59th Street between Amsterdam and West End Avenues. The design is for a 35-story building with 210 housing units. Unlike the major projects being planned near Lincoln Center by institutions like Fordham University and by other entrepreneurs, which the neighborhood committee is particularly alarmed about, Azogui's tower is expected to benefit the area and its long-time residents. Just a few years ago, no one would have ventured to build in that location, and today it is still considered a bold investment.

But Azogui is an experienced player in New York's lively real-estate market, in which the average price of an apartment recently rose to $1.2 million. He is the CEO and partner in Brack Capital Real Estate, a subsidiary of an Israeli company controlled by Shimon Weintraub and Roni Yitzhaki. Brack Capital has been operating in New York for over a decade and has been involved in a long line of projects valued in the hundreds of millions of dollars. But its investments are not out of the ordinary. Around New York, many Israelis - most of them anonymous - are active in real estate. By a rough estimate based on interviews with people who are active in the market, Israelis are currently involved in about $10 billion worth of real-estate investments in the city.

Expanding business

Moshe Dan Azogui maintains a low profile; he has never been interviewed in the media. This time, after repeated requests, he agreed to talk, but not to be photographed. Dressed in an elegant dark suit, Azogui, 39, sits in midtown Manhattan in the "Lipstick Building," designed by Philip Johnson, one of the 20th century's preeminent architects. Azogui works out of a small office with a modest conference room. At this late morning hour, he and his secretary, Sarit (also Israeli), are the only people in the office. This is where he runs Brack Capital, which in recent years has made about $3 billion in investments, mostly in the city, in residential and office buildings and in shopping areas. The company is presently involved in investments totaling about $1 billion.

Originally from Ashdod, Azogui earned his B.A. at Ben-Gurion University of the Negev, in Be'er Sheva, and his MBA from Tel Aviv University. While working on his master's, he spent a brief period of time in New York and started doing business there after joining Capital in 1994. At first, Azogui was based in Israel. But in 1996, with business expanding, it became clear to him that he couldn't manage things by remote-control, so he moved to New York.

In its first years, Brack concentrated mostly on office buildings and its investments were carried out together with local partners. It gradually expanded its activity to development, including property acquisition and finding architects to design buildings. Today, Brack also has a company dedicated to converting buildings from one use to another, such as from an office complex to a residential one. In 1999, Brack started to concentrate on residential properties. It sold most of its office buildings (the company owned 15 buildings with a combined 1.2 million meters of office space) to its investment partner in these properties, Witcoff. In retrospect, this turned out to be a wise decision. The market for office space grew very slowly while the residential market began gaining momentum.

Brack brings the money for its financial activities from Israel - Azogui is not willing to discuss the current scope of investment - and it also joins forces with local investors, takes bank loans and receives assistance from the large investment houses in New York.

Business is booming. Azogui says that in addition to the usual migration to the city, several other phenomena are bolstering the demand for housing there. In wake of the steep drop in crime in the past decade, families that lived in the suburbs have concluded that it is possible and even worthwhile to raise kids in the big city. At the same time, people whose children are grown and have left the house have decided to trade in the big house in the suburbs for a small apartment in the city. Moreover, the low interest rates on mortgage loans have made real-estate investments less expensive.

"You have to understand that, given the huge demand for apartments, the rate of construction in New York has been very low," says Azogui, pulling out a report by the New York real estate industry that says that approximately 5,000 apartments were built in the city in 1994, compared to approximately 4,000 in 2003. "There were days when more construction was going on in Ashdod alone than in Manhattan," he says.

One of Brack Capital's flagship buildings is at 90 West Street downtown. An historic building constructed in the early 20th century, this structure is situated south of where the Twin Towers stood and was heavily damaged in the September 11, 2001 terror attacks. The insurance company that owned the building considered demolishing it. In January 2003, Brack Capital decided to buy the 23-story (33,000-meter) building for $13 million, a sum that, looking back, appears very low, and to convert it from offices to residential units - an objective that required an additional investment of tens of millions of dollars.

Brack made a good bet. More and more people are interested in living in the city's financial district, which was once home to office buildings alone. The company took on a complicated renovation and preservation project, enlisting experts to help restore the historic buildings.

