Israeli High-tech Entrepreneur Makes Accidental Fortune in Hotels

Zohar Zisapel started buy stock in Dan Hotels right before the second intifada. Now his stake has earned him NIS 130m.

Fourteen years ago, high-tech entrepreneur and investor Zohar Zisapel decided it was time to diversify his portfolio. To avoid getting trapped in the high-tech bubble he saw developing, he began investing in Israeli hotel stock – only to find the tourism industry decimated by the outbreak of the second intifada soon afterwards.

It took time, but today Zisapel has managed to earn a cool 130 million shekels ($37 million) from his mistake.

Starting in 1999 Zisapel began to buy shares in the Dan Hotel chain, which operates marquis properties like the King David in Jerusalem and the Dan Panorama in Tel Aviv. He invested 15 million shekels over three years,  to accumulate a 5% stake in the company. For Zisapel, who made his fortune in high tech mainly through his closely held RAD group of companies, it wasn’t a huge sum but an embarrassing miscall.

“I saw that a large bubble was developing in high tech and that I needed to find other kinds of investments,” Zisapel told the TheMarker in an interview on Monday. “I bought my shares in Dan Hotels in error. I thought that 2000 would be a good year for tourism, primarily because of a large number of pilgrims coming to Israel searching for Jesus.”

There was a brief surge in millennial tourism, but soon Israel’s tourism industry was pounded by the twin blows of worldwide recession and the outbreak of the second intifada, both of which acted to deter tourists.

Dan Hotels shares slid, but the investor kept buying more. As Zisapel recalls, banks were so bearish on Dan Hotels that they were prepared to sell him blocks of Dan Hotels stock for lower and lower prices. He kept on buying the stock until he held 5% of the company.

“The investment may have gone through some tough times, but I continued to believe in the company and its management,” says Zisapel. “I don’t know many hotel companies that are as profitable as Dan Hotels.”

Last year, Dan’s revenues rose 0.7% from the year before to 1.31 billion shekels, and in the first nine months of 2013, the company reported a net profit of 77 million shekels on revenues of 853 million shekels.

Over the years, it’s been up and down with Dan shares, but since the beginning of 2013 the hotel company’s Tel Aviv Stock Exchange stock price has jumped 62%, almost six times the return for the benchmark TA-25 index. That puts the value of his holding at 102 million shekels. On top of that he has earned 27 million shekels in dividends. At the time Zisapel began buying Dan’s shares they were trading at 2.50 shekels each; on Tuesday, they closed at 20.30 shekels.

Emil Salman