Saudis Secretly Bought Stake in Marina Leases : Real estate: County supervisors approved the multimillion-dollar deal involving public land.
Saudi Arabian businessmen and arms brokers with close ties to the royal family head a group of Middle Eastern investors who secretly acquired a major stake in leases on public land in Marina del Rey, The Times has learned.
The billionaire Al-Ibrahim brothers--Abdul Aziz and Khalid, brothers-in-law of King Fahd--concealed their interest in the multimillion-dollar marina deal behind a Century City front company and an elaborate network of corporate shells in California, the Caribbean and Europe, according to sources and documents obtained by The Times.
An American adviser to the Ibrahims subsequently confirmed details of their hidden interest in the transaction, which was approved last August by the Los Angeles County Board of Supervisors despite the investors’ refusal to disclose their identities.
At the time, supervisors ignored the advice of private and public counsel to obtain the identities of new leaseholders and instead accepted assurances from the investors’ attorneys and accountants that their clients were not involved in criminal activities. The county’s acquiescence in the secrecy was also criticized on grounds that the public has a right to know the identities of those who operate and profit from the use of public property.
The deal gave the Ibrahim group 49.9% ownership of the marina’s three existing hotels, a planned luxury hotel, two apartment complexes, office buildings, shops, restaurants and more than 1,000 boat slips. It could involve an ultimate investment of $300 million.
A two-month Times investigation has found that the secrecy-shrouded marina deal is the latest addition by the Ibrahims and their partners to an expanding U.S. real estate portfolio that could exceed $1 billion. Already their hidden interests include properties from Florida to the Midwest to California.
Secrecy is common to all of their transactions, but the Marina del Rey deal is the only known U.S. investment by the Ibrahim group in publicly owned land.
San Francisco attorney Khalid Al-Mansour, the adviser speaking on behalf of the Ibrahims, described the investors as “old Middle East money” from such countries as Saudi Arabia, Kuwait and Qatar. He would not identify them further except to say that they are not heads of state or their families.
But Marina del Rey developer Abraham M. Lurie, who sold half of his interest in long-term marina leases to the Middle East group, was told in an August, 1988, letter proposing terms of the deal that the investor was “a member of the Saudi Arabia royal family” who insisted upon anonymity. The Times reviewed a copy of that letter, which was prepared by an intermediary.
A source close to the Ibrahims confirmed published accounts that the brothers manage the financial affairs of King Fahd’s youngest son, Prince Abdul Aziz Al-Fahd, who is also their nephew. Mansour denied that the prince is involved in the marina deal, and The Times could not independently determine whether any portion of the marina investment was made on behalf of the young prince.
Sources said virtually everyone involved in the marina deal was first required to sign a confidentiality agreement with the Saudis.
Suit Over Brokers Fee
One businessman, investment banker Jack Eskenazi of Encino--who signed a secrecy agreement but now has filed suit saying he and his partners were deprived of a $3.2-million brokers fee--said it was always understood that ownership was “a straight line to the Ibrahims.” No negotiating decisions were made without consulting them, he said.
Another source said Abdul Aziz Al-Ibrahim, the elder of the brothers, negotiated final terms of the transaction by phone from his yacht in the Mediterranean.
In recent years the Ibrahims have emerged as prominent financiers in the Middle East, using their access to the royal family. Their sister, Moona, is a wife of the king and the mother of Fahd’s 17-year-old son. The brothers gained international attention when they appeared on Fortune magazine’s first list of billionaires published two years ago.
The Ibrahims have also become chief agents for the kingdom in brokering multibillion-dollar aircraft and weapons acquisitions from their offices in London, Paris, Geneva and Riyadh, according to published accounts in Europe.
More recently, they launched an aggressive real estate investment campaign across the United States, telling one American business associate that they are “in an acquisition mode” and are willing to invest more than $1 billion here.
The Times has confirmed that since late 1983 the Ibrahims and their investment group have also acquired mostly vacant land near Disney World in Florida, a complex of office towers near Chicago’s O'Hare International Airport, a hotel next to the Mayo Clinic in Rochester, Minn., and interest in various other U.S. property, including some of the Ritz Carlton hotels.
The Ibrahims insisted on secrecy in all their investments, in part, associates said, to avoid stirring up anti-foreign investment sentiment. But it backfired in the Los Angeles marina deal--involving a sale of public assets--when the secrecy itself generated controversy.
