For a Prestigous Address, Nothing Beats Rothschild

The venerable boulevard at the heart of Tel Aviv's financial district commands rents in keeping with its gold-plated name.

What is the difference between Rothschild Boulevard and Ibn Gvirol? Obviously there are many differences - but the major ones are expressed by the fact that the McDonald's branch on Rothschild Boulevard did not stay in business long and is now up for rent, compared with a fairly successful branch over on Ibn Gvirol.

Rothschild Boulevard's unique economic and real estate dynamics dictates a different kind of business and price range than those of Ibn Gvirol, and as a result also a different market behavior for the commercial establishments located there.

Stretching from Habima theater at its northeast end to Herzl Street in the southwest, the two-kilometer boulevard is the financial heart of old Tel Aviv, and it is characterized, first and foremost, by a tradition of banking institutions and the Tel Aviv Stock Exchange. The headquarters of Bank Leumi, Bank Hapoalim and Discount Bank are located along the boulevard, and the First International Bank is now constructing a luxurious office building there; the Tel Aviv Stock Exchange is situated in adjacent Ahad Ha'am Street.

Next to these financial institutions, as expected, law firms, accountants and business people have settled in. Many of those are in the banking and brokerage business, while others consider the location - the heart of the Tel Aviv City - to be a handsome addition to their reputation. As a result, rents for offices on Rothschild Boulevard are extremely high, reaching $13-$17 per square meter, and occasionally even higher.

"Now imagine how all this fits in with McDonald's. It's hard to imagine the CEO of an insurance firm having a lunch meeting with a senior bank executive over a Big Mac. It makes a little more sense to see the two going to an upscale restaurant, sitting quietly at a side table," says Oren Glazer, head of the Tel Aviv branch of Anglo Saxon's commercial department.

"Apart from that, another surprising thing happened. In recent years the expression 'business lunch' took root, and today, even if you're not a senior executive with an open expense account, but only a regular employee of a respectable firm, you'll soon find out that the price difference between a hamburger meal at a restaurant like Moses and a hamburger with fries and a soft drink at McDonald's has shrunk considerably. McDonald's has no place in this setting," adds the head of the commercial department at M.A.N. holdings, Asaf Shemer.

But Ibn Gvirol and Rothschild also share something else - neither has any fashion businesses. "Fashion retailers have to come in packs. You won't see a single clothing shop sitting between stores from a different field. Therefore, Rothschild has no stores of this sort and fashion people don't even think of coming here," explains Shemer.

The number of acclaimed restaurants and quality cafes on Rothschild Boulevard has grown rapidly over recent years, and there is still demand for more property. One of those properties in demand is - you guessed it? - the old McDonald's property, which is centrally located close to the Allenby Street intersection.

And despite everything, the McDonald's on Rothschild remains unoccupied, although the branch has been out of business for over a year; the management left the facility intact to hold organized meals for children in need. The restaurateurs who have inquired about buying the property have been told that the chain is seeking a very high lease buyout fee, estimated at $200,000.

At the center of Ibn Gvirol such a sum is indeed considered high - but negotiable. On Rothschild Boulevard, realtors consider it to be suicide. "You have to understand that upscale restaurants are a business highly sensitive to any increase in expenses. To establish a reputation, restaurant owners invest $1,000-$1,500 per square meter in designing the place. As in any upscale line of businesses, there is less customer and cash turnover than at less expensive establishments. Therefore, such an added expense is not economically viable for them," explains Shemer.

This is also why, despite their upscale reputations, restaurants on Rothschild pay lower rent than places at the center of Ibn Gvirol. Rent on Rothschild comes to $30-$40 per square meter, about 10-15 percent less than Ibn Gvirol.

An Italian restaurant rented a 100-square-meter property close to the intersection of Rothschild and Herzl, at $32.50 per square meter. These days negotiations are being held between entrepreneurs and building owners for a restaurant property on the section of the boulevard between Nahmani and Bezalel streets. The deal is expected to be closed at around $30-$33 per square meter; for McDonald's 240 square meters next to the Allenby intersection, entrepreneurs are willing to pay $40 per square meter, but as mentioned, the chain's condition of a lease buyout has left the property empty so far. McDonald's itself pays $35 per square meter.

The Max Brenner cafe at the Beit Zion plaza pays a sum based on a percentage of its monthly turnover for its 150-square-meter plus outdoor seating site. Estimates put the monthly rent at around $30 per square meter; Arcaffe pays $40 per square meter for a similar spot, also with outdoor seating.

"If you check the fluctuation of rental prices over recent years, you will find hardly any - rents slightly decreased during the recession and slightly increased with the beginning of growth," says Glazer. "The pressure between supply, which remained chronically low, and demand, which is driven by the upscale restaurants' high expenses, is what dictates the boundaries of these prices."

The most active and expensive part of Rothschild lies north of its intersection with Allenby, while between Mazeh Street and Habima the boulevard is residential. South of the Allenby intersection, business is less active but Shemer considers that area to be the boulevard's future.

"Some luxury residential projects are planned for the area, and I predict this will strengthen that part of the boulevard, which will be equal to the central section."