The Real Deal New York

Developers, financiers talk real estate zeitgeist at Stoler summit

Israeli bonds, crowdfunding among topics discussed

June 23, 2015 04:40PM
By Rey Mashayekhi

From left: Ofer Yardeni, Michael Stoler, Steve Witkoff and Peter D'Arcy

From left: Ofer Yardeni (credit: STUDIO SCRIVO), Michael Stoler, Steve Witkoff and Peter D’Arcy

The city’s real estate developers and financiers gathered Monday to discuss the Israeli bond market, 421a and other key industry trends at Michael Stoler’s New York Real Estate Summit at the CUNY Graduate Center.

The Madison Realty Capital managing director and “Stoler Report” host played an engaging moderator to three panels that explored issues ranging from 421a to crowdfunding to the Israeli bond market. Here are some highlights from the conversations:

Israeli bond market all the rage

All three of the morning’s panels weighed in on the burgeoning interest among U.S. real estate players in Israeli’s debt market, which has emerged as an alternative means of financing for New York City developers.

Among those who expressed skepticism regarding Israel’s bond market was RXR Realty president Michael Maturo, who noted his company had “gone down the road” of tapping into the market only to find “hidden costs” associated with currency translation.

The process also requires companies to go public in Israel, which made RXR wary.

“If you’re a private company and you don’t want the world to learn what you’re doing, it’s a problem,” Maturo said.

Stonehenge Partners chair and CEO Ofer Yardeni echoed Maturo’s concerns regarding the cost of bond issuances on the Tel Aviv Stock Echange, and questioned the necessity of raising funds in Israel when “there is plenty of cheap capital in the U.S.”

Yardeni did acknowledge the Israeli bond market as “a great opportunity” for companies looking to raise mezzanine-level debt, and noted that the ratings process in Israel is “easier” than in the U.S.

Developer Steve Witkoff disagreed, however, citing a “heavier scrub” from Israeli ratings agencies than those in the U.S. Witkoff — who also had interesting things to say about the federal EB-5 visa program — was bullish on the bond market’s prospects, describing it as a means of accessing low-interest, “single-digit capital” and pointing to “really smart guys with access to U.S. markets going there” to raise money. Witkoff added, however, that any Israeli bond issuance from his firm would be “a limited offering.”

421a still on everyone’s mind

As the gridlock in Albany over the future of the 421a tax abatement continues, developers discussed the issue’s relevance to residential projects in the five boroughs.

While Witkoff pointed out that “you can’t build affordable [housing] without tax policy” that incentivizes such development, Yardeni took it one step further: “You can’t build affordable [without 421a] but you can’t build luxury rental apartments [either].”

“It’s not just a crisis of affordable housing,” Yardeni said, citing “a crisis at every level” of housing in the city. “Hotels are converting to apartments and charging $50,000 to $100,000 a month. The situation is only going to get worse because there is no supply.”

Later in the morning, DDG chair and CEO Joe McMillan noted the complexities that 421a could hold for project financing.

“A prudent fiduciary would have to presume there’s no [more] 421a,” McMillan said – adding that while he believed some compromise would be reached regarding the program, he “wouldn’t put any money on it.”

Crowdfunding becoming omnipresent

Among the panelists in attendance was Fundrise co-founder and president Dan Miller, whose company has helped increase the visibility of crowdfunding as a viable platform for financing development projects.

Fundrise’s first substantial capital raising of $31 million last year featured Silverstein Properties’ Marty Burger and Tal Kerret among the investors, and the firm has marketed some of the tax-free bonds used to finance Silverstein’s 3 World Trade Center.

Miller described how the platform allows private investors to access a market they wouldn’t normally be able to participate in. “If you give someone access to commercial real estate, it’s a very appealing asset,” he said.

Both M&T Bank’s Peter D’Arcy and Mack Real Estate Credit Strategies’ Peter Sotoloff pointed to how regulatory issues have hindered banks’ abilities to deploy capital for development projects. Crowdfunding platforms have helped fill the resulting void, they said.

Yardeni was perhaps most bullish on crowdfunding, comparing its future prospects to technological breakthroughs like computers and mobile devices.

“I believe in five to 10 years you can’t do business without crowdfunding,” he said.