“We do not seek publicity,” Mansour, the Ibrahims’ attorney, said. “We are not in any kind of beauty contest.” He attributed their penchant for secrecy to a combination of economic and cultural factors.
“Our experience has been in acquiring real estate whenever . . . sellers hear that there are Arabs involved, the prices usually double,” he said. Mansour also said that Saudis do not believe in flaunting their wealth by telling people what they own.
But one former business associate of the Ibrahims said secrecy in the marina deal was also rooted in concern about Islamic fundamentalism. He said he was advised by agents of the Ibrahims that they “felt it would not look good to their fellow Middle Easterners to know they were doing a transaction with a Jew.” Lurie is Jewish.
The story behind the transaction, pieced together from public and private documents and from scores of interviews with participants, provides an uncommon glimpse into the discreet and secretive world of international financiers.
Saudi financial interest in Marina del Rey can be traced to a telephone call by an investment broker in Chicago to another broker in New York in June, 1988. Brad Evans, the Chicago broker representing an attorney there with mysterious clients, asked Charles Cecil in the Manhattan offices of Asian Oceanic Group if that firm knew of “any big L.A. property for sale.”
It happened that Cecil had been approached four months earlier by a Southern California broker inquiring about major investment clients who might be able to bail out Lurie’s troubled marina empire.
Lurie’s financial troubles had begun in 1986 after he built his luxury Marina Beach Hotel, the marina’s third hotel. It was an instant loser in a hotel market plagued by overcapacity and marketing problems. Lurie was “hemorrhaging cash,” as one business rival put it, from the day the doors opened.
By the fall of 1987, Lurie’s condition was deteriorating. Without a cash infusion, he would face default on bank loans and tax delinquencies. Lurie plunged into the investment market looking for participating loans and, eventually, equity partners.
For all of Lurie’s problems, brokers regarded the marina as a substantial investment opportunity for “patient money,” investors who do not need a quick rate of return. Cecil explained: “It’s waterfront property in a temperate zone within 15 minutes of an international airport and surrounded by high-cost residential development. It’s a good bet.”
Intrigued by Deal
A marina deal had intrigued Cecil from the beginning, not only for its long-term investment potential but for sentimental reasons. He had honeymooned at Marina del Rey.
He learned about the marina’s availability in February, 1988, from Gary Aminoff of Beverly Hills, one of the “about 75 brokers” Lurie said he contacted for help. Cecil’s initial efforts to interest two of his firm’s Japanese clients, however, were unsuccessful.
“They didn’t understand leasehold investments,” Cecil said.
The marina, including all commercial and residential land, is owned by Los Angeles County. It is developed and operated by a number of leaseholders, the largest of whom is Lurie. What was for sale, essentially, was a share of Lurie’s interest in those long-term leases on about 63 choice acres.
Cecil conceded that the Japanese were not the only reluctant investors. “I couldn’t sell that kind of investment to anyone in the U.S., that’s for sure,” he said, because return on the investment figured to be too far in the future.
By June, Cecil and his firm had reached what he called “nowhere time.” Unable to generate interest from its major foreign clients, Asian Oceanic decided not to pursue the marina deal further. Then came the phone call from Chicago.
Instantly, there was a new player in the marina bidding, Chicago attorney Cornelius J. Sullivan of McDermott, Will & Emery. Evans would introduce him to Cecil.
“Who’s the lawyer shopping for?” Cecil asked.
The broker said he did not know, but he vouched for Sullivan. If Sullivan says he has clients with money to make such a deal, then it must be true, Evans said.
Lurie was not so trusting. Potential investors commonly keep their identities secret in the early stages of negotiations, but Lurie could not afford “another wild goose chase.”
Already, other proposals had come and gone with little to show but wasted time. And time was running out. Lurie needed assurances that prospective investment partners were substantial enough to move quickly if the numbers made sense.
Everybody claims to have a pipeline to money, Lurie complained. He demanded references for Sullivan’s unnamed investor clients.
A few months earlier, he was told, Sullivan’s clients had completed a $100-million deal in 30 days with Prudential Insurance Co. of America, buying a half-interest in the Woodfield Corporate Center, a hotel and office complex near Chicago’s O'Hare International Airport.
Lurie personally telephoned Prudential to verify if Sullivan’s group was “for real.” He said later: “I wouldn’t even talk to them until I checked that out.”
Satisfied by Prudential’s verification, Lurie agreed to meet with Sullivan, still unaware, he said, of whom the attorney represented.
