Rami Levy Blames High Housing Prices on ILA

Rami Levy began 2010 on the right foot. Over the past two months, the owner of the publicly traded Rami Levy Shivuk Hashikma supermarket chain has spearheaded deals in three different fields.

For one, he announced that he is considering throwing his hat into the cellular communication sector, and conducted negotiations to buy the Xphone 018 international telephone service company. Plus, he struck one of his most significant real estate deals, to purchase a 20-dunam lot in Jerusalem's Holyland compound for NIS 145.5 million, in partnership with Nahor Transportation.

Meanwhile, his main business, the supermarket chain, grew to a market valuation of more than NIS 1 billion.

"The company's strategy is to sell cheaply and with integrity, and fulfill commitments to consumers," Levy told TheMarker. "This is our policy and this is how we operate - being cheaper than the competition everywhere we set up shop, by up to 20%. That is the secret of our charm."

Levy, 54, has four children and two grandchildren, and lives in Jerusalem's Gilo neighborhood. He was born in the tin shack neighborhood of Nahlaot. His father was born in Israel, and his mother in Iraq; together, they raised six children in a one-room apartment with a washroom and kitchen they shared with the neighbors.

Levy's dream of becoming a merchant was born during trips to nearby Mahane Yehuda market with his mother, where the wholesalers on Hashikma Street would sell their wares at a discount to merchants, but not to individual shoppers. It was only a matter of time until Levy decided he was going to bring this market down - and give consumers wholesale prices.

"For wholesalers, it's too much trouble to sell to individuals," says Levy. "I realized the potential in my dream when I saw the major consumer demand for wholesale prices.

"So in 1976 I rented a 40-square-meter space on Hashikma Street. I bought merchandise from a wholesaler, and sold it at cost. At first I didn't make any money, but I did attract a following.

"After three months I started buying merchandise from the importer, and continued selling at wholesale prices. That is how I managed both to turn a profit and to keep my commitment to customers. From there I expanded to become the first discount store in Israel, Rami Levy Shivuk Hashikma."

Rami Levy Shivuk Hashikma's operations focus entirely on the retail chain. The company had its initial public offering in mid-2007. At that time, the chain had eight branches, but doubled to 16 within two years. Levy plans to expand to 30 branches by the end of 2011.

Entering commercial real estate was a natural move for Levy. He got into the market in the 1970s, when he bought his first store, which was 40 square meters. In the early 1980s he bought another store, of 80 square meters.

"I always invested in real estate," says Levy. "Now I own 65% of the land where the chain has outlets."

This includes about 35,000 square meters of land in Mevasseret Zion, Modi'in, Gush Etzion, Pardes Hanna and Be'er Sheva. Levy says he purchased the land with his private company's equity, which is estimated at NIS 500 million.

When did you start buying residential real estate and why?

"I bought my first residential plot about 10 years ago, in Har Nof, Jerusalem," says Levy. "The land was zoned for protected housing, but I got it changed to regular housing, in order to build 100 housing units, and will soon start marketing and building on that site. My private company has land for about 1,000 housing units in Jerusalem, some of which have been approved or are in the planning stages. My expertise is in building commercial centers, but when other opportunities present themselves, whether in commerce, industry or residential housing, I examine them closely."

Last month Levy entered a partnership with Amikam Ben-Zvi and Housing and Construction Real Estate to buy land in the Givat Hamatos compound in Jerusalem. Levy and Ben-Zvi bought land there for about NIS 13 million. The site as a whole is districted for 1,000 housing units.

In 2009, Levy bought Delek Real Estate's share of the train station compound on Bethlehem Road for about NIS 25 million. That deal, along with previous purchases by his partner Avi Mordoch, gave Levy 12 dunams at that site, zoned for about 300 homes.

Levy struck another real estate deal at the end of 2008, when he bought the rights to SBH Sha'ar L'Yerushalayim from B. Yair Construction for NIS 15 million. That purchase made Levy the controlling shareholder of a company that owns seven dunams of land on Hebron Road, which is zoned for 240 housing units, a hotel, and commercial and industrial space.

Levy purchased other lots over the past decade, but only a few of them have approved urban building plans. Levy, like many entrepreneurs in Israel's capital, is hampered by Israel's bureaucratic planning processes, which are worst in Jerusalem. Even being a member of Mayor Nir Barkat's Jerusalem Will Succeed city council faction has not helped.

How are you affected by the bureaucracy?

"I am not a good example, because I buy with my own money and very little leverage from the banks, as opposed to other developers, who are dependent on the banks and have significant leverage," says Levy. "In their situation, if it takes three years to get a building permit, they pay a lot of interest. In the end, either they go bankrupt or pass on their costs to the home buyers.

"The bureaucracy should be reduced in order to lower apartment prices. An urban building plan should be approved within a reasonable time frame, and building permits should be issued without delays. Sanctions against the authorities should be considered, or compensation for developers, if the authorities do not stick with a timetable. This strategy will benefit everyone."

If the Construction and Housing Ministry were to flood the market, would that affect prices?

"It is the Israel Lands Administration that is pushing up housing prices," says Levy. "It is making sure that the rich get richer and that those with no money get nothing from state lands. Apartment prices will not come down under the current distribution policy, which is based on tenders. Prices are too high and unrealistic, and the participants in land tenders are mainly companies with money and purchasing groups that can bid twice as high. It's no wonder prices are climbing.

"It's absurd: On the one hand, the government lambastes the purchasing groups, warns that this phenomenon is fraught with risks, and tries to narrow their influence. On the other hand, the government appraiser bases his market assessments on tenders won by the groups, and raises prices accordingly."

"If the authorities are worried about the consumers' best interests," continues Levy, "ILA lands, which belong to all Israelis, should be distributed by lottery, and not by tender. The government appraiser should set the price, and not the tycoons. When companies want to buy a tract of land they should enter a lottery, not based on bidding but rather on a price set by the appraiser."

So Rami Levy can't lower apartments to supermarket prices?

"Bringing apartment prices down involves a lot of things that have nothing to do with me.

"As for our projects, we will soon be marketing the Holyland (265 apartments) and Har Nof (100 apartments) complexes. The Holyland apartments are in an upscale area, where four-room, 100-square-meter apartments sell for NIS 2.2 million. We paid NIS 145.5 million for the site, which is about NIS 550,000 per apartment. In Ramot, where land is cheaper, land for one home recently sold in an ILA tender for NIS 800,000. I think we made a very good deal, and will be able to compete in the market."

We are seeing other supermarket chains, such as Hetzi Hinam, entering the real estate sector. Is this a new trend?

"I don't think this is new. It is natural for anyone in commerce to diversify his investments, and real estate is one of them. I think there is room for everyone. There are old-time players and there are new players. The more the merrier."