Last year's real estate headlines were dominated by the luxury residential towers, which touted their uniqueness and magnificence. This year's luxury market may not have the same physical height, but will surely be just as opulent. The up-and-coming luxury properties are actually the older buildings closer to the sidewalks. In the past three years such buildings have become a high-demand real estate product that threatens to take over the high-end residential market. The building conservation trend that has brought about this situation is now seeking the potential in the older sections of various cities.

"It started about a year ago," recalls Itzik Ben-Shoham, CEO of White City Buildings, a marketing and development company for conservation properties. "Clients began showing an interest in Tel Aviv buildings on the verge of collapse. They recognized the unique architecture, loved the high ceilings, learned to appreciate the luxury element in the ban on future building additions and the advantage of fewer neighbors. Buyers were impressed by the computerized simulations of how properties would look after conservation work was completed and quickly realized they could live in a kind of palace."

Investors searching for a building's potential in refurbishing, foreign residents looking for something with European architecture, former Israelis seeking a convenient vacation home for their families and even established couples attracted to uniqueness, began looking into the option of buying old buildings (or apartments in them), and were not deterred by the sky-high prices.

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A three-room apartment on the first floor of a building slated for preservation near Rothschild Boulevard in Tel Aviv sold a few days ago for $675,000 ($6,000 per square meter); two-room apartments in the heart of Tel Aviv are selling for about $250,000 ($4,000-$4,500 per square meter). Rental prices in buildings slated for preservation have risen 25 percent above rents in newer buildings, reaching $1,500 a month for three rooms.

About a month ago, developer Alfred Akirov sold "Sotheby's House" in Tel Aviv to billionaire Gerry Schwartz for $8.5 million, netting a profit of NIS 17.5 million, and Arcadi Gaydamak purchased the former Russian embassy, on Rothschild Boulevard, plus four other conservation buildings on Rothschild and on Lilenblum Street, for a total of $26 million.

What has sparked the sudden awakening of this particular market?

"There is no doubt that it started at the bottom," says Yaniv Rozio of Rozio Real Estate, "with one private developer looking for the highest return on his investment, and the greatest potential in refurbishing. This initiative began at the same time as the wave of real estate investments, and suited the tastes of foreign residents who fell in love with the buildings that remind them of Europe. Now conservation buildings attract well-heeled young people looking for an apartment with character."

Despite the new trend, the conservation idea was born much earlier and has a long history.

Architect and lecturer Amnon Bar Or relates that the conservation of old buildings in Europe began immediately after the destruction wrought by World War II. The success of the projects that rejuvenated the city centers gave birth to the now familiar theories on the potential for cultural and social vitality inherent in old city centers.

"In Zionist Israel, which sanctified modernism, conservation was perceived as holding back progress," says Bar On. "Only after the Herzliya gymnasia [high school in old Tel Aviv] and Old Jaffa were demolished did we realize that we were obliterating our own heritage and allowing the urban centers to decay."

In the mid 1970s, independent conservation projects began in Jerusalem's Yemin Moshe neighborhood, but by the 1980s there were still only a few localized initiatives for conservation in other locales.

"In 1982 the matter of conservation was presented for discussion by the Knesset for the first time," recalls Yossi Feldman, director general of the Council for the Preservation of Buildings and Historic Sites, "and in the absence of a ministry or government body to assume responsibility for this issue, the Knesset proposed that the Society for the Protection of Nature in Israel (SPNI) set up a public body to promote conservation."

In 1984 the council was established as an autonomous body within the SPNI, and over the years became a flourishing independent body that later broke away from the SPNI altogether.

Today the council has 35 employees (7 of whom are regional coordinators), who operate 6 rehabilitated heritage sites and are overseeing 40 conservation sites at any given time. An initial survey conducted by the council found 9,000 buildings slated for conservation, a number expected to reach 20,000. Most of the buildings are in Jerusalem and Tel Aviv, but Haifa, Rehovot, Nes Ziona, Zichron Yaakov and Rosh Pina also all have buildings worthy of preservation. The council's members are active throughout the country, are assisted by dozens of professional volunteers from the academic and private sectors, and enjoy observer status on local planning and building committees. Still, without official government backing, even their faithful efforts face many obstacles.

