New York retail magnate Jeff Sutton will attempt to delay a $500 million public bond offering on the Tel Aviv Stock Exchange after poor market conditions and lackluster demand derailed what would have been the largest Israeli debt issuance by a U.S. real estate firm.
Sutton’s Wharton Properties was due to close a bond offering this week on the TASE that would have made the retail landlord the latest U.S. real estate player to take advantage of Israel’s burgeoning corporate debt market.
But despite being backed by a portfolio of assets featuring 17 properties valued at $1.1 billion – and one that had received a relatively high rating of AA from Israeli ratings agency S&P Maalot – the issuance received little interest from Israeli financial institutions and investors on Wednesday.
Of the roughly $500 million sought, the offering was able to muster no more than $100 million in an institutional tender to major Israeli banks and pension funds, according to sources with knowledge of the transaction.
Poor demand for the Wharton issuance, sources said, was due to weak market conditions in Israel this week and the deal’s complicated structure. Sutton and his advisers, Tel Aviv-based Victory Consulting, will now look to postpone the offering for several weeks – until after the fall Jewish holidays — before retesting the market.
The bond issuance sought a maximum interest rate of 4.8 percent over the duration of 5.3 years, though Wharton is understood to have been seeking a rate well below that 4.8 percent maximum. Sutton has been weighing an offering on the Tel Aviv Stock Exchange since at least May, when his firm published a preliminary prospectus.
Those plans have since been revised several times, and Israeli financial market sources said the deal’s complex nature – as well as an increasingly mature and selective market in Israel – contributed to weak demand from institutional investors.
The $500 million offering — if it were to go through — would eclipse the Moinian Group’s $361 million issuance earlier this year as the largest such deal by a U.S. real estate firm in Israel. An increasing number of New York-based developers and landlords have looked to Tel Aviv’s corporate bond market in recent years as a cheap source of funds.