Two real estate firms with sizable holdings in the New York City market are among the latest U.S. companies trying to tap the Israeli bond market as a source of funds.
East Village-based Delshah Capital and New Jersey-based retail landlord the Klein Group both filed prospectuses with Israel Securities Authority last month, signaling their intent to issue bonds on the Tel Aviv Stock Exchange through an initial public offering.
Delshah, led by Michael Shah, is seeking to raise between $70 million and $110 million through a debt offering backed by a portfolio of assets featuring both commercial and mixed-use rental properties. The Klein Group, led by Jacob Klein, is targeting a roughly $60 million issuance backed by a portfolio of retail assets in Manhattan and New Jersey.
Both firms are being advised on their respective deals by Israeli financial consultants Yehonatan Cohen and Yossi Levi of InFin, who helped advise Stephen Ross’ Related Cos. on its $210 million offering earlier this year and recently helped residential developer Copperline Partners raise more than $85 million on the Tel Aviv Stock Exchange.
Delshah’s IPO features a portfolio of 13 properties with a combined appraised value of $460 million, according to sources with knowledge of the deal. The properties include roughly 1,100 federally subsidized, affordable housing units in Staten Island, as well as four commercial and six mixed-use rental properties in Manhattan.
The commercial properties included retail assets in the Meatpacking District that currently house tenants like Restoration Hardware, J. Crew and a subsidiary of Urban Outfitters parent company Urban Retail.
“We think the raise [will be] a win-win for Delshah and Israeli investors,” Shah told The Real Deal. “Israeli investors get access to cash flows from assets with long-term leases in premier Manhattan submarkets like Soho, Meatpacking and the Lower East Side, balanced with a project-based Section 8 portfolio where the rent comes directly from a federal agency.”
Delshah will look to use the bond proceeds “to grow [its] portfolio of value-add, mixed-use properties in key Manhattan submarkets,” Shah added.
The Klein Group, which recently closed on the $60.5 million acquisition of a retail condo on the Upper West Side, is issuing a portfolio of no less than 22 retail properties located in Manhattan – including its retail condos at 111 Fulton Street in the Financial District – as well as New Jersey and the Philadelphia area. The portfolio holds a combined appraised value of around $250 million, sources said.
The Florham Park, N.J.-based firm seeks to use the proceeds from its bond offering “to raise capital and equity for future deals,” company president Jacob Klein told TRD, and potential buy out existing partners at some of its properties.
“The Israeli market is very receptive to American real estate holdings, and they view America as very stable politically, economically and security-wise,” Klein, who was raised and educated in Israel, said. “And the Israeli investor values these assets, especially in the New York City metro [area], very highly.”
How much both Delshah and Klein Group will raise on the Tel Aviv Stock Exchange will depend on the ratings their portfolios receive from Israeli credit ratings agencies. Those ratings, which will be delivered in the coming weeks or months, will dictate the interest rates on the bonds they hope to issue – but they will be boosted by a crop of income-producing assets in a New York City real estate market that has appealed to Israeli institutional investors.
U.S. real estate firms, particularly ones based in New York, have increasingly looked to the Israeli bond market as a source of cheap, affordable capital. Joseph Moinian’s Moinian Group closed the largest such offering earlier this year, closing a $361 million debt issuance at an interest rate of 4.2 percent.
That deal would have been eclipsed by a $500 million issuance by retail magnate Jeff Sutton’s Wharton Properties, which fell through last month and sought a maximum interest rate of 4.8 percent. Sutton plans to retest the market in the coming months, according to sources.