One of New York’s biggest new real estate investors sees an opportunity in the growing gap between the city’s rich and poor.
“Our focus is the very high end and the very low end,” David Jackson, the CEO of Istithmar, said in an interview. “It’s the middle bracket that we think is a tough place to make money.”
Dubai-based Istithmar and its sister fund, Istithmar Real Estate, have been on a $7 billion spree in New York since 2005, as the city-state’s sheiks seem to see inequality—a specialty of both New York and Dubai—as the world’s greatest growth industry.
Embodying that high-low approach, Barneys (price this summer: $942 million) isn’t the only New York retailer in Istithmar’s stable. The other is the bargain-basement Loehmann’s.
“Luxury retail is growing at a much faster rate” than the rest of the market, said Mr. Jackson. But “there’s a lot of innovation at the high end and at the entry point.”
Istithmar’s front-line managers have good reason to be focused on New York. The real estate fund is headed by Alan Rogers, an Englishman who ran Douglas Elliman, one of the city’s biggest residential brokerages. And, to the extent that Istithmar displays a public face at all in the U.S., it’s Mr. Jackson, a 41-year-old army brat born in Boston, with a Yale M.B.A. and a Princeton economics degree, who rose to become a senior vice president at Lehman Brothers in New York.
Mr. Jackson occupies an office on the fourth floor of the angular Emirates Towers in Dubai. Out his window, Sheikh Zayed Road leads to the Persian Gulf. He said he likes Dubai for what it shares with New York and Hong Kong, his other Lehman posting: its cosmopolitanism and its sense of unlimited opportunity.
“There’s the same sense of aspiration,” he said.
Mr. Jackson is a man both accessible and elusive: In the nail-biting last hours of the Barneys deal, sealed in the second week of August, he unexpectedly answered an Observer reporter’s phone call. “We still have a lot of clock watching to do,” he said after a rival bidder dropped out.
Then the deal was done, and Istithmar vanished behind a bland statement. No celebratory interviews, no need to encourage stories about the Arabs buying up New York. Contacted this summer to set up an interview for another publication, Mr. Jackson responded nine minutes later from his BlackBerry that he’d be willing to speak—but only became available for a short telephone interview more than a month later, in which he drew a line under personal details beyond his age.
The company has, of course, been burned.
In 2006, Mr. Jackson watched Dubai Ports World’s massive, low-profile deal to buy a global port operator collapse after a political stampede started by New York Senator Charles Schumer, who in the heat of the conflict compared Arab investors to skinheads.
Mr. Jackson, for his part, didn’t even pretend to laugh at a question about whether Barneys is a strategic asset.
(For what it’s worth, Senator Schumer was willing to let Barneys go: “There is nothing wrong with Dubai investing in the United States provided it does not impact a sensitive security area and provided the purchase goes through the proper screening and checks,” he told The Observer.)
Most of Istithmar’s spending, however, has proceeded unimpeded.
The splurge began in November 2005, when Istithmar paid $705 million for the Helmsley Building at 230 Park Avenue (which it sold earlier this year for a reported $1.15 billion). It has extended to take in everything from high-end hotels like the W Hotel Union Square and a majority share of the Mandarin Oriental in the Time Warner Center, to one of the city’s signature media giants, Time Warner, with a 2.4 percent stake now worth $1.7 billion.
Istithmar also holds the old Knickerbocker Hotel at Six Times Square, which it plans to convert into a luxury hotel. It traded 280 Park Avenue to Broadway Partners earlier this year for over $1.2 billion, and, in 2006, it bought the leasehold of the office tower at 450 Lexington Avenue for $600 million.
Dubai’s purchases are part of a global spending spree fueled by high oil prices. But despite its vast wealth and its clarity of vision, and perhaps as a consequence of the port debacle, it keeps a notably low profile.
“Because we’re a government company, we have restrictions on what we can and can’t say,” said a spokeswoman for Istithmar Real Estate, who declined to schedule an interview with its CEO, Mr. Rogers.
“We do some business with the Dubai government and they’ve asked us not to” talk about them, said a prominent New York commercial real estate broker.
When asked about the series of recent New York acquisitions, Mr. Jackson said it didn’t reflect any particular strategy. “We just don’t look at our investments in terms of geography,” he said.
And Istithmar’s acquisitions, though particularly glittering, are also part of a broader trend. The weak dollar has made New York an attractive target for all sorts of global shoppers, driving the price of commercial real estate, including hotels, to new highs, a trend that seems to have purged the legendary cautionary tale of Mitsubishi’s disastrous 1989 purchase of Rockefeller Center.
Those investments have also, for the past decade, been a source of tantalizing returns.
“The Germans bought in the late 90’s, and [since 2000] the Irish have been investing in New York; they made a fortune,” said Douglas Harmon of the investment-sales firm Eastil Secured, which arranged the Knickerbocker sale for seller Sitt Asset Management. “The Greek shipping magnates have made fortunes, the English, the Israelis—even Istithmar. Everybody said, ‘That’s gotta be the last stop on the train,’ but they weren’t stupid. They were taking their oil money and diversifying their investments.”
Istithmar is hardly the only Arab investor in New York City recently. Saudi-backed Kingdom Holding Company has a piece of the Plaza. The Sultan of Brunei owns the New York Palace. The Dubai Investment Group, not associated with Istithmar, owns the Jumeirah Essex House, a luxury hotel on Central Park South.
“When Mandarin announced that hotel [deal], everyone thought they were nuts,” said John Bralower, a hotel specialist at Carlton Advisory Services. “[Istithmar] has looked pretty smart so far—they paid high prices, but it looks like they were worth it.”
Ben Smith is a former staff writer at The Observer. He writes for Politico.com. He can be reached at firstname.lastname@example.org.
Follow Ben Smith via RSS.