The LeFrak Organisation, one of New York’s biggest family-owned landlords, is setting its sights on the UK’s private rented sector. Samantha McClary speaks to its managing director, Harrison LeFrak
When it comes to inheriting real estate portfolios, Harrison LeFrak is up there with the biggest property heirs in history.
The 41-year-old vice-president and managing director of the LeFrak Organisation – one of New York’s biggest family-owned landlords – will one day take on a portfolio that currently covers more than 40m sq ft of prime land, the vast majority of which is in the residential sector. The firm owns and manages upward of 25,000 homes, mainly in New York state but also in southern Florida, Los Angeles and Washington.
Most famous among its assets is LeFrak City, a sprawling 5,000-unit residential investment in Queens, New York. LeFrak’s grandfather Samuel, who ran the business until his death in 2003, was renowned for being one of the city’s most prolific builders during the 20th century, developing thousands of homes in schemes including LeFrak City and Newport City on the New Jersey waterfront.
Now LeFrak junior – with his brother James – is itching to showcase the group’s expertise as a residential landlord in the UK. But he is quick to point out that the company will get it right when it finally does make a real estate investment on British shores. “After 100 years in the business, we have made every mistake we need to make. “We will repeat many of them, but we are probably not going to make any new ones,” he says.
From Queens to Castle?
The firm has been seeking to invest in the UK since 2005, when it began talking with Malory Clifford about a bid for the Elephant & Castle project in south-east London. That £1.5bn scheme was eventually won by Australian developer Lend Lease, which is now progressing with the first phase – the transformation of the rundown Heygate Estate.
In 2008, LeFrak started to build up a small stake in listed developer Minerva – now in the hands of Jamie Ritblat’s Delancey and Ares – which industry observers thought was a play to secure several of its sites in London.
And in 2010, with Aviva and JP Morgan, LeFrak made a bid to buy the Athletes Village at the Olympic Park in east London to create a mega private rented residential scheme. But Delancey and Qatari Diar won that race, paying £557m for the 1,439 homes on the site. Delancey/Qatari Diar have since launched Get London Living, a private rented initiative at the Village that will offer homes at weekly rents of £315-£510.
But LeFrak says his firm is not discouraged by these almosts and will make its move across the pond as soon as the right opportunity arises. “It ?has been an elusive experience for us to get all the stars aligned,” he says. “But we are not giving up.”
And with a UK government finally intent on bringing a working private rented residential sector to life – ?and investors starting to see some value – those stars may be aligned sooner rather ?than later.
Private rented housing is a growing part of England’s residential market, comprising almost 16.5% of the sector – close to four million homes.
In the past 18 months, the UK government has implemented a number of policies to encourage a wider range of investors to the build-to-rent market, including a reduction in stamp duty land tax from a typical 5% to 1% for large-scale investors buying properties in bulk.
Measures introduced in the 2012 Finance Act have also made it easier for REITs to invest in residential, and in response to Sir Adrian Montague’s review of barriers to creating a substantial private rented sector, the government has established a £1bn fund to support developers of build-to-rent.
LeFrak sees great opportunity to develop a PRS in the UK and its role in that development. “There is a want for private housing,” he says. “The gap is that a PRS doesn’t really exist in the UK yet.”
Until Margaret Thatcher came to power in the 1970s, assured shorthold tenancies did not exist. But then the UK started to sell off properties and unbroken blocks of flats, which would have been ripe for private rental, were broken up.
Then the buy-to-let market boomed and the man on the street started to buy up flats to rent out himself. Then the housebuilding community saw how lucrative the sector was and started to sell its flats off-plan to overseas investors, spawning a new era of buy-to-let.
LeFrak says the private rented sector – or the rental apartment business, as it is known in the US – is a “spectacular” business that serves the needs of a long-term owner like the LeFrak Organisation, providing a stable income.
Indeed, the New York press has speculated that the firm’s 9.5m sq ft portfolio in New York City provides an annual net operating income of $116m, with LeFrak City alone churning out $35m. And those figures do not include the business’s New Jersey and outer borough assets.
LeFrak is passionate, too, about the services that rental apartments provide to society. “It’s all about service,” he says. “When Ocado delivers, for example, you don’t have to be there to collect it. That’s the basic level of service we provide to people in New York.
“There is no reason that level of service could not be provided in London.”
