Isaac Tshuva: Israel's Gas KingBy and
Isaac Tshuva arranges sugar packets on a table at his Leonardo City Tower Hotel in Tel Aviv, each one representing the location of a gas deposit off the Israeli coast: The uppermost packet is the Tamar field that his company, Delek Group, helped discover last year. Two packets below it are smaller strikes to the south, which Tshuva says indicate there's more gas still to be tapped. "The amounts we've found are going to fulfill much of Israel's energy demand for the next two decades," says the 61-year-old billionaire, whose family immigrated to Israel from Libya in 1948 when he was an infant. The discoveries have turned Tshuva into Israel's energy king and the country's sixth-richest citizen, with an estimated net worth of $2 billion, according to TheMarker, a Tel Aviv business daily. The gas finds ultimately could meet half of Israel's energy needs and provide the country with the energy independence that is vital to its security.
Surrounded by oil-rich but hostile neighbors, Israel has long fretted about energy. Moses, the joke goes, led his people around the desert for 40 years before settling in the only place in the Middle East without oil. The Tamar field's estimated 7.7 trillion cubic feet of gas will go a long way toward weaning Israel from dependence on imported coal and gas. "These are all blessings from the heavens," Tshuva says as he settles into a black leather armchair.
The discovery is helping him expand a global empire that includes luxury apartment towers, power plants, gas stations, and New York's Plaza Hotel. It may also help salvage an audacious $5 billion plan to put a Plaza on the Las Vegas Strip that the financial crisis has stalled.
A gregarious man who greets visitors with a warm pat on the shoulder and favors dark suits with no tie, Tshuva has a taste for extravagant projects. And he's constantly on the prowl for ideas, even if they entail big risks—such as his decade-long hunt for gas in Israel's waters that has only now started to pay off. "The man has good intuition," says Ronen Elgali, head of research at Sphera Fund, a Tel Aviv hedge fund with $360 million under management.
Growing up in Netanya, a quiet coastal city some 20 miles north of Tel Aviv, Tshuva shared a one-room apartment with his parents, grandmother, and seven siblings. He started working as a laborer at age 12 to support his family, attending school at night. After three years in the army he skipped college and began working in construction for the Defense Ministry. When Israel captured the Sinai Peninsula in the 1967 war, he helped erect the Bar Lev Line, a chain of fortifications along the Suez Canal. By the early 1970s, Tshuva was winning contracts to build low-income housing in Netanya.
Over the years, Tshuva has picked up powerful friends—and endured his share of criticism. He pals around with Israeli President Shimon Peres and was close to former Prime Minister Ariel Sharon. A close business relationship with Ted Arison, the Israeli American founder of Miami-based Carnival Cruise Lines (CCL), paid off in 1998. At the time, Tshuva was a second-tier building contractor looking to elbow his way into Israel's business elite. He had acquired a quarter of the shares of Delek Group, then an automobile importer and Israel's second-biggest gas station chain, and wanted to gain control of the company and its cash hoard of tens of millions of dollars. Arison's Bank Hapoalim held a 25% stake in Delek that he agreed to sell to Tshuva for some $100 million.
The takeover wasn't universally welcomed in Israel. To win Delek, Tshuva had to push out the Recanati family, an influential Israeli clan that had extensive interests in shipping and banking. Many in the Israeli business community, most of whom are of European origin, saw the uneducated Libyan emigré as an interloper. Buying Delek "was a big jump," says Moshe Tery, former chairman of the Israel Securities Authority, who in the past has worked as a money manager for Tshuva. "Eyebrows were raised due to his unusual background."
By the late 2000s, Tshuva had built Delek into a $10 billion conglomerate with holdings in insurance, oil refineries, auto sales, and other businesses. An important subsidiary, Delek Real Estate, made an ill-timed $738 million gamble in 2007 on British highway service stations. As markets around the world tumbled in 2008, Delek's shares fell by 86% and its bonds sank by about half. For the year, Delek reported a loss of $490 million, including a $430 million shortfall at the real estate subsidiary, which Tshuva spun off last year.
Tshuva's fortunes improved in January 2009, when his bet on gas finally paid off. In 2000, Delek and partners had found the Noa and Mari-B offshore fields; they started pumping from them four years later. Convinced there was more gas in the area, Tshuva kept pushing. Last year, the group finally drilled into Tamar and a nearby field called Dalit, the largest gas find ever in Israel and the second-biggest in the world over the past two years. "The rainfall came at the right time," says Asaf Bartfeld, Delek Group's CEO.
Within a month of the discovery, Delek's bonds had climbed 50%. Its shares have since risen more than fivefold, giving the company a value of $2.6 billion. Tshuva owns 64% of Delek, which controls just under a third of Tamar. (Houston-based Noble Energy (NBL), in which Delek owns a small share, owns 36%; Israeli gas explorer Isramco Negev 2 holds 29%.) The partners are now waiting for survey results from nearby fields that may hold even more gas than Tamar, says Yaron Zer, an analyst at Clal Finance Brokerage. "The chances for another big find are quite high," Zer says. On Apr. 8 the U.S. Geological Survey said the eastern Mediterranean may have 30 times the reserves that have been found at Tamar.
That doesn't mean much, of course, if the gas can't be sold profitably. The International Energy Agency says the global gas market faces an "acute glut" in coming years. Since peaking in 2008, U.S. and British natural gas futures have plunged 60% because of a surge in supplies from sources such as shale deposits and a growing international trade in liquefied natural gas. "The market is hyped up on the gas find, but there are risks associated with this project's development," says Guil Bashan, an analyst at Israel Brokerage & Investments.
