Spencer Equity Group, All Year Holdings and Noble Assets have a lot of things in common. For one, they are among the 35 or so U.S. real estate companies that have issued bonds on the Tel Aviv Stock Exchange in recent years.
More particularly, they specialize in Brooklyn residential real estate. And even more particularly than that, their principals are all named Joel — Joel Goldman is at the helm of All Year, Joel Gluck controls Spencer and Joel Schwartz is at Noble.
The common first name is due to the fact that another thing the three companies share is that they are controlled by Satmar Hasidim and the principals are named after the sect’s founding rebbe, Rabbi Joel Teitelbaum.
In the past few days, however, they have all also shared a misfortune — sinking prices for their Tel Aviv-traded bonds amid rumors of corporate funds being misused, debt coming due and pressure from short sellers.
The bears all came together last Thursday when Spencer Equity’s bonds dropped as much as 12.5%, leaving its Series Gimmel bonds trading at a yield of 20%. All Year Holdings’ bonds, which had fallen sharply three weeks earlier, dropped 5%, boosting the yield on its Series Bet bonds to 30%. Noble dropped 2.5% to yields of 25%.
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The bloodletting continued on Sunday, with All-Year Series Bet down 10.6% and Spencer Series Bet down 4.2%.
It merits also noting a bit about how three Satmar Hasidim became big players in the hot Brooklyn real estate market. Although the ultra-Orthodox Satmar Hasidim trace their origins to Hungary, after World War II they relocated with their spiritual leader, the rebbe, to Williamsburg in Brooklyn. For decades, they shared the neighborhood with poor and lower middle class Puerto Ricans and Dominicans.
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But in the last decade, Williamsburg has begun gentrifying. Indeed it has become one of the most sought-after neighborhoods in New York, causing prices for apartments there to skyrocket. Satmar real estate agents, who had traditionally worked in their own community, suddenly found that they had insider knowledge in a hot market.
“Satmar relators usually got their start by doing property investments for the community — a few thousand dollars here and few thousand dollars there. That’s how they grew,” said one banker who works with them, but asked not to be named.
Out of those modest beginnings, some of the borough’s biggest real estate developers grew. Over the past 15 years, All Year has grown into one of the biggest players in Brooklyn, with a portfolio of 161 buildings and 2,700 apartments worth $1.8 billion.
Spencer, another major player on the New York scene, works mainly in U.S. Housing and Urban Development Department rent-subsidy programs. The company has 2,716 apartments in its portfolio in high-demand areas.
Noble is smaller than the other two, with 39 properties and 1,000 apartments in Williamsburg, Bushwick and Bedford–Stuyvesant, about half of which are rent-controlled. It has nine projects in planning or construction.
All Year and Spencer first issued bonds in Tel Aviv at the end of 2014 and Noble followed suit three years later — altogether raising about 4 billion shekels ($1.1 billion) over the last four years. The plunging prices for the three companies’ bonds and the double-digit yields reflect investor doubts about the companies’ ability to repay. Unless prices turn around, none of the three will be able to roll over their debt, which means they will have to rely either on cash flow, the sale of assets or will need to secure new loans in the United States to repay it.
Market sources attributed the sell-off that began at All Year in part to reports that money had been moved out of the company — accidentally, it was said — into the hands of controlling shareholders. The Israel Securities Authority ordered the company’s financial reports to be amended and All Year held talks with investors to restore calm.
Meanwhile, sources said Spencer was weighed down on Thursday amid reports about problems with the way the company was handling properties it owns jointly with All Year. Among other things, they were said to be employing a system known as master leases, where entire buildings are handed over to a broker to rent to tenants. The broker takes on the risk, but gets the leases at a discount in exchange for only a partial guarantee to fully rent out the building. Although it is a widespread practice in New York, the master leases are being portrayed as a second-best substitute to renting directly to tenants.
Over the weekend, one market source discounted the “rumors” as “nonsense spread by people who have taken a short positions,” meaning they are betting the price of the bonds will fall. Sources close to the companies claim that disinformation is being spread on WhatsApp and are asking regulators to step in. Another rumors is that Spencer has only until the end of January to repay a $53 million loan on its the North Flats project, although the company says the loan can be extended under certain conditions.
TASE data show that the value of short positions on Spencer grew the week ending January 3 (the latest figures available) to 42 million shekels from 26 million the week before. Short positions on All Year were steady at 75 million.
On Sunday, Spencer said it was working to extend two loans totaling $170 million coming due January 13 and is doing the same for The North Flats loan. “There are parties exploiting current concerns in the market by spreading rumors that have no basis in fact, Spencer said.
All Year echoed that, saying the rumors “have caused great damage to the company and the investing public.”