Irreplaceable focus

The co-founder of Dune Real Estate Partners and the man behind Goldman Sachs’ Whitehall funds has stuck to several core beliefs throughout his career: never follow the pack, know when you want to have made your money and ensure your assets are unique.

Daniel Neidich has earned a few nicknames in the course of more than three decades as a real estate professional, chief among them equity god, the godfather of real estate and Goldman Sachs’ Rottweiler. Despite the monikers though, little is publicly known about the character of the co-founder of Dune Real Estate Partners and founding partner of Goldman Sachs’ Whitehall funds. He rarely conducts media interviews and when reports of his business activities emerge in the press, the same three aged labels are repeated time and again.


In meeting him for the first time therefore I can safely admit that I was apprehensive, if not downright nervous. I shouldn’t have been. It’s clear early on in our meeting that the disparate descriptions forced on Neidich fail on many levels. The real estate veteran sitting before me isn’t someone keen to be placed on any industry-pedestal as an all-powerful, larger-than-life figure, let alone branded an aggressive force.

Neidich is focused throughout our conversation, and I get a sense of the determination that drives him. But he is also gregarious, easy-going and a man who prides himself on his collegial-style of leadership. Neidich says he wouldn’t have spent 19 years as partner at Goldman Sachs and being appointed to the firm’s management committee, if his style had been confrontational.

You are supposed to sell the product, not love it.

It is fair to say that Neidich is a private man. The famous Rockefeller Center deal of 1995, which saw Whitehall go head-to-head with Equity Group Investment’s Sam Zell, was one of the most public business investments of Neidich’s career. But it’s not how he likes to conduct his activities.

“I try to make an effort to do business with people with the same sensibilities as me,” he says. “When I was at Goldman, and still today, we recognised that certain partners were much more comfortable with a more public profile. Interestingly, Rockefeller Center was such an iconic asset that it was impossible to keep the right for control out of the press.”

As we sit in Dune’s conference room overlooking Rockefeller Center, I again try to get a sense of Neidich’s character. What I am struck by is that he is someone who has stuck to his core beliefs throughout his career, not least when it comes to his investment thesis.

Testing times

Since launching Whitehall in 1991, Neidich says he has focused on three central principles: target assets where there is a dearth of capital, make sure the asset is irreplaceable and have a timeframe within which you want to have made your money.

“When I was a banker I would look at the institutions and people buying real estate and it seemed to me they were always buying and saying ‘Someday I’ll make money’. But they couldn’t tell you how they were going to make money,” he says. Reasons of diversification were regularly proffered by investors, but for Neidich there was no overriding question of when they expected to make their money. “People didn’t really know. It was almost a feeling of ‘If I buy good assets some day it will work out’. At Whitehall, we challenged ourselves and said if we can’t figure out a way to make money in five years then we didn’t know how we were going to get there and we shouldn’t be investing.”

When I was a banker I would look at the institutions and people buying real estate and it seemed to me they were always buying and saying ‘Someday I’ll make money’. But they couldn’t tell you how they were going to make money.

This five-year standard has stood the test of time throughout Neidich’s 13 years as head of Goldman Sachs’ Real Estate Principal Investment Area and six years as chairman and chief executive officer of Dune Real Estate Partners.

In founding Dune in 2004 with Steven Mnuchin and Chip Seelig, Neidich says he refused to be the buyer who merely “jumped the highest”. Raising $727 million for DREP I in 2006, the firm faced a heated property market where ever-greater bids were the primary means of closing deals. “We tried to go after things that we thought were unique and if you look at each of our investments there is something about them that’s very difficult to ever replicate,” Neidich says.

Invested in 10 deals including New York City’s boutique hotel, the Standard Hotel, designer outlet centres developed by McArthurGlen Europe and the New Jersey retail and entertainment complex, Meadowlands Xanadu, DREP I is a unique fund. Some deals seem to have worked exceptionally well – such as the Standard – while for some others, Neidich openly accepts, “the jury is still out”.

“There are situations where if you get the investment strategy right, notwithstanding what’s going on in the macro market, you have some protection,” says Neidich, referring to the Standard deal, in which DREP I invested $45.5 million for a 50 percent stake. “But it’s got to be very unique, very irreplaceable assets.”

The new standard

It’s hard to call the Standard, in Manhattan’s Meatpacking District, anything but unique and irreplaceable. Straddling the High Line, a former freight railroad-turned public park, the hotel has undeniably helped transform the small Manhattan village into one of the trendiest places to live and socialise. Created by Andre Balazs, the 18-storey, 337-room hotel strikes an uncompromising note with its book-shaped, cement and glass design. It has been both praised and criticised for its striking architecture and was even billed by one real estate magazine as a perpetual lap dancer to the High Line. There really is little, if anything, else like it in New York City.

