Image: David Yellen for Forbes
Hidden under the iconic Brooklyn and Manhattan suspension bridges, a neighbourhood little-known outside New York glistens like a movie set, if that flick combined On the Waterfront with Sex and the City. In Brooklyn’s Dumbo, the streets are carved from cobblestones, the hulking industrial edifices ooze pre-war charm and approximately one-quarter of the companies leading the Big Apple’s design and tech boom, including West Elm and Etsy, lie within, alongside art galleries, artisanal shops and boutiques with precious names like Peas & Pickles and Recycle-a-Bicycle. The spa- cious apartment lofts, many with spectacular water views, rent and sell for higher prices than many of their Manhattan equivalents.
In a city that has thrived for three centuries on capitalist chaos, the architect of this urban perfection, concocted with the detailed obsession of a Disney imagineer, sits in a windowless sixth-foor conference room. Nothing in Dumbo is accidental, and it’s all the product of David Walentas.
Thirty-five years ago Walentas borrowed $12 million to buy 2 million square feet of this neighbourhood—the lion’s share of what was then a dying industrial district filled with underused warehouses. Today you can find one of his firm’s Dumbo apartments, a swank penthouse in a vintage clock tower, listed at $15 million. Even after selling off 700,000 square feet of the initial parcel and later accumulating more property, his 2.3-million-square-foot portfolio plus other assets, factoring in debt, makes Walentas worth an estimated $1.4 billion. Manhattan has produced numerous real estate tycoons (see opposite), and a few have made fortunes building for the masses in places like Queens. But Walentas is the first billionaire to ever make his money almost entirely in New York’s coolest borough.
“It was an untouched industrial neighbourhood,” he marvels. “We got the whole neighbourhood. You had the freedom to create a neighbourhood. In New York. And whatever you did with one building would add value to the others.”
It was, in retrospect, one of the best New York real estate deals since Peter Minuit bought Manhattan for trinkets and beads, and one with the potential to produce an even grander sequel, Mayor Bill de Blasio willing.
Dumbo in the raw held natural appeal for Walentas, who came from a faded industrial town, Rochester, New York, and still carries a gruff demeanour learnt growing up poor there. His father, a postal worker, had a stroke that left him paralysed when Walentas was five. His mother worked two jobs to support him and his older brother. When that still wasn’t enough, she sent the boys off to live and work on nearby farms. They spent their days, recalls Walentas, as “something between an orphan and an indentured servant”, with a daily routine consisting of “shovelling s--t and milking cows, going to school, coming home, shovelling s--t and milking cows”. He acted out at school and was suspended five times but still managed to become class president, with high enough marks to win a four-year ROTC scholarship to the University of Virginia.
His rascal behaviour didn’t stop there. He lost his scholarship during his junior year for paying a clandestine visit to a nearby all-girls school. He went back to work in Rochester until he had saved enough money to return to UVa and finish his degree in mechanical engineering. He graduated in 1961 and headed to Greenland to clean septic tanks for the military, “something my farm days prepared me well for”, he says. It was good, fast money, and after five months he went to visit his brother, then in the air force in Madrid. He quickly blew through his cash, buying a white Volkswagen bug and eventually travelling down to Casablanca, where he spent his days on the wharf looking for a ship to take him home and his nights in hostels, picking up fleas.
The ship landed at a pier on Brooklyn’s west shoreline in 1962. Walentas says he made his first $10 in the city selling a pint of blood; he used it to pay for a meal, fill up his car and return to Rochester. It would be another four years before he returned to New York, during which time he got his MBA from UVa and worked for sewing machine manufacturer Singer in Australia and Japan. He came back to New York in 1966 to work for consulting firm Peat Marwick.
After work he would spend many nights wandering around its rough edges. “I just wanted to be a real estate developer,” he says. “I was attracted to the ability to build stuff, to collect rent, to own it.” But he never had enough cash, and the banks had no interest in lending to a broke consultant without a property background.
