One-on-One with Richard LeFrak Part 2
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.
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 your family name is very synonymous with the New York landscape, but in 2008 you had your first venture out on the West Coast. I think you have three properties, if that's right, maybe more than that in the Los Angeles area with a new acquisition the Horizon Hollywood. Can you tell us a little bit why Los Angeles is attractive?
RL: Well there are several reasons for us. First of all, we have a high concentration of assets in New York and we always felt that even though this is still the number one real estate market in the United States, frankly it is the number one real estate more so in the United States. But if you think about things, kind of the way I do, and I try to anyway, I can't have all my, “I wouldn't own just one stock,” you can't put all your eggs in one basket. Frankly, I have to say, and it sounds a little trite, but if you can make it here you can make it anywhere. It’s a local business but the competitiveness of the business is much less acute when you go to these other cities in New York. If there is an opportunity, there are 500 sharks circling.
RL: In L.A. it may be 20, that doesn't mean there's not a lot of sharks and talented people out there. In Miami it’s the same way, but it's just not quite as big a focus for the whole development community.
LK: Can you talk about your project out there?
RL: Well, I have several projects out there. One of my sons worked in Los Angeles for the Han Company, Trizec Han. He worked on a project out there called, Hollywood in Highland, which is where the Academy Award theatre. He got to know Los Angeles pretty well, and so when we started to think about expanding, he had a lot of local knowledge because he had lived out there for a couple of years and kind of had a little feel for the local community. We bought quite a bit of land in Hollywood when everybody out there thought it was not a good idea to me. I looked at it, and it reminded me far more of Times Square then it did many of the locals. But not all, I don't want to be critical and so we were able to buy some interesting sites, and we did an office building out there, which we leased to Live Nation. Again, I'm not bound by a geography because I've now had the experience of working out of town, so I'm not frightened by it. although New York is still the best market in the country.
LK: Hands down.
RL: Hands down.
LK: So let's talk about Miami a little bit because you're heavily invested down there and you've got some wonderful projects going down there and a joint venture with Turnberry Hotel. I would like to talk about all that so let's talk about the joint venture project.
RL: I got to Florida in the financial crisis because we were in reasonably good condition in 2008. We were not hung out, and there were certain opportunities that presented themselves at that time. One which was a refinancing recapitalization of a bank in Chicago called the Chorus Bank. That bank owned 8,000 approximately, or was involved with, the development of 8,000 condominium units around the United States. Really, from Hawaii to Boston. In that package there were about 2,000 in Miami, and the world was bemoaning that Miami would take 20 years to fill up, and we own this interest in these assets. I was watching all the Latin Americans basically inhale all the condominiums. I said to my sons, listen, you know something that not too many people know. That place isn't really that sick, everybody thinks it's sick, so let's see what else we can buy on the cheap.
We bought two things. We bought the Gansevoort Hotel, I would say in a distress, and 180 acres of land in North Miami in a distress. We bought them; well we've subsequently renovated and built the one hotel in South Beach, which is a great property- which I've done with the Stall Woodberry Starly Fund. We did the plans for the beginning construction on Sole Mia, which is a big planned community in North Miami with the Sopher Family of Thurnberry. I’m a big believer in Florida, and it's not too complicated. People vote with their feet. Florida is now the third largest state in the United States. It got there because people voted with their feet, so if my business is serving people, it only is derivative to that if there is population growth, if there's job opportunities and economic opportunities- then there's room for a real estate developer. We don't generate the activity ourselves. We’re derivative of the activity .Florida's had lots of good success. Could be the sunshine, it could be the zero state income tax, it could be a lot of things. But the answer is, that people like to go down there, and that's what we do in the end, we serve people.
LK: So you've been doing some joint venture deals down in Florida and L.A. So what have you learned from joint venturing with other groups and partners. Any good words of wisdom?
RL: You know a lot of it has to do with personalities. Mostly people from New York work harder. I don't know what it is in their DNA, but they seem to be a little more intense. It’s a local business, and having a local partner sometimes is very helpful because they know their way through the regulatory and political maze that you have to go through. The Sophers for example, are great partners down in Miami. They’ve been an established family down there, and own a lot of real estate. I have the experience of doing these big projects, so I kind of helped them with that. But I don't know the mayor, they know the mayor. I mean it's in a metaphor, but I don't know the local officials particularly, and if I walk in I might as well come from Mars. They have history with people, they have credibility, and the same thing. I have a wonderful partner at Los Angeles, the Kennedy Wilson Company that we partnered with on some deals, and partners with David Simon and the Simon family in some retail operations, and so if I don't need a partner for money they have to be able to give me something we don't have which is local knowledge, staff self-worth, but we do it.
LK: Are there any other locations within the United States that you're looking at that you feel is going to be the next Florida?
RL: Well we have a portfolio of about 4,000 apartments on the West Coast –Seattle. I'm very high on that. I just was out there last week. I mean what's going on there between Microsoft, Amazon, Starbucks- it's an amazing city. People like it. Young people like it. If they're getting the human capital; and the human capital is the key to all that's it the businesses need the people under people if they want to but that's a good place for them to be. It attracts good young people. That’s the way they're going to succeed. So I'm very positive about that market too.
LK: So I don't think people realize -I think people associate you with real estate, but you were you sort of diversified a little bit, and you have some investments in oil and mineral rights. I think banking you alluded to. Can you talk about some of your other interests?
RL: Well we started investing in the oil business in 1972. I have an office in Houston. You know it started out as an investment, than it became a business; a real working business. It’s a fundamental business. Energy is a fundamental business in the United States. Originally we used a lot of energy, so it was kind of a hedge.
LK: Is that what drew you? As a hedge?
RL: Yes. If I made it, and I needed it, then if it got expensive in one place and it costs me money; I made money in the other area.
RL: But it's kind of its own thing now. We’ve had good success with it. We’ve benefited a great deal from technology. Most people in the real estate business don't understand how astounding it is. How they can actually take a drill bit and make it go that way, and how they were able to actually change geopolitical history with the technology that was basically invented here in the United States. It’s extraordinary what they're able to do now, and that's why we are the world's largest oil producer.
LK: So is that also a long-term hold for your family, being in the oil and energy business?
RL: Well we've been in it since ‘72 so how many years is that?
LK: So I guess that’s long.
RL: So I guess that’s a hold. Yes, it's a good business, and it usually -again it's a little bit of an offset because you know if they're doing great down there, because prices are high, everybody else is suffering. If I'm not doing so well down there, means I'm doing okay here the banking business. We got involved with two bank bailouts during the financial crisis. One was Bank United in Florida, which was another reason I got down there, and the purchase of the assets of the Chorus Bank. We also ended up being one of the founding shareholders of a bank a start-up bank in London call Metro Bank, which we still own a significant interest in. We kind of, maybe I'm not a real estate developer, maybe we're just a family of opportunists because, when willing to take on things, interesting things, and not afraid to try new ideas and new businesses. A lot of that also has to do with the next generation because they're a lot smarter than I am, and we're not as hidebound. They have the ability to make decisions and to try interesting and other things to do. I mean real estate is still the fundamental driver here, for sure, but we're open-minded.
LK: So I want to thank you so much for sharing the afternoon with us and on your insights on real estate, and more specifically telling us about your family in 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.
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.