Hotel, NYC

In underwriting such a unique deal though, Neidich notes that Dune had to do extra homework. “It wasn’t like you could look at 15 other hotels that had been built and say this is what it’s going to turn out to be. In many ways this was a creation of Andre, it was his vision.” After first investing in the deal in 2005, the hotel opened in January 2009 following two years of construction, including some delays as a result of permit issues, as well as opening in the midst of a financial crisis.

“Whenever you are creating something new and complicated, you run into issues like these,” Neidich adds. “You don’t really know what all the risks are going to be at the start and you have to deal with them as you go along. What was important was that I had known Andre for some period of time and I knew he was the most talented boutique hotelier in the country.” Such faith has turned the Standard into a key asset in DREP I. “The Standard is probably one of the five great hotels in North America today,” adds Neidich. That is, irreplaceable.

Radar screen

As Neidich notes though, some DREP I deals have proved less successful to date. One is the New Jersey retail and entertainment complex, Meadowlands Xanadu. In 2006, Colony Capital led a $1.5 billion recapitalisation of the project when the original partner, the Mills Corporation, sold its stake following a series of financial difficulties. Investing alongside Colony and other partners, Dune’s strategy was to develop a retail complex that could be led by entertainment activities. With an initial target completion date for the approximately 100-acre complex of late 2008, the project included plans for a 780-foot indoor ski slope, a 60,000-square-foot playroom for children, the largest Ferris wheel in North America and more than 500,000-square-feet of retail space.

Our investment strategy is to make pretty big investments for the size of our fund, so that means each investment is really important to us and we agonise over it and spend a lot of time focusing on it.

The project though has faced a raft of problems. A report from the transition team of former New Jersey Governor Chris Christie at the start of January this year, said the project “appears to be a failed business model” and an “abandoned project”, calling on the state – and the new governor – to “engage the owners to open or surrender the property”. 

“Obviously the jury is still out on Xanadu,” Neidich says. “Our investment strategy is to make pretty big investments for the size of our fund, so that means each investment is really important to us and we agonise over it and spend a lot of time focusing on it.”

Few could have predicted the collapse of the banking world when underwriting such a deal. With a $1 billion construction loan partially financed by Lehman Brothers, the project has suffered from financing issues. “When I sat there and thought about these things and said what could go wrong, this was not even on my radar screen,” Neidich says.

Obviously the jury is still out on Xanadu.

However Dune’s strategy – that entertainment can drive retail and retail sales – was correct, Neidich says. “We got that right, and we had a lot of momentum before the world stopped. The bet we were making, we made the right bet. But that doesn’t change the fact that you have a problem.”

Xanadu is in the final stages of development, with Colony and Dune now reportedly in talks with developer The Related Companies about the firm becoming a financial partner in the project. Neidich declines to comment on specifics, but says the firm is focused on actively managing existing investments, such as Xanadu.

A unique future

Having raised just shy of $800 million for DREP II, Dune Real Estate is now also looking to take advantage of the “extraordinary” events of the past 18 months. Neidich says the firm will continue its strategy of targeting unique and irreplaceable assets, closing a “smarter number of larger deals”. Neidich says he and partner Gregory Rush split their time between managing existing investments as well as new acquisitions, while fellow partners Cia Buckley and David Oliner concentrate on new acquisitions for Dune’s second real estate fund, DREP II.

For Neidich, Dune is returning to the capital market roots that led to the launch of Goldman Sachs’ Whitehall. DREP II, which is roughly 10 percent invested, has acquired, among other assets, a portfolio of two industrial properties in Buena Park and Commerce, California with San Diego-based developer Westcore Properties for $47.1 million last July.

It also recently bought a piece of debt on an apartment portfolio in New York, Neidich says. “There should be a lot of depth to the capital markets when we come to sell these assets, which should not only give us liquidity but also the upside everyone is looking for. In this environment and with this fund, we want to take advantage of the dislocation in the capital markets.”

Although the firm will be concentrating on debt and distress, including opportunities for recapitalisations, Neidich stresses Dune’s focus on unique, irreplaceable assets. “There are investors who think that at a cheap enough price, you can make money in anything,” he explains. “We are probably not in that camp. There is a lot of cheap stuff out there at the moment, and those people may be right … it’s just not what Dune does.”

