Andrew Farkas, seen with his wife Sandi, helped Dubai make a rash of investments in New York including a failed takeover bid for Time Warner.
Andrew Farkas, seen with his wife Sandi, helped Dubai make a rash of investments in New York including a failed takeover bid for Time Warner.

Andrew Farkas 'knew everyone in New York'



With one press of the send button on his fax machine in February last year, the New York property magnate Andrew Farkas immediately became an outsider in Dubai.

Until that moment, he had enjoyed years of unrivalled access to the upper echelons of the emirate's business elite and its biggest conglomerate, Dubai World.

The fax, according to people familiar with the matter, was sent to Istithmar and exercised an option in a contract drawn up when Mr Farkas's company and the Dubai World investment outfit jointly invested in 450 Lexington Avenue in New York City in 2006.

The option forced Dubai World to buy out Mr Farkas's share with no argument even though the property market was in freefall.

"It was quite a shock," one source said of the moment the fax arrived, describing how staff rushed around to figure out if all the joint investments included such clauses, called "put options".

The souring relationship ended later that year with Mr Farkas liquidating nearly all his co-investments with Dubai World and selling his UAE marina business to a company linked to the head of Qatari Diar, one of the country's biggest investment arms.

It was a dramatic turn of events for the heir to a department store fortune, a yachtsman and property millionaire who had discovered the ambitions of Dubai in 2002. After being introduced to Sultan bin Sulayem, the chairman of the newly created Dubai World conglomerate, Mr Farkas quickly rose to become a major adviser and dealmaker for the emirate over the next seven years.

"He was the connections man," Muneef Tarmoom, the former chief executive of Istithmar, said of Mr Farkas. "He knew everyone in New York. Whatever introduction he did, he usually would get a cut on it."

Indeed, Mr Farkas made introductions for Dubai to some of its biggest business scions, including Donald Trump, who later agreed to advise and lend his name to a Nakheel project, and the corporate raider Carl Icahn, who convinced Dubai to invest more than US$2 billion (Dh7.34bn) in Time Warner during a failed takeover bid.

While he helped Dubai to earn millions with an investment in a trophy New York building, 230 Park Avenue in Manhattan, he also played a role in Istithmar's bold strategy to stake a claim for itself on the global stage that contributed to the massive debt obligations it is now in the final stages of restructuring.

Mr Farkas showed an acumen for business from an early age, founding a database management company at the age of 16. As the grandson of the founder of Alexander's department store in New York, he was attuned early on to the often tough world of profits and losses, he has said in interviews.

After graduating from Harvard University, he took a job at Salomon Brothers but soon left and founded his own property investment company, Metropolitan Asset Group. The company eventually became Insignia Financial Group, one of the largest owners and operators of multifamily housing units in the US.

The company controlled some 350,000 homes and 200 million square feet of commercial space.

It was during this time that he first ran into Andrew Cuomo, the candidate for governor who was the son of the former governor of New York, and at that point the secretary of housing and urban development under Bill Clinton. Mr Cuomo had investigated Mr Farkas's company for alleged kickbacks and operating housing projects with "abysmal" conditions.

The case was later settled and Mr Farkas sold the apartment business for $910 million in 1998. In 2001, Mr Farkas and Mr Cuomo met again and forged an unlikely friendship that culminated with Mr Farkas being appointed as the finance chairman in Mr Cuomo's current campaign.

In 2002, Mr Farkas made another crucial connection. Sol and Butch Kerzner, the hotel magnates from South Africa, introduced him to Mr bin Sulayem. At the time, Mr bin Sulayem was overseeing an increasingly ambitious portfolio for the Dubai Government that led to the creation of a single conglomerate, Dubai World.

Just three years after tht meeting, Mr Farkas and Istithmar forged their first property deals in New York and embarked together on a marina venture in the US Virgin Islands called Yacht Haven Grande. Istithmar also bought 29 per cent of Mr Farkas's marina development and managment company, Island Global Yachting.

Mr Farkas did his first property deal with Istithmar in November of 2005, buying 230 Park Avenue for $705m. It was sold in 2007 for $1.15bn, netting hefty profits for both Istithmar and Mr Farkas.

After that successful deal, Istithmar partnered with Mr Farkas to buy 450 Lexington Avenue for $600m in April 2006. They also joined forces to buy the W Hotel Union Square in October of that year for $285m, and purchased 73 per cent of the Mandarin Oriental at Columbus Circle in December in a transaction that valued the property at $340m.

Istithmar still holds a stake in all of those buildings aside from the W Hotel, which it lost in foreclosure proceedings this year.

Mr Farkas also helped set up the Emirates National Securitisation Company (ENSeC), a joint venture between Island Capital Group, Istithmar World and Dubai Islamic Bank tasked with developing a market for securitised mortgages in the Gulf. That company was later closed down in the midst of the financial crisis.

Flush with cash from his investments with Dubai and previous business successes, Mr Farkas bought a townhouse on East 73rd Street from JChristopher Flowers, the famous banker, for $23m in 2007. By 2008, though, the heady days of Dubai investment were coming to a close.

Island Capital said in a statement that it urged Istithmar to liquidate their joint investments in 2008 as the crisis began to spread into the UAE.

"450 Lexington and the W Hotel would have been successful investments had everyone agreed to sell the properties when we suggested that they be sold," it said. "We were vetoed on that decision by Dubai, which had a longer term perspective. We asked that Dubai monetise our minority positions in light of our different perspectives."

The one deal that Mr Farkas said was not successful was Island Global Yachting (IGY), which he says fell apart because of the downturn in the Dubai economy.

"When that happened and all development ceased, [IGY's] contract to design and develop 40,000 berths was no longer viable," he said. The contracts were cancelled and Mr Farkas sold the remainder of the business in the Middle East to Ghanim Bin Saad al Saad and Sons Holdings of Qatar. Within seven years, the relationships founded in the boom era had all but dissolved, save for one last joint investment in the Mandarin Oriental. Istithmar is in the midst of restructuring its investments and Island Capital bought one of the largest commercial-mortgage-servicing specialists in the US in March.