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How Dankner and Tshuva lost $810 million in Las Vegas By Michael Rochvarger Less than three months after upgrading Property & Building from Neutral to Buy, I.B.I. backtracked. The Tel Aviv investment firm downgraded the IDB group company from Buy, back to Neutral. Equity analyst Shai Lipman also slashed the company's 12-month price target by a cool 58% because of the meltdown in the financial and real estate markets. The main yoke on Property & Building's neck is its activity in Las Vegas, Lipman writes in a review titled "The real estate market - the crisis moves from share prices to the real world." In Vegas, Property & Building is involved in projects that range from housing to the grandiose Plaza Hotel. There, the company has linked arms with Yitzhak Tshuva's privately owned company Elad (named after his son), to build a grandiose casino-hotel complex costing billions. Of dollars, not shekels. Advertisement The problem is that the land on the strip that Property & Building and Elad bought for their future luxurious casino/hotel is now worth only a third of the price they paid, which was more than a billion dollars. Moreover, Lipman is highly skeptical about the Israeli companies' ability to pursue their dream for the time being. Construction could be delayed by years, he writes: There's no demand. The Vegas gambling industry is hurting and right now no sane financial institution would undertake to fund a project of this magnitude. Dankner and Tshuva went into this 50:50. Two of Nochi Dankner's companies, Property & Building and IDB Development, each owns 25% of the project, with Elad Group owning the other 50%. They bought the land moments before the global credit crunch erupted, paying $1.25 billion. IDB's own economists say the land is currently worth about $437.5 million. That means that Dankner and Tshuva have together lost $812.5 million in value, on paper at least. Property & Building has other projects in the gambling Mecca of the west. But I.B.I. sees trouble there too because the housing market has seized up. Lipman thinks Property & Building will have to lower the price of the apartments it's finished building and wants to sell, and by a lot, in order to move them along. As for the commercial development that Property & Building and its partners erected, Lipman says that more than half remains to be leased out, and he doesn't believe they can get the same price levels. There too, Property & Building will have to lower its sights and its returns. If, however, an investor wants to get into Property & Building, Lipman counsels that it be done via subsidiary Bayside (Gav Yam). That's trading at a market capitalization of NIS 1.2 billion, which is 30% above the market capitalization of Property & Building itself. Too hard on AFI Moving on to another real estate empire, Africa Israel, I.B.I.'s Lipman downgraded it from Buy to Neutral. He also savaged its 12-month price target, lowering it by 73% compared with the previous target to NIS 80. And that's still 55% above Africa Israel's present share price on the Tel Aviv Stock Exchange. Africa Israel has been hammered by the market, losing roughly 90% of its value from its peak. One of its sorest problems has been the collapsing share price of subsidiary AFI Development, which Africa Israel floated in London. It sank. "The falling price of AFI Development, which handles Africa Israel's activities in Russia, to $1.50 per share (compared with $14 when it went public in May 2007), reflects intense pessimism about its ability to carry out the projects it has declared," Lipman explains. In other words plans are one thing, execution another entirely. Moreover, AFI's present market value reflects its cash position or about $800 million. That means AFI is likely to lose money on the projects it's already building, because of weak demand, Lipman says. When the supply of housing diminishes and capital stops fleeing Russia, AFI's share price could pick up, Lipman predicts. He also feels that the company's present share price is based on an overly pessimistic scenario. Regarding its operations in the U.S., Lipman sees Africa Israel losing money on properties that it bought in early 2007 - most notably the New York Times Building, the Clock Tower and the Apthorp building, all in Manhattan. Jerusalem Economic downgraded Moving onto another tycoon, Lipman downgraded one of Eliezer Fishman's flagship real estate companies, Jerusalem Economic Corporation, from Buy to Neutral. He also cut its 12-month price target from NIS 66 to NIS 24. Here too, the new target is still 50% above Jerusalem Economic's share price on the Tel Aviv Stock Exchange. I.B.I. estimated Jerusalem Economic's portfolio of assets in Europe and North America at 80% of their assessed value and gave the company's development operations only 50% of their assessed value. The value Lipman gave to MirLand, which handles Fishman's property investments in Russia, and Industrial Buildings (listed in Tel Aviv), is simply their market capitalizations. But Russia is on Lipman's mind. In light of the way the financial crisis has developed there, and the freeze in Russia's real estate market, his concern about Fishman's MirLand and AFI Development centers on the difficulty in borrowing money to pursue their projects. They may have to freeze future developments and wind down ones already commenced. Gazit Globe overcomes The Gazit Globe empire is directly exposed to the U.S. crisis through its subsidiary Equity One, which is listed on Wall Street and invests in North America. Yet I.B.I. has repeated a Neutral rating for Gazit Globe. Lipman did lower his target for Gazit Globe, which is controlled by Dori Segal and Chaim Katzman, from NIS 39 to NIS 23, which confers an upside of just 10%. But he believes that Gazit Globe's quality management, alongside its strong cash flow, will overcome the problems in the company's fields of activity - mainly North America and Western Europe, where it operates in no small part through Helsinki-traded subsidiary Citycon. However, Lipman is bearish when it comes to housing development in Western Europe. The pace of sales will be glacial in the foreseeable future, he predicts, which will diminish the cash flow of Gazit Globe arms operating there. Housing prices are also likely to drop, he predicts. While on the real estate market, Lipman downgraded Africa Israel Properties and Kardan group company GTC from Buy to Neutral. Africa Israel Properties's 12-month price target was slashed from NIS 218 to NIS 73, and GTC's was cut from NIS 56 to NIS 24. What about the real estate market inside Israel? Despite the travails shaking world markets, Lipman doesn't see much of a retreat. There will be a drop in prices, but not much of one, he predicts. And that brings him to a Buy recommendation for companies such as Leo Noe's British Israel, Nitsba Holdings, Bayside and Amot Investments. Bookmark to del.icio.us   Never walk alone It's safe to assume that Obama won't abandon Israel. Apprehensive in Israel Rightist MK Aryeh Eldad warns 'Israel should be wary of Barack Obama'

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