Private rented also reflects the new society in which we live. Without intending to sound pessimistic, LeFrak points out that divorce rate in both the US and the UK is soaring. The picture of two parents, 2.4 children and a white picket fence just isn’t the norm any more, he says. “People are transitioning all ?the time.”
LeFrak says divorcees may need a flat while they get back on their feet, young professionals want a serviced flat while they work on their career and save for their first home, and older people may want to rid themselves of the burden of home ownership.
“When people move from a house into an apartment, they are no less happy,” says LeFrak. “They lock their door when they leave and their worry is gone. It’s the way to live.”
LeFrak paints a rosy picture of private rented living. Your dishwasher breaks down and it is fixed instantly by your landlord, who is running the property and has his own investment to protect as well as yours – a landlord who is controlling all the facilities management services, so doesn’t have to make 15 calls just to get the problem sorted.
LeFrak cites Pimlico and Belgravia as examples of where ownership management makes a difference. Both are great locations, he says, with similar architecture and amenities, but one of them is run efficiently by a single landlord – Grosvenor. Point made.
No more mistakes?
But owning vast swathes of residential is not without its problems, particularly if it is not in the right location. A scan of local newspapers throws up dozens of stories of unrest and upset at LeFrak City, depicting an inner city ghetto with drug and gun crime.
Maybe this is where LeFrak’s admission that his company has made every mistake possible comes into play. In the UK, the firm has a strict list of specifications for its first site. It wants land in a nice, but not super prime area, good Tube access, a safe environment with reasonable neighbourhood shopping – and, of course, ?says LeFrak, showing his knowledge of the average Brit, a decent pub.
“London and many areas within the M25 are favourable and suitable for private rented flats,” says LeFrak. “We just haven’t found the right piece of land and right financial package yet. We know how to make this work; how to provide the service. We have the capital. What is holding us back is finding a local authority with the right piece of land ?that will provide us with the right deal.”
That right piece of land should be big enough to provide at least 150 flats in blocks of six to eight storeys, so LeFrak can create a sense of place. The right kind of deal is a deferred land purchase so that no cash has to be laid down before completion. And that seems to be the sticking point for UK councils, which are desperate for cash following budget cuts.
Regardless, LeFrak continues to keep a close eye on the UK and, with more and more sites being offered to market for the development of private rented flats, the chances are it won’t be long before one of New York’s largest landed estates sets up home here.
LeFrak Facts
The story goes that Russian-born Harry LeFrak came to the US from Palestine in 1900 with just $4 in his pocket. A year later, the LeFrak Organisation was born and from that has grown one of the world’s largest privately held real estate companies.
Samuel LeFrak, Harry’s only son, joined the firm in 1940. He became president in 1948, on the threshold of the great homebuilding boom that followed the Second World War. Richard LeFrak, Samuel’s son, took over after the death of his father in 2003 and is now gradually handing the running of the business to his sons, Harrison and James.
Harrison, who has an MBA from Columbia and a law degree from Harvard, is mainly involved in the financing and legal side of the business and is widely regarded as a master networker, while family man James, who has an engineering degree from MIT, is focused on development.
Harrison describes the organisation as a “very long-standing, family-owned property company”.
“We are much like the UK’s landed estates in that we maintain ownership,” he says. “But we are much more active ?in development and are one of the largest owners of rental apartments.”
The LeFrak Organisation has a portfolio of more than 400 buildings, most of which have been self-developed.
LeFrak City in Queens was built between 1960 and 1969 on a sprawling 40-acre site. The 5,000 flats there were developed for working and middle-class families that could not afford to live in Manhattan: air-conditioned units were offered at $40 a room per week. Although LeFrak City suffers with crime, it has a low vacancy rate because of its reasonable rents and large floorplates. More than 15,000 people live there.
The LeFrak Organisation was the original developer of the 92-acre Battery Park City in Manhattan, building the first 1,700 luxury flats in the early 1980s. Since the late 1980s, it has been developing Newport City, the largest new waterfront community on the banks of the Hudson in New Jersey. The scheme sits on 400 acres facing Manhattan and New York harbour. More than 14m sq ft has been completed so far, with upwards of 5,000 homes, plus offices and shops built.
With a fortune of $5.6bn, according to the latest Forbes Rich List, the LeFrak family ranks above real estate tycoons Jerry Speyer of Tishman Speyer, Brooklyn-born billionaire developer Sheldon Solow, Related Companies’ Stephen Ross and Donald Trump.
samantha.mcclary@estatesgazette.com
See also:
