Focus / Bye-bye hotel, bye-bye investors
On June 2, 2001, the day after the terror attack at the Dolphinarium discotheque, the world's major television networks broadcast footage of angry Israelis burning tires and throwing rocks at the nearby Hassan Bek mosque.
On June 2, 2001, the day after the terror attack at the Dolphinarium discotheque, the world's major television networks broadcast footage of angry Israelis burning tires and throwing rocks at the nearby Hassan Bek mosque. Dozens had ringside seats, watching events unfold from their rooms or the pool deck of the nearby David Inter-Continental.
The hotel quickly became Tel Aviv's business center when it was established in 1999. It owes its prosperity to the peace process that brought thousands of investors and businesspeople to Israel and to the technology revolution that made this country a pilgrimage site. The hotel appealed to the right target population, developing an entire market of technology, venture capital and communications conferences. The investment in Israel's financial elite also brought in the business community's private business. Emblaze founder Eli Reifman held his much publicized wedding at the hotel, the event of the year, at an estimated cost of $1.5-2 million. Wedding bells rang there, too, for big shot Ofer Nimrodi.
But two years of financial crisis, painfully evident in the tourism sector, have left even this famous hotel in financial straits, unable to service its debts.
The new hotel needs particularly good repayment capability due to its heavily bank leveraged construction, as opposed to more veteran competitors, which need only to finance ongoing operations.
Bank Leumi isn't terribly worried about owner David Teig's financial situation. Teig's liabilities to the bank amount to NIS 1 billion, mostly on the construction of the David Inter-Continental and another luxury hotel, the Dead Sea Hyatt. The bank declared the debt non-revenue bearing in Q3 because Teig didn't meet his interest payments. The classification requires the provision of 4 percent of the loans as doubtful debt, as well as specific provisions if there is a gap between the scope of the debt and the value of the collateral the bank holds.
Leumi and the rest of the banking sector believe Teig can service the debt from his other resources but as long as the client doesn't do so, the bank must classify the loan as problematic. Bank Leumi believes its collateral is high quality, and can be exercised to make the bank the owner of David Teig's hotels. That is an extreme step involving substantially increased provisions and the allocation of precious resources, in the short term.
The banking sector sees Leumi's classifying Teig's debt as problematic as a tactical move, both legally and from an accounting perspective. It sees 2002 as a lost year that can carry substantial doubtful debt and decrease tax payments, creating a security net for a year or two.