‘All Psyched Up’
Sullivan toured the marina in late July and, as Cecil recalled, “got all psyched up.” Within a week Lurie received a written proposal offering a mortgage loan of $175 million, payable in 10 years or convertible into a share of Lurie’s holdings.
The August, 1988, loan offer resulted in months of negotiations. It also gave Lurie his first clue to the identities of the prospective investors. They were, said the proposal, in “the Saudi royal family” and insistent upon secrecy.
It also said that “the royal family has invested, secretly, billions of dollars throughout the world on a similar basis. The condition precedent to their further involvement in this transaction is that the negotiations and the ownership of these transactions remain anonymous.”
Then, foreshadowing creation of the elaborate network of shell corporations, the proposal added: “The entity that will own the property will wind up being a buffer to the real ownership.”
That “buffer” turned out to be Newfield Enterprises International, a Century City investment consulting firm created for the Ibrahims in late 1984 and operated by another pair of Saudi brothers--Saleh and Abdul Aziz Al-Yahya.
The Yahya brothers are described by associates as cousins of the Ibrahims. A Saudi Embassy official called them “obscure princes.” Mansour, the Ibrahim attorney, said they act as investment consultants for the Ibrahim group’s U.S. acquisitions.
By the fall of 1988, the Yahyas and Sullivan had become the central figures in negotiations with Lurie. The original brokers and advisers--Cecil, Evans, Asian Oceanic, Aminoff and his partner Eskenazi and others involved in bringing Lurie together with the investors--had moved to the sidelines.
But Lurie’s hopes for a quick deal proved elusive. Through their negotiators, the investors proceeded cautiously. They hired outside financial consultants to analyze the deal. The $175-million offer was reduced to $160 million after they concluded that Lurie’s profit projections were too high.
Finally, as fall gave way to winter, a December closing date was tentatively set.
Lurie said he still did not know the names of his future financial partners. And, he insisted, he did not ask.
“I am not a curious person that way,” he told The Times.
Abdul Aziz Al-Ibrahim saw Marina del Rey in the rain. It was December, 1988, and before the deal could close he came to get a first-hand look at his investment. And at Lurie.
Ibrahim arrived in what was described as “an entourage of Rolls-Royces.” The marina tour was aboard one of Lurie’s hotel buses. And, before he left, Ibrahim dined with Lurie.
One source called it “a messy, quick dinner. They had something of a culture clash,” he said, with Ibrahim surprising Lurie by abruptly leaving before coffee and dessert. “There was no problem. Ibrahim just decided it was time to go.”
Mansour said the Ibrahim-Lurie meeting was part of the investors’ investigative effort.
“We have tried as best as we could to select partners that were respected in the community. We . . . spent a long time investigating people to make sure that (the Ibrahims) were comfortable with the integrity of their partners,” Mansour said.
Not only were the Ibrahims investigating the marina investment for themselves, but they were acting on behalf of about 30 other Middle East partners who, according to Mansour, combine their resources in what he called “The Fund.”
It was The Fund that intended to lend Lurie $160 million through Banque Indosuez, a bank in which U.S. and European sources said the Ibrahims and the Saudi royal family have financial interests.
According to Mansour, here’s how The Fund operates:
The Ibrahim brothers manage The Fund as general partners and “in every case . . . put in some of their own money” as well. Their fellow investors are limited partners who have the option to participate or not--and for anything from less than 5% to more than 90%--in the various investment opportunities brought before the executive committee by the Ibrahims.
It is the Ibrahims’ “responsibility to find potential investments, to research them and bring them to the point where they are mature enough to be presented to the partners,” Mansour said.
“It is not a permanent fund, as such. It is not like a mutual fund. It is not like a real estate investment trust where you set up a prescribed amount of capital. It is more like a huge shopping center” in which the investors can buy as much or as little interest in any given project as they wish, the Ibrahim attorney said.
The Fund was organized, he said, in the early 1980s, investing first in the Middle East, then expanding into Europe and Asia. Its goal was long-term investments.
“We were not going to get into a project and expect to sell it in a year or two,” Mansour said. “Our clients are wealthy. They are looking for things they can keep and watch grow, that they can use as legacies for their children and grandchildren.”
Real estate was the group’s primary interest from the beginning. Many participants in The Fund also let the Ibrahims know they wanted “a conduit to invest in the States.”
