One-on-One with Richard LeFrak Part 1
EisnerAmper Real Estate Services Group Partner Lisa Knee interviews LeFrak Organization Chairman and CEO Richard LeFrak on his start in commercial real estate and the importance of family legacy. Richard shares his perspectives on the development of the Ellipse residential project, the history of 40 West 57th Street on Billionaires Row, the return of millennials to forgotten neighborhoods, and the state of affordable housing and construction costs in New York City.
Lisa Knee: Hi I'm Lisa Knee with EisnerAmper and I have a pleasure today of sitting with titan Richard LeFrak from LeFrak Industries.
Richard LeFrak: Well thank you for coming.
LK: So I wish the cameras were rolling before because we had a lot of great history lessons on your family and your 100 year history of being in the real estate business. So if you could give us a little bit of a history lesson as to how your family started in real estate and maybe some of the earlier projects and how it's led you to where we are today.
RL: The firm was founded by my grandfather Harry LeFrak the firm was really turned into something amazing by my late father Sam LeFrak I hope Richard LeFrak did his share to turn it from something a little bigger than he found it and my two sons Harrison and Jamie will hopefully carry on his legacy or are carrying on his legacy now and I don't know how long I'll be here but I know if I’m still here in 20 years this firm will be bigger better smarter than it is today the actual business was started by my grandfather shortly after the turn of the century he was an immigrant who came to the United States as a young man and actually started off as a tradesman he was a glazier he kind of became a small subcontractor and then with the intrepid spirit that those immigrants had that came here really to get a better life I guess he started and did some small developments with partners he was not an educated man in the sense that he had a formal education but he was a clever man and he made his way and he started building walk-ups and small projects in Brooklyn which is where he lived and that ultimately became this.
LK: You refer to your sons being in the business with you and you are a second generation so now we are
LK: Third generation and so now we’re fourth generation.
RL: We are.
LK: And how important is that famous family legacy to you and was that instilled right away?
RL:That's the most important thing for me because I'm not really working for money at this point but I had the privilege of having the experience of working with my father and working with my sons and for me that's as good as it gets.
LK: So I think most of New Yorkers traditionally know from the big project in Queens 5,000 units is that accurate?
RL:Yes well my late dad who was in many ways the real genius and driving force behind the company because he really took it to a completely different level from my grandfather He recognized after World War II there was a huge shortage of housing for middle income families and he had a very intense determination to get things done and he decided he could do it with very little help from the government that he would build affordable housing and somehow through the force of his will get it done at a price that people could afford without government subsidies and he was very prolific in the early ‘50s until his death of course the project he's mostly known for is LeFrak City LeFrak City It's Le-Frak but everybody says Lef-rak in New York so LeFrak City which was 5,000 unit apartment complex in Queens on a Long Island Expressway and of course when people come from the airports they say I went past LeFrak City and he built that between 1959 and 1968 it contains 5,000 apartments and we're still very proud to have our name on it we still own it and in the last seven or eight years it's been going through a major upgrade and renovation and actually we've spent almost three times as much in restoring it as he did in building it.
RL: But it's still a great asset it's fully occupied lovely family still live there it's kind of a melting pot of New York with the cross-section of everybody who you would expect becomes people say you know Queens is a borough of immigrants and we have a in a big cross section of the population there but we’re still very proud of it we have our name on it and it's kind of a legacy asset that I would never ever sell because it's really one of the touchstones of our success and one of the landmarks of our success.
LK: So keeping with the theme of like legacy assets that you would never sell that you were very proud of as you walk in you see the entire layout of your New Kersey waterfront project which I’m not sure people appreciate how massive it is and what a great undertaking and the new building Ellipse which we were looking at circular and just to make sure we note that it's residential and it's not going to be a condominium.
RL:Right it’s not a condominium.
LK: Could you talk to us about how you completely redid the waterfront there and what your vision is and long-term?
RL:Well it was a great opportunity that came our way just by accident we were the original developers in Battery Park City and built the first big project down there in 1980 when it was touch and go whether it would be bankrupted by the government and by circumstances and at that time everybody said you're crazy who's going to live downtown pretty funny today when you hear that but in those days there was nobody live downtown it was Wall Street you had an office and that was that. Through let's say some miscommunication or hypocrisy from the government officials at that time we were supposed to continue on and after we built the first six buildings and keep going and they had a change of heart and we got a random call from the developer in New Jersey a famous developer a shopping center developer named Mel Simon who the giant Simon company today and he said I have this property in New Jersey on the waterfront and the bank told me that if I get you guys involved that they would finance it for us because there are not too many developers who can thank things on of that size.
