Alony Hetz Properties & Investments signed a binding agreement over the weekend to invest $300 million in Carr Properties Corporation, a newly formed investor in Washington D.C. real estate, marking the Israeli firm’s first major investment foray into the United States.
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The deal will also bring Alony Hetz, which is controlled by Nathan Hetz and the Wertheim family, into partnership with the U.S. investment bank JPMorgan.
Shares of Alony Hetz jumped 3.1% NIS 24.19 in relatively heavy trading on the Tel Aviv Stock Exchange.
The deal marks the end of a long period of debate inside Alony Hetz over whether to enter the United States or expand its existing Western Europe property holdings after the company divested most of its holdings in Gazit Globes’ Equity One unit, which is focused on North America.
Under the terms of the deal, which was four months in the making, the Special Situation Property Fund of JP Morgan Chase Bank will transfer to Carr a portfolio of full or partial ownership of 20 office buildings in the U.S. capital to Carr as well as the management team that has been running them. Each side will hold 50% of the new company.
“The Washington office market has been among the most stable in the United States since the start of the 1980s,” Alony Hetz said, citing data such as a low rate of unoccupied office space 15.5% (vs.a U.S.national average of 17%) and higher rents.
Organized as a real estate investment trust (REIT), Carr will be required to distribute all its earnings. Alony Hetz estimated the average rate of dividends to the partners in upcoming years at 6%.
Alony Hetz’s $300 million capital injection will be used to retire part of Carr’s debt, lowering it to 26% of the balance sheet. Carr will also buy and develop land for the purpose of leasing in the same area. Oliver Carr III, who has managed Carr Properties over the past decade for JPMorgan, will continue to serve as its president and chief business officer, with Hetz serving as chairman of the board.
In 2012, Carr’s properties yielded $68 million in net operating income, $45 million of which was attributable to Carr. Carr will have stakes in four office buildings under development with 65,000 square meters of leasable space.
Alony Hetz intends to finance its investment in Carr from its own cash, partial by tapping long-term credit lines from banks and by raising capital or debt to supply the balance.
Based on Carr’s business plan and in accordance with its strategy and pro-forma equity after the investment by Alony Hetz, the partners expect the company to reach $1.5 billion in assets within the next few years.