Keith Rubenstein is taking the South Bronx by storm.
The founder of real estate investment firm Somerset Partners is finally moving forward with a seven-tower, 1,300-unit market-rate project along the formerly industrial waterfront in the Port Morris section of the Bronx. Two years ago Rubenstein stoked fears about gentrification by installing a billboard that dubbed the area “The Piano District” and throwing a “Bronx is Burning”-themed party. (It was not Rubenstein’s first time through the PR wringer; in 2008 he was disbarred after his name appeared as attorney of record for a personal injury firm in actions that were actually handled by paralegals. “When you can learn from mistakes, I think that really helps you grow as a person,” Rubenstein told Commercial Observer.)
But since then, he’s made an effort to build goodwill with locals by financially backing new businesses in the area, like fashion boutique 9J, a coffee spot called Filtered Coffee, an Italian restaurant, La Grata, a soon-to-open art and design accelerator, as well as cultural organizations like Bronx Artspace and the Bronx Museum.
Before he made his big bet on the South Bronx, Rubenstein built Somerset’s portfolio by buying up office and residential buildings in the rest of New York City, Chicago and Washington, D.C. Somerset bought an office building at 85 10th Avenue for $294 million in 2005 and unloaded it for $430 million two years later. Then it took a big risk with the record-breaking purchase of another office tower, 450 Park Avenue at the corner of East 57th Street, for $509 million in 2007 (where his office is currently located, several blocks south of the $85 million townhouse he shares with Inga, his wife of 17 years). Oxford Property Group picked up the 33-story building for $575 million in 2014, and Somerset emerged from the recession with a tidy profit.
Besides his real estate business—which controls $2 billion worth of residential and office property across the country—the 52-year-old Highland Park, N.J.-native and father of three, recently took over the U.S. division of KidZania, a Mexico-based franchise that operates miniature indoor cities for kids in malls across the country. But we’ll get to KidZania in due time.
How did you get into real estate?
Well, I was a practicing landlord-tenant attorney and always looking for a way to get onto the other side of it and started to understand leasing from the tenant’s perspective. And then I had an opportunity to buy a small interest in a foreclosed condominium… [My investor and I] grew our business together, and then we started buying multifamily garden complexes in secondary markets, which we still own. Then we started buying office buildings in New York and D.C.
You bought 450 Park right before the recession hit, right?
We’d just sold 85 10th Avenue to Related [Companies]. And then we bought 1801 K Street in D.C. The idea when we bought 450 Park was not to overleverage ourselves by buying too many different assets. And if something in terms of a downturn in the economy were to happen…we were happy to have the best piece of real estate we could find with very low leverage. And when 450 Park became available, we thought it was the perfect place to invest a significant amount of capital.
You still feel like ultimately it was a good investment, despite what ended up happening over the next couple of years?
Ultimately, it was a great investment, because we sold it for a record price and did very well on the transaction. And we were happy we weren’t in multiple buildings with multiple lenders and figuring out how we’re going to deal with the leasing conditions in the market. Four-fifty Park is one of the greatest located buildings in New York City. We kept it leased and didn’t have the problems that many other people who bought in that time of 2007-2008. Fortunately, we were significantly underleveraged; otherwise, we would have had problems servicing debt like everyone else who bought in that era.
What drew you to real estate law and landlord-tenant litigation?
To be perfectly honest, I graduated college [from Syracuse University] with a bachelor of science degree in biology and realized I couldn’t stand blood, so I could never become a doctor. Then I went to law school [at Widener University]. When I came out of law school, the first job I got was at a landlord-tenant firm [the law offices of Alan J Goldberg] representing tenants.
So you were initially doing tenant legal work and transitioned into being a developer? That’s an interesting path.
I learned the business from the other perspective, litigating over landlord-tenant issues and understanding intricacies of commercial leasing, residential leasing, rent stabilization and rent control. Navigating through landlord-tenant court is really important to understand when you talk about deals that have been done recently, like Stuyvesant Town. When you’re talking about a buyer’s perspective on how they’re going to be able to destabilize apartments, I had a really good perspective on that.