He eventually befriended Jeff Byers, a third-generation member of the WR Grace family, one of the richest in Manhattan. Handsome and fashionable, Byers knew plenty of people with deep pockets, though apparently didn’t have much money of his own. The duo formed Two Trees, named for Byers’s grandmother’s farm, and raised $40,000, much of it from Byers’s friends and family, to invest in their first rent-controlled building on the edge of Harlem in 1967. Byers managed investors, while Walentas was the operations guy, fixing leaks and collecting rent cheques. Over the next decade the partners bought up buildings in the Bronx, Queens and even Atlanta and Baltimore.
At some point Byers told Walentas he wanted to take some money out of Two Trees. Walentas refused. Then in 1977 Byers committed suicide, citing “business problems” in his goodbye note. Walentas maintains that he has no regrets—the suicide, he says, stemmed from Byers’s excessive lifestyle and personal debts. But many close to Byers reportedly blamed Walentas for the death. After he paid Byers’s family $1.8 million for his stake in Two Trees, Walentas found himself cash-depleted, cut off from the wealthy investors whom Byers had courted and were now hostile toward him.
In his early landlord days Walentas implemented a somewhat lecherous policy: He required his agents to make all potential young women renters personally interview with him. It paid a dividend, though: His second wife, Jane, who in turn started Walentas on his billion-dollar path. Jane was an art director at Clinique, the division of Estée Lauder run by Ronald Lauder, the younger son of the cosmetics company founder. Both in their mid-20s, Jane and Ronald became friends. A year after his partner’s death, Walentas got Ronald and his brother, Leonard, to invest $2 million in the Silk Building in Greenwich Village in 1978, his biggest deal to date.
A short time later, while dining nearby, Walentas stumbled onto Dumbo, then still known as Fulton Landing. The area had fallen into disrepair, with dilapidated buildings, an abandoned waterfront and plenty of illegal squatters. But Walentas saw its potential as an outpost for Wall Street firms, which were expanding quickly and threatening to move to New Jersey.
Within a year Walentas had arranged to buy 2 million square feet of old industrial buildings from the legendary Harry Helmsley. The agreed-upon price, $6 a square foot, including $6 million in debt, was a bargain, since space in the buildings was collecting annual rent of $2 a square foot. Yet, no bank would lend to him. So he turned again to the Bank of the Lauder Brothers, who lent him $6 million. “Ronald and I were of the mind that you backed people, not institutions,” Leonard, who is worth $7.9 billion, recalls. “David was good people.”
The banks, it seemed at first, were right to have been concerned. Dumbo, and Walentas’s $40 million gentrification plan for it, turned into a soap opera. The administration of then mayor Ed Koch refused to rezone the neighbourhood, blocked largely, it appeared, on the say-so of deputy mayor Kenneth Lipper—a friend of Walentas’s deceased partner and a previous Two Trees investor. Walentas still maintains—as New York magazine did then—that Lipper blocked the Dumbo project because he was among those who blamed Walentas for Byers’s suicide. Lipper countered that Walentas was simply unfit for the job. Lipper declined to comment for this story.
The city’s manoeuvering threatened Walentas’s entire investment. So Walentas turned to the new governor, Mario Cuomo, who had visited the area and promised to protect its manufacturing jobs. As Walentas tells it, Cuomo’s office threw him a lifeline: They told him to publicly threaten to not renew the leases of his industrial tenants, who accounted for 1,700 neighbourhood manufacturing jobs. Walentas did, and a deal was quickly cut. He would allow all interested tenants to renew their leases, and the state would move the offices of the Department of Labor and its 1,000 jobs from the World Trade Center to a building in Dumbo. The deal provided precious cash for Walentas, and the rent was more than 50 percent cheaper, saving New York State taxpayers money. But Dumbo was still not rezoned for residential use until 1997, when Rudy Giuliani was mayor.