Attended U.S. College
The Ibrahim brothers, sons of a former governor of the tiny Saudi province of Al Baha, had both attended college in the Pacific Northwest. In part because of the Ibrahims’ familiarity with the United States, Mansour said, the investors “felt comfortable” with their providing that conduit.
The Fund first turned to the U.S. real estate market in late 1983, acquiring a failing resort development called Little England near Orlando, Fla. Since then, investors have done nothing with that property but watch the land appreciate in value, “which is making everyone happy.” Mansour said there are no immediate plans to resume development.
In 1984, Mansour helped establish Newfield Enterprises at the behest of the Ibrahims. Abdul Aziz Al-Yahya--the youngest of the Yahya brothers who had persuaded the Ibrahims to let him perform investment consulting services--was named president. He opened for business in a corner suite of offices 29 floors above Century Park East, operating for a time as 1st National Westminster Group.
According to published accounts, 1984 was a significant year for the Ibrahims. Fortune magazine and the Financial Times of London reported that the Ibrahims acted as middlemen that summer in a $1-billion oil-for-jetliners barter deal between Boeing Aircraft Co. and Saudia, the Saudi national airline.
The next year, according to the London Observer, the Ibrahims helped sell an initial order of British warplanes--Tornado fighter bombers and Hawk training jets--to the Saudi government in a deal that U.S. authorities estimate could eventually exceed $30 billion. Like the Boeing deal, the British transaction involved an oil-for-aircraft trade.
Author Jeffrey Robinson in his recently released book “Yamani, The Inside Story,” about former Saudi Oil Minister Sheik Ahmed Zaki Yamani’s fall from power, said Yamani tried to block the oil barter deals because they would contribute to a market glut and depress world oil prices. He lost out, however, because the Ibrahims had “a very special silent partner . . . Fahd’s (and their sister’s) teen-aged son, Prince Abdul Aziz,” Robinson wrote.
Proceeds from the deals thrust the brothers into the ranks of the world’s billionaires. The Observer reported that the Ibrahims have channeled their arms and aircraft profits into real estate investments while also generating some jealousy within the Saudi royal family because of their unique access to King Fahd through the young prince.
“No one likes the uncles. God help them when the king dies,” the paper quoted an unnamed Saudi source.
Mansour, who responded on behalf of the Ibrahims to a Times request to interview the brothers, said the Ibrahims have denied any involvement in the Boeing or British aircraft deals.
The Ibrahims’ close relationship to the royal family was further illustrated when, soon after the 1984 barter deal with Boeing, the king asked them to monitor his pet project: conversion of one of those new jetliners into “a flying palace.”
The king’s $75-million customized outfitting of a 747, done in San Antonio, included installation of gold fixtures, crystal chandeliers and an emergency surgery center linked by satellite to ground-based medical facilities. The Ibrahims shepherded the project.
“Someone had to do it,” Mansour said, explaining that the Ibrahims were familiar with King Fahd’s tastes.
At the time, the Ibrahims were also becoming increasingly familiar with what Mansour called the “kind of tricky” U.S. real estate market. Meanwhile, their investment group was steadily expanding its portfolio in the Middle East, Europe and Asia.
“We really weren’t structured to tackle all these markets at once,” the attorney said.
In 1988, however, they tackled the U.S. market aggressively, starting the year with the $100-million investment in suburban Chicago and later investing in some of the Ritz Carlton Hotel properties of Washington developer Mohamed A. Hadid.
In one investment decision, however, Abdul Aziz Al-Ibrahim did not wait for the customary report from consultants and financial analysts.
On a summer 1988 trip to the Mayo Clinic in Rochester, Minn., the elder Ibrahim determined that visitor housing around the medical center was inadequate to meet the demands of the royal family. While preparing for minor nasal surgery, he decided to buy his own hotel.
Not only is the Mayo Clinic a favorite treatment center for the royal family, but Saudi Arabia provides hundreds of the clinic’s patients. In fact, only Canada, Mexico and Greece send more of their citizens to the sprawling complex each year, according to the medical center.
The century-old Heritage House Hotel across the street from the clinic was purchased for $1.1 million cash by what was described in local newspaper accounts as an unnamed “Saudi Arabian prince” who planned eventually to demolish the dilapidated structure and build housing for the royal family.
That relatively small deal was only days from closing when Ibrahim had dinner with Lurie in Los Angeles.