The flow of capital

Asked what he currently finds attractive, Neidich proves once again he isn’t merely a momentum investor. “There’s so much stress out there and so many things that are broken,” he says, adding that hospitality assets and hospitality-related debt – including the largely-avoided sector of resort hotels – could offer potential opportunities.

“We are looking at a lot of those. Whether we can get comfortable with predicting how the properties are going to behave is a different issue. But having said that there’s so much that’s overleveraged and there’s so much in the structured product world, we think we are going to have a pretty good shot at it.”

There’s so much stress out there and so many things that are broken,” he says, adding that hospitality assets and hospitality-related debt – including the largely-avoided sector of resort hotels – could offer potential opportunities.

Neidich argues it’s all about focusing on the capital flows. “I think a lot of our skill is understanding those assets that we think have the biggest rebound possibility when the market comes back. It’s about the dynamic of capital flows, because ultimately the more capital that is chasing something the greater the opportunity you have for upside. Ideally we like to buy things that have very little capital chasing them and rework them by fixing the capital structure, thereby positioning the asset to be attractive to a wide range of investors. In real estate, liquidity and value are highly intertwined.”

What is interesting in talking to Neidich about the prospects for future opportunities in the US and Western Europe – where Dune operates – is his optimism that good opportunities will present themselves.

Not overly swayed by the “extend and pretend” camp of professionals who fear a revival in property markets will be delayed owing to banks’ refusal to fully address their legacy loans, Neidich says: “I’m much more optimistic that there will be a lot more of an opportunity than probably a number of people who have argued the banks will keep extending. We are already seeing the opportunities. Assets need capital yes, and trading is limited at present. But I am optimistic for the future.”

And the five-year test? “The question is always whether you can you come up with a business plan so that in five years you can make a decent amount of money,” he adds. “You are supposed to sell the product, not love it.”  



Top of the Rock
The takeover of the Rockefeller Center in 1995, which saw Daniel Neidich and Sam Zell come head-to-head was one of the most public fights for an iconic piece of New York real estate

As the founder and head of Goldman Sachs’ Whitehall Street Real Estate funds, Daniel Neidich was the largest creditor in the Rockefeller Center Properties REIT, the trust that in 1995 was about to take over the famous Art Deco complex after its previous owner walked away from the deal and allowed the complex to tumble into bankruptcy.


As the REIT weighed take-over offers, two bids emerged as frontrunners: a partnership that teamed Whitehall with Jerry Speyer’s Tishman Speyer Properties and the Crown family of Chicago, and a rival offer from a consortium of investors led by Sam Zell and including General Electric and Walt Disney.

It was a battle of true heavyweights. “We ended up being on the other side of the table from Sam Zell and, not surprisingly, he played pretty hard,” Neidich says. Whitehall’s original $225 million loan to the Rockefeller REIT gave the Goldman Sachs fund a compelling hand – the right to buy a 19.9 percent stake in the trust, which could not be diluted. As a fiduciary to Whitehall investors, Neidich stood his ground. “We had to stand up to it. People expected us to back off to protect the wider image of Goldman Sachs, the bank, but we had all these investors in our fund and we had to protect them.”

The battle proved to be an exceptionally public one, but as Neidich notes: “We always tried to be reasonable, straight forward and fair. We are partners and fiduciaries and certain decisions that people thought we were being very tough about, well, they weren’t easy.” In the end Whitehall, Tishman and Crown succeeded in buying Rockefeller, paying $306 million for the mortgage and assuming $845 million in debt and other obligations. In 2000, Speyer and the Crown family bought out Whitehall paying $1.85 billion and assuming control of the 12-building, six- million-square-foot Rockefeller Center complex.


Daniel Neidich

2004: Founder, chairman and chief executive officer of Dune Real Estate Partners
1991 – 2003: Head of Goldman Sachs’ Real Estate Principal Investment Area, and the Whitehall Street Real Estate funds series
1998: Joined Goldman Sachs’ management committee
1978 – 1991: Goldman Sachs’ real estate investment banking, becoming head of the department. Promoted to partner in 1984
1976 – 1978: Worked with father as commercial leasing broker in Westchester, NY
1974: Citigroup real estate banking department

Dune Real Estate Partners

Headquarters: New York
Founded: Dune Capital Management in 2004 with Steven Mnuchin and Chip Seelig
Focus: Opportunistic strategy targeting the US and Western Europe
Funds: Dune Real Estate Fund I, final close 2006 on $727.1m
Dune Real Estate Fund II, final close 2009 on $793.9m
Investments: 12