The wheeler-dealer next door
In the 'pinui-binui' game, so-called machers who organize their neighbors sometimes grab too big a piece of the pie.
Two months ago the mayor of Ramat Hasharon, Yitzhak Rochberger, dropped a bombshell on his city by announcing a freeze on a housing redevelopment project in the Morasha neighborhood: He objected to the involvement of organizers he termed "machers," claiming that these operators were grabbing a piece of the action for themselves at the expense of residents.
What got Rochberger's goat was something that is becoming more and more common in Israel with the growing popularity of "pinui-binui" projects (literally "evacuation-construction," or demolition and reconstruction ), where resident-owners in old apartment block complexes band together to tear down their dated buildings and replace them with spanking new ones, usually high-rises with all the modern amenities.
The indefatigable residents spearheading these initiatives usually adhere to a set pattern: First, they organize the other residents and bring them together under their auspices, getting them to sign power-of-attorney arrangements to facilitate negotiations in their names with construction companies.
In every case the goal is to see the project carried out, with a handsome profit for the organizing resident who, in fact, serves as a broker between the other tenants and the builders. The similarity ends, however, with how large a slice of the project the organizer demands for himself and the moral legitimacy of his actions.
Attorney Mira Bornstein is involved in dozens of these projects. She says, however, that the role of machers shouldn't be rejected out of hand. "Residents often can't organize by themselves and need someone, some sort of field operator, to organize them," Bornstein explains.
"The problem begins when the tenants are asked to sign legal documents they often don't understand. At this point they still have no legal representation, and are thus bound to the organizers for a period of time without legal protection.
"The organizers take the documents afterward to the large building companies, and demand a certain amount of money. This can hurt the residents because the pie is the same size: The more the organizers take themselves, the less everyone else gets," says Bornstein.
Professionals involved with these initiatives think operators like these have a hand in about 80% of the projects being promoted today in Israel. They all agree that nothing has been done about this phenomenon. Initiators of such projects who manage to tie groups of residents to themselves for lengthy periods of time often take the liberty of demanding a payment that's a large percentage of the deal - making it unfeasible for both the builders and the tenants.
Bornstein relates that companies sometimes refuse a project for the amount offered them or insist that the organizer slashes his commission. "But this isn't always the case," she explains. "There are some who do an excellent job, know the field, and understand how much they deserve."
Attorney Jacob Atrakchi is much more outspoken in his opposition to the phenomenon. Atrakchi, general manager & co-owner of Aura Israel, which is implementing a pinui-binui in Yehud, told the annual appraisers' conference recently in Eilat: "Today everyone calls himself a promoter. All sorts of machers are signing residents on scraps of paper and holding them hostage. Occupants naively sign, and this undermines deals. What residents get in return is severely impacted by this."
Atrakchi added that, as a builder, he'll avoid taking on projects involving such operators. "Builders are being blackmailed," he complained. "Binui-pinui is a complex form of project with innumerable obstacles. It is unthinkable for a builder to continue for years putting in his best effort and money - only to discover the project isn't his at all."Legitimate reward
The payment demanded by the initiator of such a plan is a major factor in determining if he's a serious operator or just out to make a killing. A rate of 1% to 1.5% of the transaction's value is considered legitimate compensation, while 3% to 4% is considered greedy and could torpedo the entire endeavor.
"Builders' margins are generally between 10% and 15%," says Ami Kahlon, chairman of A.T. City Reconstruction Company - Israel, which promotes pinui-binui projects. "If the resident demands 5%, he is essentially cutting into a third or a half of the developer's profits, and the deal can't go through. He may have been the first to recognize the potential and do something, but what did he accomplish to deserve millions of shekels? How much work did he put in? Let's be generous and say he devoted 1,000 hours to convincing and signing up the neighbors: NIS 300,000 or NIS 400,000 is a handsome reward for this. I don't deny him his due - on the contrary - but it has to be within reason."
Kahlon, who began to engage in urban renewal as deputy mayor of Kiryat Ono, says developers could certainly use someone with organizational talent and influence when it comes to groups of residents, but he should be chosen by them and not impose himself on them.
"If one of the neighbors knows how to do it right, there's nothing wrong with him getting a piece of the deal - as long as the project is completed within seven to eight years, not 15 to 20 years," Kahlon says.
But it's hard to know how the organizer will perform, so Kahlon suggests residents demand a timetable in advance and a provision for canceling the agreement if it's not being followed.
Sometimes an organizer will get into the act at a later stage, at the initiative of the builder or lawyer managing the project.
"He ensures that they have a foothold on the ground and that the deal will go through," explains attorney Moshe Raz-Cohen, who often engages in this field. "This type of operator is preferable because the builder gets to choose who to work with. But on the other hand, you need to be careful not to end up involving one more participant who ultimately makes no contribution."
Raz-Cohen says there are cases where the residents themselves are completely unaware that someone else has joined in the deal for a piece of the pie. Another type of macher, according to him, is someone with connections in the local government - "someone who everyone knows that, without his help, the municipality won't cooperate. Obviously this is illegal," concludes Raz-Cohen, "but there are places where it happens."