Dubai’s Man in Manhattan
Dana Rubinstein Dec. 15, 2009, 7:29 p.m.
Even those who don’t adore Andrew Farkas give the guy his due: The New York whiz kid who conquered New York real estate before becoming Dubai World’s man in Manhattan is one sharp suit.
Consider this. In early 2009, well before Dubai World’s announcement that it would postpone servicing $26 billion in debt shook global markets, Mr. Farkas, unbeknownst to all but his closest friends and business associates, cashed out of substantial investments with the government-run corporation in both Manhattan and Dubai. A source put the cash-out value at $180 million. Mr. Farkas, 49, declined to confirm or deny that number. But it comes on top of the riches Mr. Farkas reaped working with Dubai, flipping the Beaux-Arts Helmsley Building at 230 Park Avenue, and investing in (and then in 2009 cashing out of) the W Union Square and 450 Lexington Avenue. He also invested and still retains a stake in the Mandarin Oriental.
And that’s only the half of it. If Mr. Farkas was Dubai World’s man in Manhattan, Dubai World chairman Ahmed Bin Sulayem was his man in the Middle East.
Not only did Mr. Farkas’ Island Global Yachting win the development and operating rights for all of Dubai World subsidiary Nakheel’s marinas in the emirate, but he also founded ENSec, the Emirates National Securitization Corporation. Proving his business smarts yet again, earlier this year Mr. Farkas sold his Dubai marinas to a Qatari firm, and unloaded ENSec onto the Dubai government.
REAL ESTATE PEOPLE are notoriously catty. It’s part of their charm. So it’s telling that they don’t have many derogatory things to say about Mr. Farkas, resorting instead to petty insults about his height (he’s short); his wives (said to be towering blondes); and his silver-spoon upbringing (son of Alexander’s Department Store chairman Robin Farkas; Trinity; Harvard).
In 1981, when Mr. Farkas was president of Harvard’s exclusive (some would say exclusionary) Hasty Pudding Club, he won a mention in The New York Times in a story detailing the club’s efforts to rescue itself from financial ruin. (A wealthy alum ultimately saved it.)
Following graduation, Mr. Farkas embarked on a career of structuring and selling tax shelters. In 1990, at the tender age of 30, he founded a residential property investment and management firm called Insignia Financial Group. In 1993, he brought the firm public. And, in 1996, he bought the renowned commercial real estate brokerage Edward S. Gordon and Company for $74 million, two years later spinning off his residential portfolio to AIMCO.
Then, in 2002, Mr. Farkas had a fateful meeting.
Hotel mogul Butch Kerzner, just four years before he was to die in a helicopter crash in the Dominican Republic, introduced his friend to Sultan Ahmed Bin Sulayem, the chairman of Dubai World.
The introduction was to change the course of both Mr. Farkas’ business life, and, it’s probably not exaggerating to say, that of Dubai World.
The following year, Mr. Farkas sold Insignia ESG to CB Richard Ellis for $415 million, and he founded Island Capital Group, a firm dedicated to building and managing marinas around the world that berth mega-yachts. “I was taken to Dubai by Butch with a tremendous degree of frequency,” Mr. Farkas recalled. “Sultan and I became fast friends. We came to know each other very, very well.”
In fact, so close did he and Mr. Sulayem become that in 2007, the Dubai World chairman accompanied Mr. Farkas to Yom Kippur Neilah services at Central Synagogue on East 55th Street, and then to his father’s house to break fast for both Ramadan and Yom Kippur.
“Andrew saw a real opportunity and a real need in Dubai,” said Robert Lieber, New York’s deputy mayor for economic development, who, when at Lehman Brothers in 1993, helped take Insignia public. “People didn’t know what Dubai was in 2002. Abu Dhabi had more ring to it for a lot of Americans, and even that didn’t mean a lot.”
That would soon change. Mr. Farkas’ friend Butch would embark on Kerzner International’s Atlantis The Palm, Dubai hotel, another development now emblematic of the emirate’s orgiastic excesses. For his part, Mr. Farkas would work hand-in-hand with Mr. Sulayem to develop Dubai’s marinas. In 2003, Mr. Farkas created a funding mechanism to fuel Dubai’s supercharged real estate machine, joining Dubai Islamic Bank and Istithmar in the creation of ENSec, which has issued billions in mortgage-backed securities for developer Nakheel’s Palm Jumeirah, among others.
