Dogs of the Real Estate-15 Index

The capital market is expecting a wave of smallcap bankruptcies.

The implosion of Nidar Construction & Development and the convulsions at Dadeland Towers and TRD are just the start. Small real estate companies are going to fall like a house of cards in the year to come. Why should you care? Possibly because these small companies were financed by provident funds, insurance companies and mutual funds in which we're all invested.

The vision of multiple real estate companies collapsing is not just the province of a few alarmist analysts or bankers, or a pessimistic journalist. It's the prediction of the capital market, as we realize from the soaring yields on these companies' bonds.

A high yield points to investors suspecting that the company won't be repaying its bondholders. The more rock-solid the company, the less it has to compensate bondholders for risking investment in their paper. But if, say, a small, unknown company wants to borrow money it must pay high rates to persuade investors to open their wallets.

A year ago, about 50 bond series were trading at double-digit junk-bond status. Today more than 100 series of straight (ordinary) bonds and another 50 series of corporate bonds have been relegated to junk status.

And if a year ago "junk status" generally referred to yields of around 10% to 30%, now we're talking about yields exceeding 100% in some cases. A yield of just 10% suddenly looks like a declaration of faith in comparison.

When a company owes money to bondholders who think they won't get their money back, the price of the bond drops - (who'd pay more for it?) - and the yield rises. Price and yield behave inversely.

The bottom line is that capital market circles think these companies are going to default on their debt. Some companies are demonstrating that they have every intention of paying their debt, by buying back their bonds. (They're getting them at a low price and know they won't lose money because they know they're going to repay the debt.)

Other companies are doing no such thing, which makes the skepticism regarding them all the more acute.

The problem began with the subprime meltdown in the U.S. a year ago, which turned into a global credit crisis. Here are some companies for which investors aren't showing the love.

Carmel Holdings

Bonds of Carmel Holdings are trading at junk status of 106%. At the end of the first quarter of 2008 the company's shareholders equity totaled NIS 17 million and its liabilities totaled NIS 300 million. Its market capitalization is a miserable NIS 9.4 million. Carmel owns shares in Beitili, ID Design and Carmel Carpets, by the way.


A year ago the company, which belongs to Meir Gurvitz, was worth over NIS 1 billion shekels. Today its market cap is NIS 100 million and at the first quarter's end its shareholders equity amounted to NIS 360 million. Its liabilities amounted to NIS 3.8 billion. The yield on its B2 bonds is 52%.

Ofek Real Estate

This sister company of Dadeland (which has defaulted on interest payments to bondholders and is in suspension) had belonged to Eli Bardugo, an Israeli businessman living in the U.S. He died a few months back but his two companies had already been gasping beforehand. Absent Bardugo, who had been described in the prospectus as key to Ofek, the company spiraled south fast. Today its market cap is NIS 5.5 million, its equity deficit was NIS 41 million at the first quarter's end and its bonds are trading at junk status of 110%.

Global Max

It owns the Imax cinema in Eilat and never issued shares, only bonds. Its shareholders equity totals NIS 50 million, which is roughly equivalent to its liabilities, yet investors evidently don't believe it will honor its debt: Its bonds trade at a yield of 94%.

Enter Holdings

The company, which belongs to Amit Berger, owns shares in the Tiv Taam supermarket chain and 5% of the Prisma investments firm. Enter is operating under a going concern warning and its market cap has imploded to just NIS 12 million. It has an equity deficit of NIS 9 million and liabilities of NIS 210 million.

It just sold its stake in the Perfect investments firm to Kamor in order to meet its upcoming interest payment to bondholders. How it will meet subsequent interest payments remains to be seen. The yield on its bonds has climbed to 85%.

Boymelgreen Capital

Rumors of liquidity problems have been swirling around businessman Shaya Boymelgreen for over a year. Boymelgreen Capital, which controls Azorim, rejected the rumors and claimed they were malicious. But even now Boymelgreen's B1 bonds are trading at junk status of 73% and its B3 bonds are trading at a yield of 63%. At the first quarter's end, Boymelgreen Capital's shareholders equity totaled NIS 695 million and its liabilities totaled NIS 7.7 billion. Its market capitalization has shrunk to less than NIS 100 million.

Shikun Dayarim

Shikun Dayarim's shareholders equity is NIS 180 million and the yield on its B1 bonds is 57%.

Ameris Holdings

Arcadi Gaydamak has great plans for Ameris Holdings, which controls the gas stations company Petro Group. Gaydamak intends to merge Willi-Food, Gilon Investments and Ocif into a single mega-company under Ameris and is talking about raising capital, too. Investors are voting on his plan with their feet. Ameris' shareholders equity totals NIS 100 million and its liabilities total NIS 800 million. Its bonds are trading at junk yield status of 61%.

B. Yair

This real estate firm belonging to Yair and Yosef Biton has liabilities of NIS 1.4 billion, ten times its shareholders equity of NIS 150 million, and its market cap has sunk to NIS 33 million. Its Series B6 bonds are trading at a yield of 48%, but to their credit the company and its controlling shareholders have been repurchasing the bonds.