Andrew Farkas rose to the heights of New York real estate in the mid-1990s, as an investor with a penchant for picking through the wreckage of commercial real estate. Mr. Farkas, 49 years old, has returned to his old stomping ground as another crisis besieges commercial-property owners. His company, Island Capital Group, is negotiating to take over a unit of Centerline Holding Co., one of the largest companies specializing in restructuring troubled mortgages that were securitized into bonds. Getty Images Andrew and Sandi Farkas at the Montauk Yacht Club in July. Mr. Farkas is negotiating to take over a unit of Centerline Holding. The deal marks the latest chapter in the career of Mr. Farkas, who also owns the Montauk Yacht Club in East Hampton, N.Y., and is called "Farkie" by his friends. In 1997, Mr. Farkas's company was accused by the Department of Housing and Urban Development of making $7.6 million in kickbacks. That suit, which ultimately was settled, was authorized by HUD's then-director, Andrew Cuomo, now New York's attorney general. Mr. Cuomo has since turned from adversary to friend, working for Mr. Farkas to help Dubai develop its own version of Fannie Mae, after running unsuccessfully for the Democratic nomination in 2002 for New York governor. Today, Mr. Farkas is campaign-finance chairman for Mr. Cuomo, who again may seek the governor's seat. Mr. Cuomo declined to comment. More recently, Mr. Farkas found himself in the middle of the financial firestorm that engulfed Dubai World, the investment company controlled by the emirate of Dubai. He had invested alongside Dubai World's private-equity arm in more than $2 billion of U.S. property deals. Late last year, in the wake of Dubai World's near collapse, the two sides parted ways. Despite Dubai World's problems, Mr. Farkas earned at least $70 million in advisory fees, according to people familiar with the matter. He also cashed out his ownership stakes early, netting tens of millions of dollars, according to these people. Mr. Farkas's Centerline takeover effort shines light on "special servicers," which play a little-known but important role in the commercial real-estate industry and are attracting interest from investors as prominent as Warren Buffett. Special servicers such as Centerline serve as a central coordinator for hundreds, and even thousands, of bondholders who collectively hold debt backed by office buildings, strip centers, warehouses or other properties in default. Investors are attracted to servicers partly because they have options to buy the troubled assets they manage for bondholders. But that power is one reason why some investors in Centerline-controlled bonds have some concerns about Mr. Farkas's role. In the 1990s, he was accused of depressing prices of real-estate limited partnerships to buy out his partners on the cheap. Mr. Farkas declined to discuss the Centerline deal. But in a statement, Mr. Farkas said it was "absurd" to suggest that he wouldn't serve the interests of bondholders. "I have always done well for my partners and investors," he said through a spokesman. As of Sept. 30, Centerline's special-servicing unit had $6.2 billion of assets under management, up from $1.5 billion a year earlier, according to the company's quarterly report. Marc Schnitzer, Centerline's chief executive, said that although no final agreement has been reached, a deal could be struck this quarter. View Full Image Bloomberg News Dubai World's private-equity arm bought the W Hotel Union Square in Manhattan for about $282 million in 2006. It was sold at a foreclosure auction this past December for $2 million, plus the assumption of debt. Mr. Farkas's roots run deep in the New York business world. His family founded the now-closed Alexanders department-store chain in the city. At age 16, he co-founded a computer business. While attending Harvard University, he told the Harvard Crimson, the school newspaper, that "I like the game of high rolling. I enjoy playing with the big boys." After graduating, Mr. Farkas expanded his business of syndicating tax-sheltered real-estate deals. The business was a success early on, and in 1985, at age 24, he was driving an Alfa Romeo and living in a loft in Manhattan's SoHo district. But he was pushed to the brink of bankruptcy in the late 1980s when changes in the tax law destroyed his business. Mr. Farkas made his comeback snapping up general partner positions in nearly 1,000 ailing real-estate limited partnerships at pennies on the dollar, eventually building the nation's largest apartment portfolio. Some investors in the partnerships complained that his company, then called Insignia Financial Group Inc., tried to make money at their expense. In 1996, Insignia settled a lawsuit by a group of limited partners, which alleged that Insignia artificially depressed secondary, or resale, market prices for the interests. Mr. Farkas's spokesman said Insignia settled the lawsuit, which was "without merit," because "it was less expensive, less disruptive and less time-consuming than it was to litigate." It also was around this time that Insignia ran afoul of Mr. Cuomo. Insignia settled out of court with the Justice Department, agreeing to pay $7.4 million but without having to admit any wrongdoing or give up any of its HUD business. Messrs. Cuomo and Farkas have said they didn't know each other at the time and met in 2002. In 2003, Mr. Farkas eventually sold the Insignia businesses for $1.3 billion. Soon after, Mr. Farkas turned his sights to the property markets of the Middle East. Mr. Farkas's new company, Island Capital, was hired to help set up the equivalent of a local Fannie Mae, guaranteeing individual homeowner mortgages. Mr. Farkas spent "hundreds of hours" with Dubai banking officials learning Islamic law, which generally prohibits charging of interest, a person familiar with the matter said. Mr. Farkas also brought over high-profile players, including Donald Trump and Mr. Cuomo. For the years 2004 and 2005, Island Capital paid Mr. Cuomo $1.2 million for advising the company to help form a securitization market in Dubai. Mr. Cuomo stopped working for Island Capital in 2006 to focus on running for New York attorney general. Using his Dubai contacts, Mr. Farkas also began to put together a number of U.S. property deals for Istithmar World Capital, the private-equity division of Dubai World. He also invested in those deals alongside Istithmar. The list included New York's Helmsley Building, which Istithmar bought for $705 million in 2005 and sold for $1.1 billion two years later. Most of these deals have dropped in value, in some cases significantly so, according to people with knowledge of the industry. As the deals soured, so did relations between Mr. Farkas and Istithmar, and the two have since severed their relationship. "We had a simple difference of opinion," said the Farkas spokesman. Mr. Farkas "thought that early 2008 was the right time to liquidate," he said. "Dubai took a longer-term view." George Dalton, Dubai World's general counsel, said that other than one remaining co-investment, "we have no ongoing business relationship with him, nor do we intend to have any in the future." Write to Lingling Wei at lingling.wei@dowjones.com andCraig Karmin at craig.karmin@wsj.com Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. 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— Farkas, evil real estate developer  

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