Seeking cash, not milk or honey

Crunching the numbers on the push into the Israeli bond markets that’s helping to bankroll NYC projects

Oct.October 01, 2017 01:00 PM

The Tel Aviv stock exchange

They go to the Holy Land not to pray, but instead to appeal to the people (aka investors) for cash. In the last few years, U.S. real estate players have trekked to Israel to raise cheap capital on the Tel Aviv Stock Exchange.

Two or three years ago, firms were tapping the market with abandon. Then in mid-2016 everything changed when Canadian condo developer Urbancorp filed for bankruptcy after raising $48 million just five months earlier. The investor backlash spread to American companies, prompting several to pull the plug on planned IPOs. But the market roared back to life about a year later and is now operating on a more mature level, with investors evaluating firms in a more nuanced way and differentiating between market sectors with a more discerning eye.

Unlike the New York Stock Exchange, companies don’t need to actually go public on the TASE. Instead they can create an LLC, lump as many (or as few) assets into it as they want, and issue bonds. Last month, investor Joel Schwartz did just that, raising $85 million in an IPO backed by 27 Brooklyn properties. And in a sign that these American firms are a permanent fixture, U.S. real estate companies are dominating an index the TASE launched over the summer to track foreign companies.

$1.9B

The amount U.S. developers and landlords have raised on the Israeli bond market this year. That’s up from about $945 million raised in 2016. The Leser Group was the first U.S. real estate firm to make an offering when it raised $38 million in 2008. Today, U.S. real estate bonds make up 6.4% of all corporate bonds on the TASE.

16

The number of NYC-based real estate firms that are trading on the TASE. By comparison, there are only seven other real estate firms based in all of North America on the exchange. In addition to NYC megaplayers like Extell Development’s Gary Barnett, Wharton Properties’ Jeff Sutton, the Related Companies and the CIM Group, that also includes smaller and midsized firms like Brookland Capital and Delshah Capital, which have raised $54.8 million and $171.8 million, respectively.

$4.2B

The overall value of the newly minted Tel Bond Global — the index that’s currently made up of bonds issued by 19 North American real estate companies. That dollar figure does not include the bonds issued by a handful of American real estate companies outside of the index.

1

The number of notches Extell’s Israeli bonds were downgraded in August. The move stems from the firm’s recent disclosure that it had just $36 million in cash on hand with bond payments looming. But the bonds were still considered low-risk, and the firm got points for its successful January financing of One Manhattan Square. Extell said the downgraded was unwarranted.

4.7%

The average yield of all bonds tracked by the Tel-Bond Global as of mid-June. That’s a considerably sweeter return than the 1.8 percent investors are raking in on five-year U.S. government bonds, which are considered lower-risk.

2%-3%

The amount of the total offering that an “advisor” can take home in commission on a typical deal. Assuming that standard rate, Joel Wiener’s Pinnacle Group — operating under its Israel public name, the Zarasai Group — could have paid up to $3.6 million in commission for its $120 million April bond issuance.

10+

The number of hours it takes to fly from New York City to Tel Aviv on a nonstop flight. Real estate bigwigs are expected to be in Tel Aviv for at least part of the bond-issuing process, although much of the work is done by the coterie of consulting firms and lawyers that they need to hire.

1

The number of buildings that secured the February bond offering by Yoel Goldman’s All Year Management when it raised $166 million for its high-profile William Vale Hotel in Williamsburg. The issuance — the first (and only) for a U.S. company secured by a single asset — was guaranteed by the first mortgage on the property, where Goldman has a 50 percent stake.


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