Lurie, who now says he cannot remember who dined with him that night, told associates the next day that he was impressed with Ibrahim’s business skills. However, he would become increasingly wary in the weeks ahead as delays raised doubts.
“I got the feeling that maybe they didn’t have the money,” Lurie said.
The deal did not close in December as planned. A second closing date in January also passed. Lurie pressed Los Angeles County officials to speed up processing their inquiry into Banque Indosuez, the only publicly disclosed investor named. County officials did not seek names of the actual financiers.
Lurie, meanwhile, scrambled to find alternate investors as his financial fortunes steadily sank deeper into trouble.
A key obstacle was concern about taxes. The foreign investors did not want to be liable for U.S. withholding taxes on any profits from future sales of marina assets. There was concern also that the way the deal was structured it might activate reassessment of Lurie’s county property taxes, radically altering the profit projections.
Finally, in March, the convertible loan deal collapsed. The specter of bankruptcy loomed over Lurie, who insists he was too busy working on other deals to think about it much. Bank default notices began arriving in the mail.
“It was pretty hairy,” Lurie conceded.
Lurie’s salvation came in another phone call from Chicago. Attorney Sullivan had a new proposal: an equity partnership deal. About two weeks after the loan deal fell apart, negotiations resumed. This time, there were few delays.
The Ibrahim group, which had already invested more than $1 million in accountants, lawyers and consultants, agreed to invest $21.8 million for a 49.9% stake in all of Lurie’s marina properties. To bail out Lurie from his worsening financial crisis, $5.5 million would be paid immediately.
Implicit in the deal was a commitment to help finance construction of a fourth hotel on the last vacant waterfront lot in the marina. Lurie’s $300-million plan for redevelopment of the marina, which had looked hopeless days before, suddenly had new life.
By early May, the deal was sufficiently complete that the web of holding companies and shell corporations was already taking shape. They would serve to conceal identities and to eliminate the tax liabilities of the foreign investors.
In Sacramento, 10 California corporations were created to own 49.9% of Lurie’s 10 marina leases. On the Cayman Islands, Marina Enterprises International Ltd. was formed to own 100% of the stock in the 10 California shell corporations. And in Luxembourg, North American Real Estate Holding was established to control 100% of the shares of the Cayman firm.
The Ibrahim investment group would deposit the $21.8 million into a fiduciary account managed by the Luxembourg branch of Banque Indosuez, which would, in turn, invest the money in the Luxembourg holding company. Strict secrecy laws in Luxembourg would make disclosure of investor names a criminal violation.
On paper, at least, the investment funds would pass from Luxembourg through the Cayman Islands firm to the California corporations managed by Newfield Enterprises. At Newfield, the interests of the Saudi investment group would be represented by Charles E. Wallace, a former film industry business executive with the Cannon Group, Lorimar-Telepictures and Warner Communications.
“I don’t think about who my financial partners are,” Lurie said. “It’s more important to see that my partnership works with (Newfield and Wallace).”
The last obstacle would be Los Angeles County approval. A lobby barrage was aimed at the Board of Supervisors and their aides--prompting a flurry of meetings, letters and promises. Wallace represented the foreign partners who, officials say, were never identified--not even privately.
County approval came in August--without dissent and without inquiry into the identities or background of Lurie’s financial partners. Sullivan simply pledged in writing that his clients were not involved in any criminal activity and explained his clients’ desire for secrecy:
“They are wealthy individuals who . . . wish to remain anonymous in order to avoid hucksters, flimflam men, gold diggers, extortionists, kidnapers, terrorists and similar criminal elements that tend to gravitate to and feed upon the prominent and well-to-do.”
Today, all that remains unresolved are some troublesome legal matters and the lingering secrecy controversy.
Aminoff & Co. of Beverly Hills, which through Asian Oceanic played a role in bringing Lurie together with Sullivan, has sued Lurie for breach of contract for failing to pay $3.2 million it says Lurie owes. And in a recent letter to the Board of Supervisors, former Aminoff President Eskenazi threatened to sue the county for approving the deal without requiring Lurie to pay the disputed fee.
As for the secrecy issue, New York broker Cecil, for one, dismisses it as minor compared to “the fiasco in the marina” that he says would have occurred if Lurie had gone bankrupt.
“The value of property all over the marina--the condos especially--would have gone through the floor,” Cecil said. “Listen, people (in the marina) ought to get down and kiss the ground” the investors walk on, he said.