How do you feel about the fact that you started your career doing that kind of work, and now you’re doing this huge market-rate project at 2401 Third Avenue and 101 Lincoln Avenue in the South Bronx? I think a lot of people see it as this huge engine of gentrification and potential displacement.
I don’t think it’s going to be this huge engine of gentrification. That area was rezoned starting in the early 1990s through 2005. When you talk about gentrification and displacement, and when you talk about developers taking rent-stabilized buildings, destabilizing them, evicting tenants, tearing them down and building, that’s the opposite of what’s happening here.
Because it was industrial?
Yes. It was industrial and rezoned for residential. There’s a great community of people that already live in the neighborhood. A good percentage of them either live in public housing or are rent-stabilized tenants. And there’s been a wave of new development of affordable apartments throughout the South Bronx, with thousands of supportive and affordable units coming online. I think any successful area has a diversity of market-rate and rent-stabilized and affordable, and I think that’s exactly what this is.
And more importantly, [we’re] opening up the waterfront and making it available for public use. I think that’s a really good thing. And I think the community in general will benefit from it.
You put your Upper East Side town house on the market in February of last year for $84.5 million. What made you decide to sell, and have you had any promising offers?
I think it’s a unique property, and when we bought it, we undertook a thorough renovation to the extent that not too many properties have undergone in the townhouse market in New York City. We listed it at a number we thought was achievable based upon some unsolicited offers we’d received. We’ve had a lot of interest, and we just haven’t gotten to the level of pricing that would make me motivated to move. If it happens, it’ll be sad to leave it, but it’ll be for a good reason. But if it doesn’t happen, I’m perfectly happy to stay there. It’s a beautiful house.
Looking at the photos of your home, it seems like you have a lot of art. What’s your favorite piece?
My favorite piece is a sculpture by an artist named KAWS. It’s a giant pink rabbit we bought at a charity function in Saint-Tropez. It was Leonardo DiCaprio’s foundation event…I paid 400,000 euros [$448,248] or thereabout.
What do you like to do when you’re not working?
I like to always work. When you can work at something that’s enjoyable, that’s a good thing. So I consider myself always working. Whether that’s sitting in my office, or sitting in my house, traveling somewhere. Your mind works and you think of things. When I’m not working, I like to work out, [or] just relax and take it easy.
What do you do to work out?
I lift weights, I jump rope. I just opened a boxing gym in the South Bronx called South Box, with a boxer named Eric Kelly.
Do you box?
Professionally, no. I mean I’ve trained with boxing trainers, and I have a lot of respect for boxers. It’s one of the hardest workouts you can do. When you throw on top of that strenuous workout getting punched in the face, it’s hard. And I don’t want to get punched in the face anymore, so I’m happy with just the cardiovascular benefits of the workout and the conditioning. I think Mike Tyson said it best: “Everyone has a plan till they get punched in the face.” And then that plan needs to be rethought.
I spoke to you briefly on the phone in February about your development in the South Bronx. At the time, you told me it was going to be entirely market-rate and you weren’t planning to do 421a. Is that still the case?
I don’t think I said we weren’t planning to do 421a. I think I said the old program 421a at this particular site didn’t require affordable housing. But to answer your question, that’s still the plan [to do all market-rate]. We’re going forward likely under the old [now-expired] program. I don’t know that we actually have a [preliminary 421a] certificate, but we did we needed to do to vest under the old program.
So you feel confident in doing a large market-rate project in that market?
I think it’s a great market, and I think the Bronx in general has great opportunities. It’s well-serviced by public transportation. Our land is waterfront land, great views. I think there will be a strong demand by young professionals and people that want a great place to live on the water with great amenities at prices significantly less than similar product on the waterfront in Queens and Brooklyn and Jersey City.
You hosted that Bronx is Burning party, which was pretty widely criticized. Do you feel like that was a mistake?