Image: David Yellen for Forbes
In the shadow of the Manhattan Bridge, Dumbo’s hip tech set wanders its cobblestone streets
By then the Lauders had sold their stakes to third parties in the late 1980s. “It got to a point where being a real estate investor in New York was something that we didn’t fully understand,” Leonard says, who declines to say how much they made in Dumbo. “Our profile was getting large enough. We don’t want to invest in anything that could have a potential public relations risk for us.” And as Dumbo matured, Walentas was able to buy out his new partners beginning in the mid-1990s. He no longer needed money from outside investors. He converted buildings one at a time, often selling a finished project to finance the next. Slowly a neighbourhood emerged. He redeveloped and sold off 700,000 square feet of the initial parcel, while buying up another 1 million that he didn’t own already.
Walentas is a victim of his own success. He scoffs at a Starbucks that anchors a building near Two Trees’s offices, brought in by a new developer. “I’d never put a Starbucks in here,” he says, even though the storefront is almost always full. And he doesn’t buy in Dumbo anymore, though he still lives there—he has priced himself out. In October, Ivanka Trump’s husband, Jared Kushner, paid $375 million to the Jehovah’s Witnesses for 1.2 million square feet of six buildings in need of renovation—roughly 50 times what Walentas initially paid in the area. “When we look at this asset, we look at it historically and how far it’s come,” Walentas says. “When Jared Kushner comes and looks at this asset, he’s comparing this in asset value to other things he’s looking at around town. And you get very different results.”
“I think it is more rational for us to ask the question: Is there a ceiling and can this go on forever?” adds Walentas’s son Jed, 39, who joined his father at Two Trees in 1997 and now serves as CEO. “We’re very cautious about not believing too much of our own bulls--t.”
That realisation has led them elsewhere, including Manhattan. Jed recently oversaw the $600 million development of the Enrique Norten-designed Mercedes House, 1.2 million square feet of tiered, glassy luxury in Manhattan’s Hell’s Kitchen. It was fully leased in a little more than a year on the market.
But it is back on six blocks of the Brooklyn waterfront where they are betting their future, this time in Williamsburg. After a drawn-out fight between its previous owners, Two Trees bought the Domino Sugar refinery and its surrounding 11 acres in October 2012 for $185 million, $30 million more than its initial bid. “They know how to work on the waterfront, which is very difficult. They know how to do affordable housing, office space, ground-up construction, historic rehab, which is all part of this project,” says Chris Havens, a former Two Trees employee who is now a commercial broker. “They also know how to do the politics, how to do the give-back.”
That latter point will be tested. Walentas père et fils spent a year refining and tweaking their designs for the new development, incorporating feedback from the community, departing from the previous owners’ plan for five clusters of shorter towers to four taller, roughly 50-storey skyscrapers, a public waterfront park and a new public square. The towers will have 2,200 apartments, including 660 earmarked for affordable housing, and come in Tetris shapes, one in the form of an ‘O’, another in an inverted ‘L’, designed to allow more evening sunlight to the neighbourhood behind. The quirky Walentas touch remains: The original Domino Sugar refinery will be kept intact, including its iconic sign, and converted into office space. Total cost: $1.5 billion.
The local community board and Brooklyn’s borough president voiced support for the plan prior to the end of Michael Bloomberg’s tenure as mayor in December. (“I wanted Bloomberg for life,” says Walentas.) But now he’s facing Bill de Blasio, who is avowedly hostile to the wealthy, and a more liberal city council—a tough combination. “Hopefully we’ll survive our new mayor,” he says. “It’s just a question of what works and what doesn’t. [De Blasio] has never run anything. Running New York City is a business. He can’t put political cronies in. But maybe he’s smart enough not to do that.”
Unlike those early days in Dumbo, Walentas has a plan B: The original plan with five clusters was previously approved. “We’re not just going to sit there and do nothing,” says Jed. And also unlike with Dumbo, Walentas doesn’t need outside investors. With his cash and asset pile, he can self-finance to a large degree, carving yet another neighbourhood onto the Brooklyn waterfront over the next decade, building by building, detail by detail.
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(This story appears in the 07 March, 2014 issue of Forbes India. To visit our Archives, click here.)