At about the same time, Brack also acquired another historic building on West 72nd Street, for $70 million. The somewhat rundown property was located on highly desirable block between Central Park West and Columbus Avenue, not far from the famous Dakota Building where John Lennon lived and was killed. The renovations are currently at their height and work on the 17-story, 160-unit building is due to be completed by the end of 2005. Prices for the apartments have not yet been set. Luxury apartments in the area now sell for about $22,000 per square meter.

All in all, Brack Capital has 10 large properties in the United States. In addition to its New York endeavors, it also has three projects in the Miami area. In the past, it also built an office building in Hackensack, New Jersey. The building houses the office of Daniel Strauss, whose consortium was once in the running for the Discount Bank tender. Small world.

Brack has grown quickly in recent years, but only once has it been given any significant media coverage. That was in 2001, after it signed a contract to purchase three buildings near the UN that were used by the international organization, from the City of New York, for approximately $150 million. The UN exerted serious pressure on City Hall; it didn't want buildings used by many of its legations to come under private ownership. The deal was canceled.

"We were told that the fact that we are connected to Israel had nothing to do with the decision," Azogui says.

Teshuva's reach

The most prominent Israeli developer in New York is Yitzhak Teshuva. And his most prominent and controversial deal is the purchase of the Plaza Hotel for $675 million in midtown Manhattan. He plans to renovate the structure at a cost of approximately $350 million and to convert part of it into a residential complex. The plan has aroused much criticism in the city, and has kept Teshuva in the headlines for weeks.

Now that Teshuva has reached an agreement with the hotel employees and with the City of New York to preserve the building and reduce the area slated for residential use, he can start on the renovation project, which is expected to last two years. Teshuva hopes to sell the new apartments in the Plaza for $38,500 per meter - a fortune even for luxury apartments in this prestigious part of the city.

Teshuva's company, Elad, is also working on seven other projects, having completed six other undertakings in the past five years, for a total of 1,500 residential units. Elad is currently working with architect Costas Kondylis, who has gained fame for his playfully designed buildings for Donald Trump. Among the projects Elad and Condilis are planning is a building at Eighth Avenue and 25th Street, in the up-and-coming Hell's Kitchen neighborhood. The 43-story building contains 210 apartments. Work was begun recently and should take a year and a half to complete.

Elad operates independently in New York. In contrast, in its projects, the Africa Israel Investments group, controlled by Lev Leviev, decided to hook up with Shaya Boymelgreen, a religious Jew who first came to New York from Israel in 1969 to study in a yeshiva. This partnership is supposed to produce approximately 2,300 apartments, with an overall investment of approximately $1.3 billion. Many of Africa Israel and Boymelgreen's projects are located downtown near Wall Street, an area of office buildings, mostly housing financial companies.

Israel's Ofer family is also a big player on the New York scene - via Eyal Ofer, the son of Sami. The family is involved in a series of projects in the city. The largest of these is a residential and commercial complex due to be built with a joint investment with Goldman Sachs, at the site where the Mayflower Hotel stood until recently, on Central Park West near Columbus Circle - in one of Manhattan's most highly sought-after locations.

Ofer and Goldman Sachs bought the hotel and the adjacent lot for the whopping sum of $401 million. Some 250-300 luxury apartments are to be built on the site - in two towers atop a four-story shopping center. The apartment prices have not been announced yet, but one can safely predict that they'll be sky-high.

Real-estate prices in New York have been rising at a dizzying rate. A survey by the city's largest brokerage firm, Prudential Douglas Elliman, found that in the first quarter of 2005, residential real-estate prices were 26 percent higher than in the same quarter of the previous year - and this is coming on the heels of an increase of tens of percent in the preceding years. In 1993, the average price of a reasonable apartment in the city was similar to the price of a nice apartment in a good location in Tel Aviv. Today, according to data from Prudential Douglas Elliman, the average price of a studio apartment in New York is $411,000. A two-room apartment costs $684,000 on average; a three-room apartment goes for about $1.7 million; and a four-room apartment averages $4.3 million. A family searching for a spacious five-room apartment will have to part with about $7.8 million.

The prices are also rising in the former working-class neighborhoods and areas that until a few years ago were considered dangerous - such as Harlem, Hell's Kitchen and the Lower East Side. Outside of Manhattan, too, it is very difficult to find housing at a reasonable price. For two years now, economists have been warning that the New York real-estate market (and other urban markets in the U.S.) is developing a bubble that will surely burst, like the Internet bubble of the late `90s. But for now, with interest rates low and the stock market looking too risky to many, a lot of people prefer to invest in real estate - including in areas that are less in-demand.

