The Real Deal New York

Extell bonds plummet in Tel Aviv

Developer’s bonds trading at 15% yield after delay in closing RXR financing

May 19, 2016 04:39PM
By Rey Mashayekhi

From left: Gary Barnett, Tel Aviv Stock Exchange and Scott Rechler

From left: Gary Barnett, Tel Aviv Stock Exchange and Scott Rechler

Questions continue to hover over Extell Development’s presence on the Israeli bond market after a tough day for U.S. real estate firms trading on the Tel Aviv Stock Exchange.

Extell led a widespread selloff of Israeli bonds backed by U.S. real estate assets, falling by around 6 percent on Thursday alone after seeing drops of around 4 percent on Wednesday.

The Gary Barnett-led firm’s two bond series are now both trading at yields of around 15 percent, with Israeli market sources describing Extell’s performance as “distressed.”

The selloff in Extell bonds is being attributed to a delay in the closing of more than $463 million in financing from Scott Rechler’s RXR Realty. The funds are going toward the development of Extell’s One Manhattan Square condominium tower and its rental projects at 500 East 14th Street and 555 10th Avenue. Extell and RXR have extended the closing date of the loan agreement to the end of June.

But the selloff also speaks to wider uncertainty about public debt issuances by foreign real estate firms in Tel Aviv, particularly in wake of the scandal over Toronto developer Urbancorp’s bond offering, which was beset by accounting and disclosure irregularities.

Extell isn’t the only New York real estate company trading in Israel to feel the effects of the selloff; Allen Gross’ GFI Capital Resources Group saw its bonds down more than 3 percent on Thursday and trading at a nearly 10 percent yield-to-maturity, while the likes of Brookland Capital, Delshah Capital, Lightstone Group and All Year Management all saw their bonds drop further below par value.

But it is Extell – the largest U.S. issuer in Israel with around $450 million in total debt issued – that has faced the greatest scrutiny from investors in wake of a slowdown in Barnett’s bread-and-butter market: Manhattan luxury condos.

Israeli investors’ concerns over a slowdown in the luxury market prompted Barnett to pay a visit to Israel in March, meeting with investors to “restore calm” as the yields on his company’s bonds steadily rose.

The developer subsequently hosted a delegation of Israeli investors in New York to tour his assets in New York, Bloomberg reported. But Israeli market sources told TRD that investors are still skittish.

“Even if [the RXR financing closes], there’s a big question now that you’re building a billion dollars worth of condos: who’s buying it?” said one Israeli financial market source. “How can you match the cash flow of the condos with the cash flow [required to pay off] the bonds?”

Extell did not return requests for comment.

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