Pacific Oak raises $95M on Israeli bond market

Investment firm moves out of offices, into apartment assets

From left: Pacific Oak co-founders Keith Hall and Peter McMillan (Pacific Oak, Getty Images)
From left: Pacific Oak co-founders Keith Hall and Peter McMillan (Pacific Oak, Getty Images)

Pacific Oak Strategic Advisors has found some fresh capital from Israeli investors.

The L.A.-based real estate investment firm raised $95.1 million in May by issuing new bonds to registered investors in Israel, according to SEC filings and bond documents filed with the Tel Aviv Stock Exchange.

The new bonds, which bear interest at 3.93 percent a year, were issued in addition to the $257 million worth of debt issued to Israeli investors since the beginning of 2020, according to previous SEC filings. The firm currently has around $314 million in Israeli bonds on its balance sheet and uses the proceeds for investments.

Pacific Oak has raised money through Israeli bond offerings since 2016, when it first raised $250 million in 4.25 percent bonds — one of many developers that saw the Israeli bond market as a way to obtain a cheaper source of capital. By issuing bonds in Israel, these firms discovered they were able to raise debt for properties without a mortgage and obtain favorable and lower interest rates.

Some firms took it too far. In 2020, Starwood Capital Group defaulted on at least $250 million worth of Israeli bonds tied to a regional shopping mall portfolio. The Israel Securities Authority is now providing financial support for a class action lawsuit against Starwood, which alleges the company misled investigators about the risks of investing in bonds backed by struggling retail properties in the U.S.

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Pacific Oak’s recent raise wasn’t enough to save a loan tied to 110 William Street in New York’s Financial District. Earlier this month, the firm disclosed it defaulted on a loan on the 32-story tower along with its partner Savanna.

A lender was not disclosed, but Invesco Real Estate provided Pacific Oak and Savanna with a $349 million refi for the building in 2019. Pacific Oak has a 60 percent ownership in the joint venture with Savanna that owns the building.

Last year, Pacific Oak sold off a 435,000-square-foot office tower in Orange County for $150.5 million, another signal the firm is looking to get out of its office investments.

The firm has shifted its focus to multifamily deals, most recently closing a $118 million fund that purchased two properties in Arizona and one in Oregon. Pacific Oak is “actively looking at other markets” to buy apartment complexes, Peter McMillan, a co-founder of Pacific Oak, told Multi-Housing News in June.

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Pacific Oak Capital, Savanna default on 110 William Street