In 1991, the fourth supplement to the Planning and Building Law was approved, requiring the local authorities to set up conservation committees, but no satisfactory answer was provided concerning the financing of the committees' activities. That aspect was left to the local authorities, and they were not inclined to approve any additional expenditures.

As for the national master plan to map conservation sites, "By the time such a plan is approved," says Feldman, "there will be no more [old] buildings left to preserve."

Feldman described the local authorities' disregard for conservation, and what is happening in Jerusalem and elsewhere as a result of this disregard as an absolute travesty.

"Almost the entire Bukharian Quarter has been demolished," he laments, "and many buildings have been irreparably damaged. Rehovot has adopted a demolish/rebuild policy, specifically in the older downtown neighborhood. Israel today has no long-term vision, and [conservation] requires national consensus. We have been even less successful in arousing public awareness than we have been in conserving [buildings]. Now at least people have begun to appreciate this matter."

A source at Jerusalem City Hall said that just last week an injunction was issued against the continuation of work in the Bukharian Quarter, due to a series of conservation infringements. "The municipality will continue to preserve historic buildings throughout the city as part of its policy to preserve the past for future generations," said the source.

"The city is promoting the upgrading of Herzl Street [in the historic town center]," said a Rehovot municipal spokesman. "The street is being redesigned and obstructions are being removed, all in accordance with a uniform architectural theme. This includes a balance between the buildings that will be preserved and new buildings that will be constructed in keeping with the current needs of the city and its residents."

"Perhaps Tel Aviv is feeling remorseful," says Bar Or, offering an explanation for the city's recent policy of conditioning new building permits on the financing of conservation efforts and the handing over of preserved buildings for public use.

The Lev Ha'ir Quarter project in Tel Aviv, for example, between Maza and Balfour Streets, included an obligation to preserve a unique building nearby that was built in the 1920s in an eclectic style, served as Tel Aviv's first architecture school and was part of the Hadassah hospital compound. When the conservation work was completed, the building was given to the city, to be converted into a public library. In the meantime, the city reneged on its plans and the building has stood abandoned for three years.

Africa Israel, Israel Discount Bank and the First International Bank of Israel were similarly obligated to preserve old public buildings adjacent to their new office towers.

"Everyone wants conservation," says Bar Or, "but no one wants to pay for it, so it is imposed on private enterprises. Most conservation today is done by force. It is a slow revolution, which Tel Aviv is pioneering."

In recent years there have been some private conservation initiatives, mainly by wealthy businessmen for whom the purchase of buildings and their preservation has become a collector's hobby: Ron Lauder financed the preservation of a building on Bialik Street, Noam Guttman renovated a conservation building on Hess Street, and Robert Weil is responsible for the magnificent refurbishing of the Pagoda House, also in Tel Aviv.

"Nine out of ten developers who have embarked on preservation projects have gone bankrupt," says Ben-Shoham, listing the two factors that deter realtors from real estate conservation projects - high costs and complex bureaucracy.

"The average cost of preserving a building covering 1,000 square meters, not including interior work or the facades, is $500,000," continues Ben-Shoham. The preservation work recently completed on an eclectic three-story building on Yehuda Halevi Street cost $1.5 million, and about $6 million was spent on the renovation and preservation of a splendid house on the corner of Rothschild Boulevard and Balfour Street. That project, which was designed and supervised by Bar Orian Architects, included the raising of the building from its foundations and the excavation of two underground stories.

The costs are tremendous, few contractors are interested, and there is only partial municipal backing. But the rising demand rules the game, such that in very popular areas where land and property prices are soaring, some buyers are willing to take the risks and acquire property with multiple building restrictions. Last year some 30 conservation buildings were sold in Tel Aviv alone, and that number is expected to rise this year, along with the demand for office space in the downtown core.

"Commercial bodies will pay more for offices along Rothschild Boulevard, due to its beauty, the unique and respectable look and the option of occupying an entire building," explains a local realtor. "Already now, buildings slated for conservation and intended for office space only are fetching $3,000 per square meter, and if there is any possibility for combined commercial and residential space, prices skyrocket to $6,000-$7,000 per square meter."

"Look what conservation has done for the pedestrian mall in Zichron Yaakov, in the German Colony in Haifa and in Tel Aviv's Neveh Zedek neighborhood," says Bar Or. "People yearn for a feeling of times gone by. A bit of Tuscany, a little Provence, some Zionism and you have the perfect combination for an enjoyable weekend."