Developing interest

Israeli-born Ofer Yardeni understands this very well. Yardeni, 50, is an unusual figure compared to most of the New York real-estate developers. Unlike others, who prefer to keep much of their plans to themselves, Yardeni puts it all - almost - on the table. He speaks freely about investments, strategy and tactics. He and his American partner, Joel Seiden, are the owners of 13 buildings comprising approximately 1,500 apartments, as well as several parking lots and stores. Their investments are estimated to be worth about $1 billion.

Yardeni recently sealed the biggest deal of his life: He and his partner bought a 50-story apartment building that includes a shopping center and a brand-new cinema complex for approximately $250 million. The building, called the Penmark, is located between Eighth and Ninth Avenues, and 33rd and 34th Streets, near Penn Station. Not exactly the most attractive location in New York, but Yardeni believes that this perception is about to change. There isn't much open space left in midtown Manhattan so developers have to move a bit further away, as Yardeni has done. The more peripheral areas have become increasingly sought-after.

Last weekend, Yardeni completed another big deal, which he refers to as the deal of his life, even though it's smaller than the one at Penmark: He acquired a huge building in northwestern Manhattan, on 97th Street between Amsterdam and Columbus, for $120 million. Built in 1968, the building has 418 apartments, some of which are rent-controlled. "These apartments are rented for $500-600 a month when the market price is $2,300-$2,500," says Yardeni, who plans to give the rent-control tenants financial compensation to get them to move out, and to renovate the apartments and the public areas. He estimates that in two or three years, the building will be worth $500-600 million.

This sort of deal is Yardeni's specialty (and that of a good number of other Israelis). In New York City, there are currently about two million tenants living in rent-controlled apartments. The buildings in which they live are generally in a fairly neglected state. Developers who are able to move the tenants out and renovate the buildings can make a fortune.

How do you get them out? By force?

Yardeni: "God forbid. There are all kinds of ways to get tenants out. In some cases, you offer $10,000-20,000 to get them to leave. You offer others money and an alternate place to live - an apartment in another building at a good price. Some of these tenants are living in a studio apartment, so you give them two rooms in another building at the same price. Some of these tenants are not living there legally, so a lawyer evicts them. It's a process that requires a lot of patience. But when you get the tenants out and renovate the building and the lobby and the hallways, and put in new elevators - these expenses are passed on to the new tenants. If you have shops in the building, you get rid of them, too, and bring in a big chain that pays a lot more for a large space.

"Most of the Israelis working here want to do a project and sell it and move on. They don't have a management company that will continue to maintain the property. My approach is to manage the property. It's a good way to make good money. If you build a condo building and sell it, like a lot of Israelis do, you pay 40-50 percent income tax. If I hold on to a building for 10 years, let's say, and manage it, I pay a 15 percent tax on capital gains.

"Most of the Israelis who come here also invest in a lot of other places. They don't care if they're investing in Prague, Slovenia or New York. They just chase after the return. I love New York. I feel a sense of belonging."

Do Israelis have a good reputation in the city?

"That's what's great about New York. As soon as you've bought a property, you're part of the local community. You bought a building - you're part of the game. I'm not sure that Americans who come to Israel would get the same kind of reception that Israelis get in New York. It's all open. It's all easy. Every week, I get five or 10 phone calls from Israelis looking to invest here - private individuals and institutions. My impression is that today it is the dream of many Israelis to invest in New York."

Yardeni came to the U.S. in 1968, with $600 in his pocket. He studied history at Tel Aviv University and decided to do a master's degree at New York University. He soon found work as a real-estate broker and joined forces with Seiden to form Stonehenge Partners. They have been partners ever since. They bought their first building in 1994. Located on 89th Street between Amsterdam and Broadway, it had 150 apartments and cost them $8.8 million. They still own it. It was around that time that they first formed an association with the largest Canadian pension fund, Caisse de Depot, which became a regular investor in Yardeni and Seiden's deals. One deal followed another and now the two oversee quite a significant empire.

