The Real Deal New York

Brooklyn’s most active developer takes tumble in Israel

Brookland’s bonds dove 15 percent in two days, then slightly recovered
By Chava Gourarie | July 20, 2018 06:00PM

Boaz Gilad and 447-449 Decatur Street in Brooklyn (Credit: Boaz Gilad photographed by Axel Dupeux and Brookland Capital)

Boaz Gilad’s Brookland Capital had a rough week in Tel Aviv.

Over the course of two days, the company’s bonds on the Tel Aviv Stock Exchange lost 15 percent of their value, tanking into junk-bond territory. The price fell on Monday, nosedived on Tuesday, before recovering and ending the week with a loss of 8.6 percent.

“It’s the cost of being a public company and has nothing to do with the strength of our company,” Gilad told The Real Deal in an email.

Brookland is the most active developer in Brooklyn at the moment, according to an analysis by TRD, with 37 projects throughout the borough in various stages of development.

During an investor meeting on Wednesday, Gilad said the company had “no idea what caused this crazy change.”

Though it wasn’t immediately clear what had triggered the selloff, a report from consulting firm Giza Singer Even that circulated among financial firms may have been the cause.

According to the Giza report, Brookland owes a total of $45 million in bond payments between now and 2021, but is expecting $44 million in profit.

“In our opinion, if there’s no improvement in the rate [of development] and/or sale prices, the expected profits from existing projects won’t be sufficient to repay its full liabilities,” the report said. Part of the criticism was that much of Brookland’s expected profits are based on promote agreements, which only kick in if and when profits are high enough.

Gilad explained on the call that the $44 million calculation is incorrect. “They completely forgot to count the collateral on the bonds, and the company’s capital,” he said. “They ignored a very, very significant part.”

Another explanation is that there was some speculation on the bond, since the fall began with one large transaction. “We suspect someone speculated on our bonds, and used the last report to short,” Gilad said in the email to TRD.

Brookland’s bond had been trending downwards since last month, when Israeli rating agency Maalot downgraded the bond one notch from BBB+ to BBB stable because of low leverage. In an investor call, Gilad explained that 2017 was a slow year as most of the projects are due for completion in 2018.

In addition, the bonds of American real estate companies have begun to lose their luster. Since the beginning of the year, the Tel Bond Global, which tracks over 20 foreign companies on the Tel Aviv Stock Exchange, fell by 4 percent.