Well, that was a long time ago. The wide criticism was resulting from a lack of understanding of what the purpose was, and I think it was a miscommunication and misunderstanding. If it was my miscommunication, I apologize. We never intended to exclude anyone or poke fun or ridicule what has happened in the South Bronx. I think it got largely distorted. We’ve moved on from it, and we’ve engaged with the community. To me it was a great event, but I can see how some people may have thought it was insensitive to some of the things that have gone on in the history of the South Bronx.
What’s up with the food hall you’re planning at 9 Bruckner Boulevard in the South Bronx?
We’re designing it right now. We’re refining the concepts right now, with a brewery, some lounges, maybe a music component as well. We are interviewing different vendors, and we’re also designing our own vendors and food concepts. The anchor will be a big brewery and tasting room and beer garden on the roof.
We should talk about KidZania. It seems like they’re mostly going in GGP Properties?
GGP is involved as our landlord. So we’ve signed two deals as tenants in GGP properties—one being in Frisco, Texas, and the other in the suburbs of Chicago, in Oakbrook Park. But we’re about to finalize negotiating the lease at American Dream [Mall] outside MetLife Stadium with Triple Five [the mall operator and owner].
KidZania was founded in Mexico City by Xavier Lopez [Ancona], who’s a great guy, smart, successful. And [he] took children’s roleplaying to a new level and opened KidZania in Mexico City. It’s been described as the fastest-growing children’s entertainment education venue in the world. I’m a partner in the exclusive licensee for United States and Canada. We have plans to open about 20 in and around North America.
How many square feet is the American Dream one going to be?
I believe the footprint is 60,000 square feet with a 20,000-square-foot mezzanine, so 80,000 square feet total.
What is KidZania like?
Imagine a large, 100,000-square-foot space with 30-foot ceilings…a miniaturized city with streets and cars and trucks and buses and people working in stores and shops and restaurants and people walking on streets and interacting as if it was a real-life city that was built for children. Everything is centered around the KidZania metropolis—there’s a government, there’s a currency, which is kidZos. Kids are earning wages for performing tasks with jobs that they choose. They can go to stores and restaurants and use their kidZos to buy things; there are banks where they can deposit their money and use debit cards; there’s a mint that prints the money, and there are armored cars that deliver the money.
Does KidZania always need to be in a mall?
I think the initial KidZanias are best suited for a shopping mall. But at some point in time, an urban KidZania would work really well, depending on economics and location. One of the things I’m studying is whether I can eventually do one in the South Bronx. It’s a great opportunity, it’s accessible to many parts of New York, it’s affordable, it’s usable by all children of all socioeconomic backgrounds. And we could do scholarships and discounts to public schools.
How did you get involved in KidZania?
I was called by a friend, and he asked me if I’d be willing to help. I didn’t understand what he meant by “help.” I thought maybe he needed some space. He [introduced me to Gevork Sarkisyan, who is now Rubenstein’s partner in KidZania USA], and in two minutes I understood he was smart, well spoken, passionate.
He came to my office, and we sat down and forged a partnership—a friendship, first and foremost. And [we] traveled to Mexico City together and signed the exclusive license agreement thereafter. Knowing that this business has been hugely successful around the world presented an opportunity to repopulate shopping mall anchors and create excitement and bring foot traffic.
When you say repopulating mall anchors, you mean in terms of existing properties, like GGP owns, where they’re trying to reposition their anchor?
GGP is a good example because one of their strategies is buying back or taking back anchor boxes from anchors that are not doing well. And here we come with a great exciting use that brings children and families and upwards of a million visitors to the mall.
Why sign on at American Dream, which has been a famously struggling project for a number of years?
I think that we’ve all read about the history of American Dream or Xanadu prior to being called American Dream. But I’m a believer in [owner] Triple Five’s operational skill success in other malls they own around the world. It provides a perfect venue for KidZania in terms of all that it will be in terms of retail, entertainment, dining and can really be a destination and draw people from all different parts of the area. And I was happy to see they just closed a big financing. I’m confident they’ll execute.