So my late father went out to look at the property and called me on the phone and said Richard you have to come out and take a look at this it's something I've been dreaming about my whole life now if you saw what he was dreaming about you think he should have been putting a home because it was just an old railroad yard with abandoned industrial buildings on it and there was nothing there except it was in Jersey City which in those days was considered sketchy at best but he recognized the potential of being able to create something from scratch of great size and I went out of course and took a look and it was like being put in the middle of the desert and saying where do I start there are no roads here there's nothing here where is my point place and my beginning but with a lot of hard work we sketched up a plan and took advantage of three things that were part of the landscape there number one it was over a mile of riverfront number two it had a big path station that was totally underutilized that had direct service to downtown and Midtown and it was big enough so that you could create your own community that was probably 17 or 18 million feet ago since then we've built I don't know 17 or 18 high-rise apartment buildings with about 6,000 apartments in it I think we have about eight or nine office buildings two hotels a regional shopping mall marinas or parks recreation and I think we still have enough land to develop to put another 5,000 apartments on so we're really not even two-thirds finished with it yet so for me it's been a lifetime of work and I've had the privilege and I say it's a privilege of creating a city from scratch and I made plenty of mistakes and we made plenty of mistakes but we did many things right to and the whole regeneration of the waterfront in Jersey I believe that we were instrumental in waking people up to the potential and of course today if you stand on the West Side highway and look across the river there's a whole skyline.
LK: Yes and it’s beautiful.
RL:When we went there in 1982 it didn't look like that it wasn't remotely like that but it took a lot of imagination a lot of hard work lots of sleepless nights but I have to say that my father recognized the potential even though at that time he was 65 or 66 years old and it was a 40 year project and he was going let's go for it and we did and we’ve had good luck.
LK: So I want to stay still in the New York area where at 40 West 57th today which is a beautiful commercial space can you talk to us a little bit about this project and why this location?
RL:We bought this property in I think 1969 if you were on 57th Street west of Fifth Avenue you were on the wrong side of town.
LK: Which we are.
RL: Right we’re just west of Fifth Avenue what was funny was that's just the way the world was and so we developed this building and originally it was for a company called the E.R. Squibb Company which was a pharmaceutical company that has now been subsumed and merged away it was a major office project in Manhattan and it's been very successful and we owned it since we built it and it's another again another family heirloom that will never be sold or we have no intention of selling it Scribb Real Estate of course 57th Street is now Billionaires Row some of the best properties in New York are within a block walk from here so we're very proud of this building and you know the fact that we've been able to keep it inside our family.
LK: It's also what urbanization is going back to urbanization and what people are looking for in terms of community and what they're looking for the first everybody wanted to be out in the suburbs now everyone's coming back.
RL:Well you know my joke is always that's not a joke but the thing I sometimes say at these events when I speak is the Millennials did not discover Brooklyn there were three million people that lived there before they showed up.
LK: That’s true.
RL:They rediscovered Brooklyn but it's always been a lot of these neighborhoods that were let's say forgotten have now been revitalized reenergized a lot of that is due to the fact that young people are more adventuresome The don't world doesn't start a stop on the east side of Manhattan for them they're willing to go to places like Queens like Brooklyn like Jersey City and say listen I can find something there for me too and as long as they have peers and friends and social life and amenities that satisfy them they're much more adventuresome and I think that's good because that's helping the city it's helping all these cities to revive the downtown's and older neighborhoods.
LK: So continuing in the New York marketplace do you think that people are still your portfolio was built on affordable housing that's been the mantra of your family
RL: I wouldn't say affordable I would say rental housing.
LK: Rental housing okay.
RL:We were affordable in the beginning now we’re more
RL:Well yes upscale.
LK: Do you think it's increasingly difficult now to have affordable housing in the Manhattan and other gateway city areas?
RL: Yes it requires lots of changes in the government to subsidies or other ways because the cost of the bricks doesn't change whether you're selling a condominium for $4,000 of foot or an affordable housing project the basic the cost of the building is the same so the only thing that can vary is the land and subsidies associated with taxes or other operating expenses that you have interests for example if you've noticed that the regulatory patterns in every city New York not particularly all of them they’ve gotten increasingly more expensive to build it's not a business that lends itself much to technology I mean there is some technology involved but if you watch how they put bricks up it's the same way as the Egyptians used to do it it's not that different it's a business of hands there is some ability to standardize things now and to make some technological manufacturing advantages but it creates a big problem because you now have a whole class of people that just can't afford based on the salaries and wages that they make to pay the cost of housing here and they're expecting.
I haven't seen the last set of figures but I think they're expecting a population in New York to grow by a million people in the next 20 years my question would be where you're going to put them all and so you've seen some things which frankly reversion you're seeing these micro-apartments now and that's really a reduction in people standard of living you know you used to live in 500 feet now I’m going to give you 300 feet the living so I think there's going to have to be some radical changes and now people look at these things if we're going to accommodate our needs for affordable housing for accommodating a working-class people we have to do that.
LK: So I want to thank you so much for sharing the afternoon with us and for your insights on real estate and more specifically telling us about your family and your history thank you very much.
RL:Thank you for coming.
In the third part of this interview, LeFrak Organization Chairman and CEO Richard LeFrak shares his perspectives on the effect of Brexit on US foreign capital, where we are in the development cycle and the possibility of a correction in 2017, technology in real estate, and the amenities changing the CRE landscape with EisnerAmper Real Estate Services Group Partner Lisa Knee.
LeFrak Organization Chairman and CEO Richard LeFrak discusses diversification and expansion, joint ventures, and hot locations across the US for development with EisnerAmper Real Estate Services Group Partner Lisa Knee in the second part of this interview.