Yardeni says that he owes the success of recent years to Rabbi Yehoshua Pinto of Ashdod. "He changed my life. He taught me to distinguish between good and bad. He made me happy. And I'm not a person who goes to synagogue. He gave me the strength to do what I do. I meet with him whenever possible. Look, it doesn't matter if the deal is for $10 million or $50 million or $100 million. But psychologically, it's not simple to do a big deal. Rabbi Pinto gave me the strength to think that I can do it. I met him four years ago, and I've been very attached to him ever since. Who would have believed that a guy who came here with $600 would be buying a $250 million building today? My Canadian partners, who are Catholics and Protestants, have also met him and were very impressed by him."

The prices in New York seem to be totally insane.

"I don't think so. What alternatives do you have? If you put money in the bank, you get 1 percent interest. A lot of people got burned on Wall Street a few years ago so they're afraid to invest in stocks. They prefer to invest their money in walls and land. Maybe the apartment prices will come down a bit, but in general I believe in the strength of the real-estate market here."

Big and little fish

Some of the Israeli developers active here still live in Israel, or split their time between Israel and New York. Others emigrated to the U.S. many years ago. Some remained in Israel for just a few years before making the move to New York. But in real estate here, anyone with any affiliation with Israel is considered Israeli. They all know each other. The bigger fish don't usually work together, the smaller ones sometimes do. Many have Israeli or Hebrew-speaking secretaries.

Simon Elias, 47, isn't exactly Israeli, but he has a close tie to Israel. He was born in Iraq and his family moved to India when he was young. In 1968, the family immigrated to Israel and settled in Tel Aviv. "I was 11," Elias recounts. "I went to the Hadasim school. Then my parents divorced. It was a tough experience. I went back to India with my father."

A few years later, he was sent to England for high school and university, and from there he came to New York. His father and sister now live in Israel.

About seven years ago, when he was already well-off, Elias decided to return to Israel. He bought two dunams (half an acre) of land on a quiet street in Herzliya and built an 800-square-meter dream house. When the construction was finished, the intifada erupted and Elias' wife wasn't keen on staying. The couple returned to America and now Elias comes to Israel in the summer for two or three months. He purchased the French Hospital in Jaffa and says he has a permit to build a complex comprising a 120-room hotel and 80 apartments on the site. But the Israeli real-estate market is problematic, he says, and for now the development plans are frozen.

Elias is the former owner of the Pennsylvania Hotel in Manhattan, which he sold in 1997 for approximately $160 million. After that, he joined forces with Izak Senbahar, also Jew of Iraqi origin, and they have been working actively together in New York. They have built three high-quality residential buildings and several hotels. One of these, the Alex Hotel was designed by renowned designer David Rockwell.

The pair's current project is a residential building designed by acclaimed architect Richard Meier. The building is in Greenwich Village, on Charles Street near the Hudson River. It is being built next to two other buildings designed by Meier, in which celebrities such as Calvin Klein (who bought a $25-million penthouse), Nicole Kidman and Martha Stewart have purchased apartments. Unfortunately, the buildings have been plagued by a long list of problems such as drips and leaks.

But Elias and Senbahar fell in love with Meier's work and decided to build a third building. Hoping to avoid the problems of the other two buildings, they decided to have Meier plan everything in the new structure from A to Z, and not just the outer shell as was the case with the first two.

The third building (which detracts from the southern view of the building housing Calvin Klein's penthouse) is in the final stages of construction and will be ready by the end of June. It contains 31 apartments spread out through 16 stories. The price per meter is $27,500. The penthouse has been sold for $20 million, or $44,500 per meter - the highest price per meter ever paid in south Manhattan.

So far, about half the apartments have been sold (one purchaser was actress Natalie Portman). But Elias admits that there are problems - especially the negative coverage that the other two buildings have received. "People think that we're connected to them. It hurts sales. But I believe that in time people will see. Meier gave his all to our building. It's a once-in-a-lifetime project. I don't think I'll ever do another thing like it. We're investing twice as much as we do in a regular building. And that means that we're putting a lot more than our private money into it."

Are you working with Israelis?

Elias: "I meet a lot of Israelis who are in the real-estate field. They have a lot of stamina. They don't scare easily. When there were problems in Israel four or five years ago, they decided to come here. I don't know them that well. But I definitely admire them for what they're doing here."