Marx offering underwhelms as Tel Aviv braces for massive Wharton debt issuance

Flushing developer's $25M deal to be followed by Jeff Sutton's $500M issuance

From left: David Marx and Jeff Sutton
From left: David Marx and Jeff Sutton

While developer David Marx’s debt issuance on the Tel Aviv Stock Exchange earlier this week fell considerably short of expectations, Israel’s burgeoning corporate bond market is expecting its largest debt offering ever by a U.S. real estate firm next week – a $500 million issuance by retail magnate Jeff Sutton.

Marx Development Group closed on a roughly $25 million bond offering in Tel Aviv earlier this week, falling well shy of the $40 million targeted by the developer and his advisers and the $50 million possible under the terms of the issuance.

Despite raising around $24 million through an institutional tender targeted at Israeli banks, pension funds and financial institutions, the offering could only muster about $1 million through a public tender open to a wider array of investors.

The deal, closed at an interest rate of 8.9 percent, becomes the smallest and most expensive bond issuance made by a U.S. firm on the Tel Aviv Stock Exchange, according to market sources. The Marx offering’s underwhelming performance was attributed to a relatively low bond rating of BBB+ from Israeli ratings agencies, which resulted in soft demand from investors.

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While a portfolio of assets valued at $514 million backed the debt issuance, it was heavily skewed toward Marx’s development of a planned 399-room Marriott Courtyard Hotel at West 34th Street and 10th Avenue in Hudson Yards – which consequently hindered the offering’s bond rating, sources said.

Marx could not be reached to comment. Victory Consulting – the Tel Aviv-based firm that advised Marx Development Group on the deal – declined to comment on the matter.

Though the issuance’s tepid performance could provide fodder for critics that the Israeli bond market as a fundraising vehicle for U.S. firms, the Tel Aviv Stock Exchange is gearing up for its largest debt offering to date by a U.S. real estate company – a $500 million deal by retail giant Jeff Sutton’s Wharton Properties.

Wharton’s bond issuance — which would eclipse the $361 million raised by the Moinian Group earlier this year — is expected to close Wednesday in Tel Aviv, with a maximal interest rate on the deal set at 4.8 percent, according to sources. Sutton is also advised by Victory Consulting and has been dipping his toe in the Israeli waters since submitting a preliminary prospectus in May.

Sutton teamed with Bobby Cayre’s Aurora Capital this week to secure a 99-year triple net lease on a 17-story, 160,000-square-foot office building at 511 Fifth Avenue in Midtown. The building, which features around 20,000 square feet of retail space, is entirely occupied by the Israel Discount Bank.