From Orchards to Overseas

Oranges were exactly the right thing for the climate, and the values of Zionism.

Actually, military exports also seem to be entirely appropriate for a country that lives by the sword, and so does the gigantic hi-tech industry that sprouted in the Holy Land, thanks in part to the advanced military technology developed here.

But it is highly doubtful that anybody expected the Good News from Israel in the Age of the New Millennium: global property initiation.

You can't compare the volume of business Israelis do in the international real estate market to hi-tech. Only a few hundred, or maybe a few thousand, Israelis are occupied in initiating property projects around the globe. But there's no question: it's one of the most extraordinary economic phenomena to develop here in recent years.

This week Elbit Medical Imaging (Nasdaq: EMITF), controlled by Mordechay Zisser, floated its subsidiary Plaza Centers in London.

Over the last three years, Israelis have become accustomed to reading about the tremendous sums of money changing hands in the sector. To be sure, the amounts are gigantic by local terms.

Take Plaza Centers, which raised $290 million according to a company value of a billion dollars. Elbit Medical will be posting capital gains of NIS 600 million on the initial public offering, but the more important gain is that its share price has doubled this year, lifting the company's market cap to $770 million.

Elbit Medical is one of the best performers on the TA-100 index this year. It's one of ten stocks on the index that rose by 50% to 150% because of their investments in property, mainly in eastern Europe but in western Europe too, in the U.K. and in the States.

Some quick math shows something astonishing. Check these ten companies' weight on the TA-100 index, and check by how much they rose. You find that without these ten companies, all of which are engaged in the international real estate scene, in fact - the TA-100 index would not have risen at all.

The entire 9% returns that the TA-100 index has generated this year are due to the real estate superstars: Africa Israel (TASE: AFIL), Elbit Medical, Kardan and Kardan NV, GTC, Gazit Globe (TASE: GLOB), Alony Hetz Properties & Investments (TASE: ALHE), Jerusalem Economic Corporation (TASE: ECJM) , Delek Group (TASE: DLEKG) and its subsidiary Delek Real Estate (TASE: DLKR), Electra Real Estate (TASE: ELCRE) , and Arazim. Together these companies have added billions of dollars in value to the index.

 Tshuva was first

The first Israeli businessman to start developing major real estate business in the U.S. and Canada, 15 years ago, was Yitzhak Tshuva (Delek). He was followed by Chaim Katzman (Gazit), who created am empire of shopping centers; Nathan Hetz, who noticed the boom in Britain; Josef Grunfeld and Eitan Rechter of Kardan, who discovered eastern Europe; and Lev Leviev (Africa Israel) and Eliezer Fishman (Jerusalem Economic), who work in all these places and spread to Russia, too.

These are the giants, and then there are dozens of smaller players who have spent the last five years flying the Tel Aviv-Prague line, or Tel Aviv-London, Sofia, Warsaw and in fact every major hub in eastern Europe.

The immediate Israeli instinct is to quail in terror of "capital flight" from Israel to Europe. Indeed, some of the tycoons try to blame the flight of their attention from local markets to foreign ones on the Dastardly Regulator.

The truth is that the liberalization of the currency and financial markets, the savvy and sheer nimbleness of the Israeli businessmen and the increasing access to the capital markets are the reasons for Israel's stunning success in the international real estate sector.

Not one dollar has fled Israel. The marketplace lost not one job as these businessmen turned their attentions to foreign markets. In the global marketplace, money goes where opportunity beckons and the tiny, saturated Israeli real estate sector can't compete with the glittering potential of eastern Europe, or the gigantic markets of the west.

There are risks, of course. The American and British real estate markets are based on huge surpluses of money and growing leverage as households sink up to their necks in debt. Real estate markets in emerging markets are in certain areas in Europe have risen by hundreds of percent in the last few years.

The real estate sector has a history of bubbles. When they explode, the repercussions ripple throughout the economy, ruining bankers and entrepreneurs alike.

Yet there has never before been a boom like this, so long and so deeply dependent on credit, in the international property market. Nor has the global economy ever seemed so dependent on the prices of land and property.

Most Israeli entrepreneurs believe there are still markets with great potential in the U.S., Far East and eastern Europe. Others sense that the brink to the void is approaching fast, and they're trying to cash in their chips before it's too late.

Most people trying to predict when a bubble will burst get it wrong. But one thing is sure. A slowdown or meltdown in the great global economies will ripple onto Tel Aviv, like a freight train. When it comes, the quake will come a lot faster than people think.