NNN Lease Market News
Africa Israel has struck agreements to sell a major piece of the former New York Times headquarters and the landmark Clock Tower building overlooking Madison Square Park in Manhattan, both at steep losses. It also has unloaded numerous parcels of land in Florida.
Africa Israel, headed by diamond-industry billionaire Lev Leviev, is the latest overseas company to run aground in the U.S. commercial market. In the late 1980s, Japanese investors purchased such iconic properties as Rockefeller Center and the Pebble Beach golf resort, only to suffer losses during the early 1990s recession.
Foreign investors often make the mistake of looking at U.S. real estate as a safe haven. "The U.S. market is one of the most transparent, the government is stable and foreigners often invest with a long-term horizon," said Mark Edelstein, head of the real-estate group at law firm Morrison & Foerster LLP. "The problem is they often buy near the top of the market and overpay."
In 1997, Mr. Leviev purchased a controlling interest in Africa Israel, a public property-investment company founded in 1934 by Jewish investors from South Africa. Under his leadership the company expanded into new markets like the Philippines and Russia, where Mr. Leviev developed a friendship with Vladimir Putin, now the country's prime minister. Projects developed by the company's Russian arm include AFIMall City, a giant retail complex in Moscow that opened in May after delays.
During the late stages of the U.S. real-estate boom, Africa Israel began making highly leveraged bets in big cities. Unlike many foreign investors, which tend to buy stabilized properties with solid cash flows, Africa Israel made highly speculative bets, buying up empty tracts of land and trying to convert office buildings to condos. It issued bonds in the Israeli market to finance much of the buying, racking up debt of 7.8 billion shekels by the end of 2009.
Craig Karmin at craig.karmin@wsj.com
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