Boaz Gilad’s Brookland Capital won’t meet its upcoming debt obligations in Israel, the company announced Monday evening, after halting trading on its bonds earlier in the day.
Gilad said in a statement that due to a series of delays and increased costs, the rate of development on their dozens of projects in Brooklyn had slowed to the point that they could not meet their bond payments starting next year. Gilad owes bondholders a total of roughly $42 million, due over the next three years, with a principle payment of $11 million due in December 2019.
The company planned to deliver 133 new apartments — at a 40-unit building at 550 Fourth Avenue and two buildings at 925-929 Atlantic Avenue with 80 units between them — during the third and fourth quarters of 2018. However, Brookland stated in a report that only one apartment had been delivered.
This isn’t the first time the company has seen disappointing financial news on the Israeli bond market. In July, Brookland’s bonds fell 15 percent in two days, and have languished in junk bond territory since.
But on Sunday, Brookland’s two bond series closed with yields of 18 and 29 percent on Sunday. (Double-digit yields are considered high, and other American developers have entered that territory before, too. For a brief period last year, Gary Barnett’s Extell Development saw yields on its bonds climb as high as 14 percent.)
Trading of Brookland’s bonds was halted on Monday when the company announced it would hold an urgent bondholder meeting on Wednesday regarding the state of the company.
Within hours, the Israeli rating agency Maalot put the company on the credit watch list citing uncertainty regarding the announcement as well as, “erosion in operational performance and an increase in the company’s recent leverage.” Shortly after that, Brookland’s Moshe Cohen, an internal auditor, resigned saying that he hadn’t received the materials needed to conduct a routine audit that was authorized in March.
A Brookland project at 447 Decatur Street in Brooklyn (Credit: Brookland Capital)
Brookland has 37 small-to-mid-sized residential projects in various stages of development in Brooklyn, making the most prolific developer in the borough by project count. In August, at the release of the second quarter reports, the company projected that it would end the year with $5.2 million from apartment and property sales, as well as re-leveraging certain properties.
They no longer expect to meet those projections. The delays to the development timeline resulted in fewer apartment sales, and therefore higher financing costs and less leverage, according to Gilad’s statement. Nevertheless, Brookland will continue to meet its interest payments on property loans, as well as a $1.5 million interest payment to bondholders due in December.
Brookland will begin the negotiation process with bondholders and Israeli regulators over how to settle the debt, and Israeli investors will be viewing the process as a test case. According to published reports, Gilad could become the first American real estate developer who raised money on the Israeli stock exchange to fail to meet debt obligations.
Gilad was not immediately available for comment.