The Wall Street Journal

Moving Past The Plaza Hotel

August 19, 2013

share
Tweet about this on TwitterShare on FacebookGoogle+Email to someone

By CARMEL MELOUNEY

Miki Naftali, the Israel-born real-estate investor best known in New York for overseeing the purchase and renovation of the Plaza Hotel, is emerging as one of the city’s most prolific developers of condominiums and rental-apartment buildings.

Mr. Naftali has purchased or launched developments of about a dozen properties since stepping down two years ago as chief executive of Elad Properties, a unit of an Israeli-owned conglomerate which controlled the Plaza during its sometimes-controversial renovation. His new company, the Naftali Group, owns property worth about $900 million.

In its latest deal, the Naftali Group paid $20.1 million for four buildings on West 25th Street in two separate transactions. Those properties—combined with an assemblage on the street that Naftali bought in late 2012 for $37 million—gives the company a development site on which it plans to build a 12-story condo tower.

“I’ve developed many condominiums in Chelsea,” says Mr. Naftali. “With its tree-lined street, West 25th is to be one of loveliest blocks in the neighborhood.”

Mr. Naftali is one of the latest crop of developers moving to take advantage of the surge in New York apartment rents and condo prices. While many of the city’s longtime developers are also in the scrum, strong markets like this one invariably attract new players.

In each cycle, some new players go on to build empires and make significant marks on the city’s skyline. But the risks are high. If the recovery of the U.S. economy stalls and rents and sales take a dive in New York market, developers with unsold or unrented apartments could suffer losses.

Mr. Naftali agrees that real estate is “a very cyclical business,” but says his company is “intensely focused” on mitigating risk. “By keeping an eye on our last dollar, we believe we have a substantial margin of safety…even in a down market,” he says.

Mr. Naftali also is backed by a long list of big name investors. He says about a dozen institutions invest with his company including SL Green Realty Corp., AEW Capital Management and Praedium Group LLC. The Naftali Group, which has 22 employees, also gets funding from many major banks including HSBC, TD Bank, PNC Financial Services and Israel Discount Bank Ltd., he says.

Mr. Naftali, who grew up in Tel Aviv and is 51 years old, got his start in real estate when he a student of engineering and management at the University of Southern California.

“I started working as a property manager of an apartment building when I was at university, and then I managed two more in a rough area of downtown L.A.,” he recalls. “Then this guy asked me to find an apartment building that his business partners could buy, and I knew nothing about finding a building, but I did. He made me present it to the partners, and they bought it and gave me a good fee. No paper contracts, nothing. Then I thought, ‘Wow, this is great.'”

Mr. Naftali came to New York in the summer of 2000 and began working for Elad, through knowing Yitzhak Tshuva, the head of the Israeli conglomerate El-Ad Group which owns diverse interests in real estate, tourism and energy. “When I started there it was just two rooms in Fort Lee, N.J.,” Mr. Naftali said.

Elad purchased and redeveloped many properties in TriBeCa, Chelsea and the Upper West Side. But its most well-known project was its upgrade of the Plaza Hotel, which it purchased in 2004, in a deal that valued the property at $675 million. The company spent $450 upgrading the property and converting many of its rooms to condominiums.

Mr. Naftali had to navigate that project through a wide range of controversies involving unions, preservationists and city officials. Some preservationists were critical of the renovation, saying it didn’t preserve the character of the storied hotel.

But Mr. Naftali has taken great pride in the project and asks people to take tour of the hotel before forming an opinion about the restoration. After selling more than $1.4 billion worth of condos in the Plaza, Elad sold a controlling stake in the remaining property last year for $570 million to India’s Sahara Group.

Mr. Naftali says he decided to launch his own company two years ago partly because he wanted to focus on design and development. In 2010, he had taken Elad Properties’ Canadian arm, Elad Canada, public, then becoming chairman of that company—a role he didn’t relish.

“I didn’t want to be dealing with corporate structures anymore. I want to spend my time focused on creating the product and designing and developing. That’s what I like,” says Mr. Naftali, who formed his new company with Victor Sigoura, another former Elad executive.

Naftali’s projects include a 12-story residential tower at 200 Franklin St. in Greenpoint, the neighborhood’s tallest building. In the last few months, the Naftali Group has closed on nearly 300,000 square feet of prime development sites on the Upper West Side and Gramercy neighborhoods for residential condos.

On West 25th Street, Naftali is planning to demolish the existing buildings and develop a tower with 61 units ranging from one to three bedrooms. Some of the properties in the assemblage will be redeveloped as rentals.