U.S. Property Developers Flock to Tel Aviv Debt Market

Four companies have raised $709 million this year and more are on their way.

Eran Azran
Eran Azran
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New York, U.S., on Monday, Aug. 18, 2014.
New York, U.S., on Monday, Aug. 18, 2014. Credit: Bloomberg
Eran Azran
Eran Azran

The New York real–estate developer Steven Witkoff is set to join colleagues such as Joel Weiner of Zarasai Group and Gary Barnett of Extell Development in tapping the Israeli capital market for debt. His Witkoff Group, which holds a huge portfolio of office, industrial and residential properties, is weighing a bond offering that is expected to reach 500 million shekels ($141.6 million). Witkoff Group’s portfolio numbers about 30 properties in the U.S. and Britain, making it one of the biggest Manhattan–based property investors.

Looking forward to the generous fees U.S. property companies have been paying underwriters and go-betweens to issue bonds in Tel Aviv, Tzahi Solomon, chairman and controlling shareholder of Clal Underwriting, has been identifying potential candidates.

Lightstone Group, a New York real–estate developer controlled by David Lichtenstein, was also reported to be weighing a 500 million shekel bond sale in Tel Aviv. If it goes ahead, the offering would be the eighth by an American property developer in recent months.

U.S. developers like Leser Group and Brookland Upreal are turning to an unlikely place like Israel because interest rates are low and capital is readily available. The Israeli market is accessible to ordinary companies — those not structured as real estate investment trusts, or REITs — to raise relatively small amounts of debt from the public.

All told, four U.S. property developers have raised a combined 2.5 billion shekels this year. None have looked to raise equity capital in Israel; nevertheless, the debt offerings have suddenly turned the Tel Aviv Stock Exchange into a key financial center for real–estate companies.

And because they are just testing the waters, they are prepared to pay sizable fees for the privilege.

Two of the most active players in the emerging segment, Rafi Lipa and Gal Amit, have received fees topping 20 million shekels for helping with bond issues by Leser Group, Zarasai and Brookland Upreal. Efraim Kriel, a local property developer, earned some 7.5 million shekels for his role in leading Extell Development’s 1.05–billion-shekel debt issue.

The underwriters themselves aren’t doing badly either, earning far higher fees than they would from managing bond issues for domestic companies. For managing Brookland Upreal’s sale, Poalim IBI received a fee equal to 1% of the money raised, or about 2.5 million shekels. For Zarasai, the underwriter collected about 3.5 million shekels four months earlier.

Managing bond issues for American companies helped raised Poalim IBI’s first–half revenue and profit to 28 million shekels and 13.5 million shekels, respectively.

And not all the foreign issuers coming to Tel Aviv are American Jews.

The Russian-Jewish investor Boris Mintz is looking to sell about 500 million shekels in bonds in Tel Aviv for his O1 Properties. The firm holds some $4.2 billion in assets, most in the form of Moscow office buildings, and recently took on Goldman Sachs as a partner. Mintz has been meeting with Poalim IBI.

Investors in the bond issues have also profited from the phenomenon. The price of the last bond series issued by Zarasai has risen about 10% since the issue last January and is yielding 3.6%.

Brookland Upreal’s bonds have risen 2% and trade at a yield of 6.38%.

Excell‘s bonds have performed less well but still have risen 0.6% and are currently yielding 4.7%.

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