Will the Young Buyers of Hatzeirim Towers Live to See It Built?

The high-rise apartment complex in Tel Aviv is the country’s biggest group-buying project, but it has yet to get off the ground

In early 2010 Inbal Or, the CEO of OR City Real Estate (now the Inbal Or Group), began marketing Arlosoroff Towers, on Menachem Begin Road in Tel Aviv, as the head of a buyers’ group. She soon joined forces with the Hagag Group Real Estate Entrepreneurship, headed by brothers Itzhak and Ido, and the project's name was changed to Hatzeirim (“young people’s”) Towers.

With two high-rise buildings of 40 and 46 stories and 486 relatively small apartments, the projected targeted singles and young couples. Prices began at NIS 950,000 for a two-room apartment, NIS 1.3 million for three rooms and NIS 1.8 million for a four-room apartment. But while the project has attracted much attention, the foundations haven’t even been laid and there’s not even a building permit.

Many buyers don't seem terribly worried: Property prices continue to rise and as long as their investment retains its value they see no need for alarm. Some have already flipped their units, for a profit.

Sa'ar Scheinfein, a lawyer who gained national notoriety when, after taking part in the Israeli version of “Big Brother,” he accused the producers of handing out psychiatric drugs to participants, paid NIS 1.6 million for a three-room, 75-square-meter apartment and sold it for NIS 2 million. He then bought a second apartment, also for NIS 1.6 million, and sold it for NIS 2.1 million. Actor Shalom Michaelshwilli bought a similar unit on the 25th floor for NIS 1.45 million that he sold at NIS 2.05 million.

Not so young anymore

The big question hanging over Hatzeirim Towers is why a project that went on the market in 2010 won't be completed until well into the second half of the decade. Part of the answer has to do with the difference between buying-group projects and projects marketed by the builder. In the latter case, the builder typically commits to a delivery date. But in the former case, the buying group is in effect the builder and there are no promises as to occupancy dates or the final price.

Each buying group appoints a committee to deal with zoning agencies, contractors, inspectors and the like. Hatzeirim Towers project has a five-person committee. Or and Ido Hagag share one seat on the panel, as owners of the project's 4,000 square meters of street-level commercial and office space.

One buyer who did not want to be identified - we’ll call him Y. - is not on the committee but is briefed on developments through the Hagag group. He has no contact with Or and recognizes that she no longer heads the buying group.
As he sees it, the problem is a lack of communication between group members: He says he knows only two other buyers, with whom he keeps in touch. He only met the partners in the project once – in a general meeting when the land was bought. Otherwise they don't know each other by name and don't have each other's contact details. The only information available is through monthly updates issued by the management company.

Buyers recently formed a Facebook group, but only 22 of them joined. The handful of active members share emails they've sent to the Hagag group and the responses.

Buyers we spoke to said that while they did not expect the towers to be standing by now, they did think the foundations would at least have been dug.

"I don’t see us progressing at the rate of Midtown [an adjacent project by Canada-Israel], which started after us and is now going at full steam ahead," says Y.

Another buying-group member points out another problem: The project's participation in municipal programs for long-term, rent-controlled housing. Or City Real Estate and the Hagag group agreed to set aside 48 apartments for 10-year leases at controlled prices. Or owns eight of these apartments; the Hagag brothers own the remaining 40.

But since the towers provide services consistent with those in luxury buildings – fitness room, pool and spa, elegant lobby, conference rooms – maintenance fees are steep. To keep renters from paying too high a price their fees have been limited to NIS 350 a month, raising concerns that the other residents may have to make up the difference. One buyer estimates the shortfall at NIS 200,000 a year, based on “realistic” maintenance and management fees of NIS 700 a month per unit.

One member of the project committee is Rafael Avraham, who was elected three years ago at the group's first general meeting. "I’m considered an investor, but I bought the apartment for my daughter," he explains. "The committee is mainly composed of investors because they have more experience, but most of the buyers – around 80% - are young people."

No delays

Avraham claims the project hasn't had any delays. "You can see work begun in the digging and basements. The contractor, U. Dori Construction, was given four years overall to complete the project, meaning three years from today. Most of the problems were discovered at the base of the building, but from the moment they start to build they will rise at the rate of four stories a week." On part of the project being earmarked for affordable housing, Avraham says renters who want to use the buildings' services will need to pay.

"We are backed by a strong group that finances all the stages until banking support," adds Avraham. "We've made the first payment for one-third of the land. Now we need to obtain bank assistance and, until the payments go through, the Hagag brothers have taken upon themselves paying for the contractor. Despite the difficulties and pitfalls, the project is moving forward and nothing will stop it."

"The Hatzeirim Towers project is being carried out in a most professional manner while fulfilling all obligations towards the buyers," Ido Hagag said in a response. "Despite being a complicated project it is keeping to schedule, as promised to group members, like a Swiss watch,” he said.
Continuing, he said, "U. Dori made a commitment to the members of the purchasing group to complete construction within four years of the day work began in August 2012 – three years from today, and also promised that if there is a delay in handing over the apartments it will pay compensation equivalent to rent," added Hagag.

Inbal Or responded: "There were many things that needed solving at the lot's location like the electricity wires – which wasn't the case at other lots."

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