Israeli investors ramp up purchases of development sites

In NYC, a new land of milk and honey

With land prices on the rise, Israeli investors have emerged as one of the most active groups of real estate buyers in New York City.

Due to factors like recent changes in the E-2 Treaty Investor visa program, players with principals — and funding — from Israel have increased their deal-making efforts.

That’s especially true when it comes to buying sites for residential development, particularly for Manhattan and Brooklyn condos, sources say.

While Israeli investors have long been attracted to New York, major players like the Elad Group — which entered the New York market in 2000 and handled the redevelopment of the Plaza Hotel — have recently been joined by smaller players like Izaki Group Investments (IGI). And, sources say, Israeli investors have expanded their presence in the crowded New York City market in recent months, carving out an identity as a group that has both cash to spend and a willingness to take risks.

Brokers say even Israel-born developer Shaya Boymelgreen, who disappeared from New York’s real estate scene in 2009 after a series of high-profile foreclosures and lawsuits, is back in the game, actively bidding on properties. (Boymelgreen could not be reached for comment.)

“There are numerous established Israeli companies, both small and large, as well as first time entrants from Israel looking aggressively for a foothold in Manhattan and Brooklyn,” Eastern Consolidated’s Alan Miller said. He added that they have stepped up acquisitions of — and attempts to acquire — development sites in recent months.
“They are outbidding everyone,” he said.

The current group of active Israeli buyers includes the newly formed Naftali Group, which has purchased four existing properties and four development sites in recent months, including a 90,000-square-foot site in Boerum Hill, Brooklyn, where it will build an 85-unit luxury rental building. Tel Aviv native Miki Naftali founded the firm last year after leaving his post as the CEO of Elad Properties, the New York subsidiary of the Elad Group.

Meanwhile, Fishman Holdings — a subsidiary of Tel Aviv–based telecom giant the Fishman Group — bought 950 Second Avenue, a Manhattan development site, in December. It is also in contract to sell the stalled condo project 5 Franklin Place for $44.75 million to Elad, according to Fishman Executive vice president Yehuda Mor.

Elad said it plans to complete the building, and start condo sales in January of 2013.

And Keystone Group, an acquisition and development company formed by Erez Itzhaki, an Israel native who previously headed the brokerage Itzhaki Properties, last month nabbed Tribeca’s 391 Broadway, with plans to convert it to luxury condos.

And that’s not all.

IGI took control of a development at 15 Renwick Street in Soho in partnership with real estate investment firm Glacier Global Partners, following a foreclosure auction on the property last month. They plan to build condos on the site. IGI is also converting 93 Worth Street from a commercial building into luxury condos.

In addition, Israeli developer Moshe Shuster’s Victor Homes bought 241 Fifth Avenue out of foreclosure last year, with plans to build a 40-unit condo building. Israeli billionaire Eyal Ofer recently signed on to help with the Zeckendorf brothers’ long-stalled condo project at 18 Gramercy Park, where the development duo has been trying to build since 2007. Sales are expected to launch this fall.

And that could be only the beginning. Sources say these Israeli players — and others — are actively searching for more sites.

In fact, the market feels almost like it did five or six years ago, when deal volume was high and many investors overpaid, said Mansour Tabibnia of Azad Property, the Manhattan-based commercial brokerage he and fellow Israeli Barry Farchi founded together this year.

“Developments and conversions are getting back into the market in a strong way,” Tabibnia said. “[It’s] mind-blowing, of course, because everyone said they’d learned their lesson.”

The firm is currently searching for development sites for clients in Hell’s Kitchen, Soho and brownstone Brooklyn, Tabibnia said.

Flight of capital

New York City’s first significant wave of Israeli real estate investors, including Elad and Africa-Israel (which is headed by Uzbeki-Israeli billionaire Lev Leviev) began buying up New York properties a decade ago.

Barons like diamond magnate Leviev and Nochi Dankner of Israel’s IDB Group, which is involved in everything from insurance to biotech, were “millionaires in business, but became billionaires in real estate,” Farchi said.

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Their success, combined with recent improvements in the New York market and Israel’s strong economy, has helped prompt the recent boom in development site purchases by their compatriots.

“Our success has been a great impetus for them; they are envious of the returns,” Elad’s Thomas Elliott said. “On top of that, there is a sense that prices have bottomed out, and a realization that inventory is low.”

In addition to those factors, industry insiders say there’s a “flight of capital” of Israeli money from Europe, which is currently experiencing more severe economic weakness than New York. (Israeli investors have also sought out investments in Florida and on the West Coast, sources said.)

Many of the Israelis investing in New York real estate are moguls or companies from other industries — notably, Israel’s booming technology sector — looking to park some capital outside of Europe for a while as a means of diversifying their investments.
Of course, the formula may not be so simple.

“I’d caution them that there is more to it than plugging money into a development,” Elliott said.

Other companies have accumulated capital from investors in Israel, and need to invest it in a timely fashion — meaning that they want to move quickly, brokers said.
“For the right product, especially if it’s a fund that has to put their money somewhere, they will act,” Farchi told The Real Deal.

Miller agreed that Israeli investment vehicles currently seem eager to close deals quickly.

“[Israelis] aren’t paying more” than other investors, he said, “They are just getting it done.”

Another factor is recent changes to the federal E-2 visa program, which allows foreign investors to live in the U.S. while investing a certain amount of capital in U.S. businesses.

Earlier this year, the Obama administration changed the rules to allow Israelis to qualify for the program, which requires them to invest as little as $100,000 in a U.S. entity in order to gain a visa, according to Jacob Sapochnick, a California-based immigration lawyer who works with many Israelis.

This has made the E-2 visa a favorable alternative to the EB-5 Immigrant Investor Program, which requires an investment of $1 million. While the Israeli government has not yet signed off on the rule change, its anticipated approval of the law has sent investors scurrying to buy property in the U.S., said Sapochnick.

He added that the EB-5 program is “much more complicated” than E-2, which takes only around 90 days to push a visa through.

More hands on

Sources say the current crop of Israeli investors tends to take a different approach than other investors in the marketplace. Often, they don’t want an interest in an existing building, or to partner with a local operator — they want to build from the ground up.

Perhaps due to a higher risk tolerance, Israelis in the market right now “are more willing to do actual development work here than others,” said Andrew Gerringer, managing director of new business development at the Marketing Directors.

“Without categorizing or stereotyping a group, Israelis tend to be more aggressive when it comes to real estate,” said David Schechtman, a top investment sales broker with Eastern Consolidated. “They are aggressive because so many have come before and had successes in New York, and because there are other Israelis to call upon” for partnerships.

That said, construction has not yet started on some of the sites recently picked up by Israelis, such as 950 Second Avenue and 15 Renwick, and brokers say the investors may sit on those sites for a while.

Israeli investors are also looking for real estate outside of the condo sector.

“A lot of Israelis are looking for income-producing rental buildings and retail,” Farchi said.

For example, Brack Capital, the New York arm of a company traded on the Tel Aviv Stock Exchange, is developing a 290-room hotel at 180 Orchard Street, according to published reports.

During 2008 and 2009, Israeli investors “familiarized themselves with the markets,” Schechtman said. “Now they make them.”