“Dubai is to the U.K., Europe and Asia as Miami is to New York,” Mr. Farkas explained. “It’s the only place to which people who live in those venues can get under five or six hours where the weather is reliable 10 months out of the year; the waters and beaches are beautiful and pristine; that’s full of five-star restaurants, nightlife, very interesting cultural opportunities and history. It’s a neat, neat place.”
Its ascent, said Mr. Farkas, was bolstered in part by the weak dollar.
“[W]hen they really commenced building what was, in no small part, a tourist-based economy, the dollar was quite weak, and their currency, the dirham, is hard-pegged to the dollar,” he said. “And the result, since the dollar was weak, they were able to build there quite inexpensively. Someone from the U.K., for example, could go there and buy a villa or a condo for $250 to $400 a foot, which when the pound sterling was at two bucks, it was nothing. It was free. And so, capitalizing on that dynamic, the country sort of turned itself into a tourist Mecca, pardon the turn of phrase. And it was very effective. It worked very, very well.”
And so it did. For a while.
As Dubai’s fortunes boomed and its coffers overflowed, it looked outward for investment opportunities. New York’s frenetic real estate market proved tantalizing.
In 2005, Dubai World’s investment arm, Istithmar, and Mr. Farkas bought 230 Park Avenue at a price tag of $705 million. Two years later, as the credit crisis was first making its tremors felt, Mr. Farkas and Istithmar unloaded 230 Park onto Goldman Sachs’ Whitehall Fund and Monday Properties for a staggering $1.15 billion.
In 2006, Istithmar and Mr. Farkas bought the W Union Square for $285 million. Mr. Farkas pulled out of that investment earlier this year. Again, good timing: In early December, Istithmar lost the W Union Square in a foreclosure auction.
“[W]hen the market started to turn, and Andrew started to see some of the outrageous prices that were being achieved on some of the assets, that’s when he said, ‘Holy cow, now’s the time to get out of here,’” Mr. Lieber said.
Also in 2006, the joint venture bought the leasehold at 450 Lexington Avenue for $600 million. Again, Mr. Farkas cashed out his equity in that property earlier this year.
In 2007, Istithmar and Mr. Farkas bought a 73 percent interest in the Mandarin Oriental, a hotel then valued at $340 million, which they still retain.
MEANWHILE, MR. FARKAS kept busy on the other side of the world. He would spend one of every five or so weeks in Dubai, usually staying at Kerzner’s Royal Mirage.
In December 2005, Mr. Farkas’ Island Global Yachting announced that it was partnering with Dubai World’s Nakheel to design, develop and manage all of Nakheel’s marina properties in Dubai, including along the waterfront of the Palm Islands and the World. Istithmar, at the same time, announced that it owned about 25 percent equity in the Island Global Yachting’s projects in Dubai, and in its project in St. Thomas. Mr. Farkas opened an office in Dubai. In 2007, Island Global Yachting opened Festival Marina in Dubai’s Festival City, with, according to IGY’s Web site, “74 berths for motor yachts from 15 to 35 meters in length, plus 24 quay-side berths.”
“Andrew is one of the most aggressive people I’ve ever had the pleasure to work with,” Mr. Lieber said. “Some feel Andrew is so aggressive he may not know when to stop, but I’ve never seen him cross that line.”
Nor did he. Before Dubai World revealed its debt troubles, Mr. Farkas sold his marina interests to a Qatari firm, relinquished his interests in ENSec, and sold his equity stakes in all of his Dubai World joint ventures in New York, save perhaps the most valuable, the Mandarin Oriental hotel in the Time Warner Center.
Of Dubai World’s current predicament, Mr. Farkas said, “Of course they overextended, but so has virtually every market in the world. This is just their turn. The people there are smart, they are very committed to their country, they are commercial, and I have every confidence that with the passage of time, and with the incursion of no small amount of pain, they will come out on top.”
Meanwhile, he plans to redeploy his capital in another real estate venture.
Real estate investment bank Centerline’s Nov. 12, 2009, S.E.C. filing contained a hint that Mr. Farkas might be targeting his real estate investments closer to home: “The Company continues discussions with Island Capital Group LLC, and others, to accomplish a recapitalization of Centerline.”