Three Israeli institutional investors are about to close a $400 million deal to invest in Washington residential properties together with the United States property developer Larry Silverstein as asset managers look for ways to improve returns in an era of record low interest rates.
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TheMarker has learned that the Amitim pension fund, the insurance company Menorah and Psagot Investment House are in the final stages of negotiations with Silverstein, a New York real-estate magnate famous for having leased the World Trade Center buildings just weeks before the 9/11 attacks.
The deal, which still requires the approval of the three Israeli companies’ boards, is to invest in multi-family housing projects in and around the U.S. capital.
Tieing up with American partners who know the business, Israel institutions have been investing in U.S. real estate, in particular multi-family housing, over the last six years, taking advantage of changes in the U.S. housing market since the 2008 mortgage crisis.
Among the other major deals, Poalim Capital Markets and Psagot invested $350 million in 3,000 housing units in the U.S. southeast with Blue Atlantic Partners, an investment fund cosponsored by Atlantic | Pacific Companies and Blue Arch Advisors.
“Multi-family housing is a giant market in the U.S. We are focusing on markets where demand is strong, occupancy rates are high and the demographics are stable and attractive,” Gil Hermon, a partner in the fund investing the money, said when the Blue-Atlantic deal was reached in June.
In March, Migdal Insurance invested $167 million in a partnership with White Oak Partners, an Ohio real-estate investor, and others to invest in three housing projects with a combined 1,056 units in Atlanta and Raleigh, North Carolina.
Psagot and Phoenix Insurance together invested $200 million to buy six multi-family projects with 2,000 units all over the U.S.
Israel interest in multi-family housing as an investment is a function of two developments in the wake of the 2008 financial crisis.
On the one side, many people lost their homes and the market for mortgages has remained tight ever since, forcing many people to choose rental housing over buying. Between 2004 and 2016, the percentage of American who owned their own homes fell to 63% from 69.5%, creating huge new demand for rental properties.
Mutli-family properties – the industry term for apartment buildings or complexes – are regarded as a steady and more reliable property investment than office, commercial or industrial. In times of inflation, rents go up in tandem while in economic downturns demand remains because housing is such a basic need.
Burned by the last big housing crisis, American financial institutions have shunned financing of any kind in residential property markets, leaving the door open for others.
The other factor driving Israelis into U.S. real estate is the record low interest rates that have prevailed since the 2008 crisis. Yields on government and corporate bonds are very low, while annual returns for multi-family housing aru at about 8% to 8.5%, say industry sources. An investor prepared to put money into a development to upgrade it can even expect double-digit returns, they say.