Leviev in the US: A question of timing

Africa-Israel bought its most expensive properties in the US just before the credit crisis.

America may be the land of unlimited possibilities, but some of those who have tried their luck in the country rue the day they decided to do so. One of those rueful men is Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY) chairman Lev Leviev, who admitted last week that his greatest mistake was to invest in the US.

Leviev made quite a few errors in the past two years, but his biggest mistake was to buy properties at the height of the real estate bubble, and he did so on more than one continent.

An examination by "Globes" found that Africa-Israel bought its three most expensive properties in the US just before the credit crisis came knocking at the door and the phrase "sub-prime" became a byword.

Leviev's error is compounded if one considers that he is no tyro, but a real estate tycoon with a wealth of experience. However, the harder they come, the harder they fall.

Africa-Israel launched its business in the US seven years ago, in partnership with Shaya Boymelgreen - another US real estate tycoon who failed to resist temptation. Africa-Israel owned 65% of Leviev Boymelgreen and Boymelgreen Developers LLC owned 35%, under an agreement from April 2002. They jointly built a number of high-end residential projects, mostly in New York and Miami. However, the partnership ended up on the rocks two years ago, and they split of the joint venture and its properties.

Leviev then embarked on his own buying spree through Africa-Israel subsidiary AI Holdings (USA) Corporation. He spent billions of shekels on landmark properties in New York, including the Clock Tower Madison Square Park, the old New York Times building at 229 West 43rd Street, between 7th and 8th Avenue, and 50% of the Apthorp building on West End Avenue on the Upper West Side. . Leviev planned to renovate the properties at an additional investment of hundreds of millions of shekels and sell them at a large profit.

It was not to be. In retrospect, it is clear that Leviev bought the properties at the height of the real estate bubble, and Africa-Israel must now make massive write-downs on the properties. The company has already written down NIS 1.7 billion on the value of the old New York Times Building, nearly the entire value of the property. The ongoing real estate crisis in New York City has prevented the sale of the Clock Tower in lower Manhattan, and negotiations for the sale of the old New York Times Building are stymied.

Africa-Israel has been forced to halve asking prices for renovated condominiums in the Apthorp, after buying the stake for $426 million in March 2007 and investing an additional $30 million in renovations in the building.

There is an old adage, which says that timing is everything, but as far as Leviev's investments in the US are concerned, his timing was off.

Leviev also gambled and lost in Las Vegas. With partners he bought a 61-acre lot in the city in June 2007 for $625 million. Africa-Israel put up $96 million in shareholders' equity and Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ) gave them a $524 million loan to buy it. The planned luxury residential project was never built, and last year, Africa-Israel made a $102 million write-off on it. Two years ago, at the height of the real estate bubble, Leviev bought out Boymelgreen in their joint project in Las Vegas for $160 million. Leviev sold the property shortly afterwards, making a NIS 54 capital gain on the deal.

The US real estate market is not Africa-Israel's only problem. Heavy investments in Moscow through AFI Development plc (LSE:AFID) are also costing the company dearly. AFI Development has invested NIS 2.08 billion in its flagship Moscow City shopping center, slated for completion in 2010. The project was booked at a value of just under NIS 2 billion in June, although the completed value is estimated at NIS 2.87 billion. NIS 1.01 billion has been invested in another flagship project, the Tverskaya Zastava shopping and office complex in Moscow, which is slated for completion in 2013. The project was booked at a value of NIS 553 million in June, although the completed value is estimated at NIS 2.57 billion.

Published by Globes [online], Israel business news - www.globes-online.com - on September 6, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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