The Real Deal New York

Pinnacle Group raises $120M in Tel Aviv bond issuance

Funds could go toward $42M buyout of Praedium on Riverside portfolio
By Chava Gourarie | April 26, 2017 10:05AM

(Credit: Getty Images)

Joel Wiener’s Pinnacle Group TRData LogoTINY raised $120 million in an institutional tender on the Tel Aviv Stock Exchange at an interest rate of 3.6 percent.

With demand for the $95 million offer exceeding $270 million, Wiener had upped the ask to a maximum $135 million.

The funds could potentially go toward a $42 million buyout of Praedium Group on a 10-building rental portfolio along Riverside Drive they own together with Pinnacle, according to a note filed with TASE.

The offer is an expansion of the third series of bonds Pinnacle issued in November through its public entity in Israel, known as the Zarasai Group. The bond is backed by a 116-building portfolio with close to 9,000 units valued at $1.8 billion as of Dec. 31, 2016, according to the the company’s financial reports.

In a presentation to bondholders, Pinnacle announced the Praedium deal. Wiener, who owns 32 percent of the $62 million portfolio, will pay $42 million for Praedium Group’s 68 percent stake and transfer the 250-unit portfolio to the Zarasai entity.

The portfolio, which includes 690 and 720 Riverside Drive, consists of 250 unsold units in 10 condominium conversion buildings, primarily in Hamilton Heights and Washington Heights. One of the buildings, at 706 Riverside Drive, was the subject of a class-action suit against Pinnacle in 2008, regarding alleged tactics to evict residents to make way for condo conversion. The deal has not yet closed.

Converting rent-stabilized buildings to condos is a key strategy for Pinnacle. The majority of the buildings are rentals, and eight buildings will be converted to condos pending approval from the New York state Attorney General’s office. According to the rating company Maalot, which awarded Zarasai a rating of AA- ahead of the bond issue, a core issue influencing the score is the projection that two to three buildings a year will be converted to condos.

Pinnacle has been rated AA- since entering the market in 2012 but the coupon has decreased in each of the last three rounds. In November, Pinnacle raised $79 million at 4.35 percent.  The 3.66 interest rate is the lowest of any U.S. company to issue bonds in Israel thus far, in a continuing tightening of the gap between U.S. and Israeli companies. “Zarasai is traded like an Israeli company,” says one analyst who specializes in U.S. real estate companies. “He’s very well liked.”

Rafael Lipa and Amit Gal of Victory Consulting Group advised Pinnacle on the bond offering.

(To view more properties owned by Pinnacle Group, click here)