Israel's gas market, though, is a special case. The only neighbor willing to sell gas to Israel is Egypt, so there's no oversupply. The Israeli government sees huge strategic importance in Tamar, since until now the country has imported almost all of its energy. Delek and its partners will spend some $3 billion developing the field, 50 miles off the coast in more than 6,000 feet of water, but they already have $11 billion-plus in commitments from Israeli utilities. Production is expected to hit full capacity by 2015.
Despite his growing fortune, Tshuva doesn't flaunt his wealth. He drives a beige 2008 Cadillac sedan and refuses to wear a watch because his parents couldn't afford to buy him one for his bar mitzvah. He lives in a comfortable but not extravagant house where, neighbors say, the father of five often answers the door. He holds no official title at either Delek or his real estate venture, El-Ad Group. Delek's headquarters are a two-minute drive from Tshuva's house in Netanya rather than in tonier Tel Aviv. The company occupies a four-story concrete building wedged between an IKEA store and a brewery in an industrial area far from Netanya's plush beach resorts.
Tshuva's international real estate investments, however, are anything but low-key. El-Ad, a privately held company named for his only son, Elad, has developed dozens of high-end residential projects from Los Angeles to Singapore in the past decade, amassing a portfolio that the firm says is worth $7.5 billion.
In 2004, El-Ad tried to buy the former Mayflower Hotel on Central Park West in New York. After months of negotiations, Tshuva lost to a partnership that included another Israeli business clan, the Ofers (which ultimately razed the hotel and built a luxury apartment tower that's home to celebrities such as Sting and Denzel Washington). "I was very disappointed," says El-Ad CEO Miki Naftali, who was dispatched to New York after developing residential projects for Tshuva in Israel. "We were very keen at the time to find a development opportunity overlooking Central Park."
As it turns out, an even more prestigious property with Central Park views would soon be available. Leaving the meeting where he learned he had lost the Mayflower, Naftali passed the Plaza and thought he might be able to make a play for the storied hotel. He found an intermediary to contact Singapore magnate Kwek Leng Beng, whose Millennium & Copthorne Hotels owned half of the Plaza. After Kwek reluctantly agreed to a 30-minute meeting in Singapore, Tshuva instructed Naftali to keep the price down but to not let the "deal fall through," Naftali recalls. "When he wants something...he's almost impossible to stop." Naftali's talk with Kwek stretched to an entire day, and the two soon agreed that Kwek would sell. In August 2004, El-Ad said it would buy the hotel for $675 million.
When Tshuva's redevelopment plan for the hotel started to spread, it caused an uproar. His daughter, architect Gal Nauer, planned a $450 million renovation that would see much of the building converted into 152 apartments, leaving just 282 hotel rooms, down from 805. The New York Post accused El-Ad of "pimping out the Plaza" and "selling the soul of the instituti on." Tshuva counters that he helped save a troubled New York landmark and that he had little difficulty selling the new condos—for a total of $1.4 billion. "The Plaza today is one of the most luxurious and sought-after properties in Manhattan and is an attraction for tourists from all over the world," Tshuva says.
Not all the new owners were pleased. Russian oligarch Andrei Vavilov, for instance, bought two penthouse apartments for $53.5 million, then later sued El-Ad saying they did not live up to expectations. The suit was settled out of court. El-Ad is now being sued by renowned Vienna pastry emporium Demel, which backed out of its 10-year lease in the Plaza's retail concourse after just two years. In its suit, Demel accuses the hotel of promising an "unparalleled shopping experience" and instead delivering a mall "populated with unknown or unsuitable retailers." El-Ad is countersuing for unpaid rent.
Along with the hotel, Tshuva got the Plaza name, which he planned to turn into a global brand. Tshuva and Israeli tycoon Nochi Danker in 2007 paid $1.25 billion for the Frontier Hotel in Las Vegas, which the pair demolished to make way for a resort that was to carry the Plaza brand name. But when Las Vegas tourism slumped in the midst of the financial crisis, that plan was put on hold. This March the partners wrote down the property by 20%, valuing it at some $1 billion. Today the former Frontier site is just an empty lot filled with rubble.
Even with half-built, mothballed projects littering the Las Vegas landscape and hotel vacancies hitting record levels, Naftali insists El-Ad's Plaza development will resume early next year. "There's a lot of money [for financing such projects] on the sidelines right now and we should be able to take advantage of that," Naftali says. Ultimately, Tshuva envisions an empire of 30 Plazas worldwide, though he acknowledges that "future generations [may] have to carry this forward."
Back in Israel, Tshuva has an equally grandiose plan, developing what Israelis and Jordanians call the "Valley of Peace," a 106-mile canal to bring water from the Red Sea to the Dead Sea to keep the salt lake from drying up. The project, which relies on the heretofore unimaginable cooperation of Israel, Jordan, and the Palestinian Authority, would boost the economy on both sides of the border with hotels, restaurants, parks, and perhaps a dam to generate hydro power. A major role in that development would surely cement Tshuva's reputation as a risk-taking visionary—and could bring ever more cash into his pockets. Tshuva acknowledges that the effort will take years and that he may not live to see its completion. "I have many dreams and plans," he says. "Regretfully, even a hundred years will not suffice to properly realize even a tenth of them."