This week the real estate financing company Barkat published its quarterly reports that also summarized the first half of 2022. Overall, the shareholders should be satisfied. Net financing revenues climbed 4 times in the second quarter to approximately NIS 9.6 million; The net profit in the quarter increased to about 4.5 million shekels compared to about 0.3 million shekels in the corresponding quarter last year. Financing revenues in the second quarter of 2022 also amounted to approximately NIS 21.7 million compared to approximately 7.5 million in the corresponding quarter, and financing revenues, net, in the second quarter of 2022, climbed 4 times to approximately NIS 9.6 million, compared to approximately NIS 1.9 million in the second quarter of 2021.
And most importantly: the total portfolio of credit facilities at the end of the second quarter of 2022 amounted to approximately NIS 757 million, an increase of approximately 79% from the facilities at the end of 2021, when financing revenues in the first half of 2022 climbed by approximately 124% to approximately NIS 33.4 million compared to approximately -14.9 million in the corresponding half last year.
Barkat, under the control of Roni Biram, the company’s chairman, Gil Deutsch, and Adi Gazit, the company’s CEO, focuses on loans to groups of land owners and entrepreneurs for the needs of support, construction, mediation, and capital completion of real estate projects.
The company specializes in financing construction support for projects and mediation in the field of real estate, with an emphasis on groups of land owners and entrepreneurs, and also provides solutions in additional loans in the field of commercial real estate, where the shareholders include Mr. Roni Biram and Dr. Gil Deutsch, the founders of the Excellence Nashua investment house.
The chairman of the company and the credit committee is Zeev Yelink, a former Bank Leumi with about 40 years of experience in the world of finance and real estate, whose last position at Bank Leumi was the head of the construction companies sector.
The CEO of the company, Adi Gazit, has accumulated a rich past in the worlds of project support and financial investments. Before Barkat, Gazit served as VP of Business Development at Sunflower, a public investment company that makes investments in Israel and around the world.
The company’s stock, which during the period between its issuance and the beginning of August accumulated a decrease of 35%, began to recover after the publication of reports that gathered optimism among investors. On the day of publication, the stock rose by about 8%. In fact, from the date of the issue, Barakat claimed that 2022-2023 would be turning years for the company. If in the beginning as the company grew, its operating expenses also increased as the manpower base increased – and therefore no jump in its profitability was seen in the previous reports – now, when several elements were combined, the company made headlines with a tremendous support and the largest of its kind in Israel for the Madinah Square project, alongside the increase in the index and the entry into the worlds of Mazenin ( Supplementing equity for entrepreneurs and companies) – Barkat has become a sort of private bank for entrepreneurs.
The institutions themselves engage in loans to entrepreneurs, but most of them prefer to spread investments safely, and Barakat is considered a suitable arm: the company performs the due diligence and risk assessments, and the actual financing is borrowed from the institutions. This was the case with the massive construction project in Madinah square (where the scope of the support is about two billion shekels originating from the institutions) as well as with the office and commercial project in Jerusalem, for which the company recently signed a memorandum of understanding for the provision of a loan of up to one billion shekels, and this is also the company’s current method of operation, as long as The equity is not very high – in other projects that are financed by the company.
Wrong view
This week the CBS reported on the increase in apartment prices by 17.8% within 12 months and by 2% within just one month. The promises about the cooling of the market are shattered by the data – even though the CBS, the mortgage division of the Bank of Israel and the chief economist division of the Treasury – reported a decrease in real estate transactions. The real estate market is still burning. Prices reach rare heights. While Adi Gazit and Anochi are talking, the main headline on the website is about a lot in Netanya that more than doubled in value within a year.
We hear about crazy increases in apartment prices and despite the slowdown in transactions, it doesn’t look like anything will come down. Is there a solution to the real estate bubble?
“I have been saying for many years that only the release of state lands will lead to a solution. It is unthinkable that most of the land in the country remains in its possession and it takes it out bit by bit, if and sparingly in such a way that the basic laws of nature of the economy scream that the prices will remain so high. Only if masses of planned land are allowed, and more housing units are built on them – at a continuous rate of tens of thousands per year – will the price stop or slow down the increase.”
At RMI they will argue that existing cities should be densified; that we don’t plan cities ahead to save land for our grandchildren and great-grandchildren…
“This is a wrong view. There is a current demographic growth here and the problem of the population needing housing will not be solved by rather ridiculous government programs. It’s time to put an end to idle programs such as zero VAT, price per resident, target price, apartment at a discount, and more. By the way, even lowering the construction input index up to 40% will not really help the rising prices because the contractor will raise the price at the same time. As long as there is an aggressive gap between demand and supply, the price will rise and the crisis will not be resolved. At the moment the country is progressing with a high birth rate, which in relation to the OECD countries is beyond any other developed country in the world, and the citizens cannot be left without a solution. In 1996 Modi’in was established and in 1998 Elad. Since then, 24 years that no city has been established. The establishment of additional new cities in the south and north must be planned and accelerated, and the sooner the better.”
How do you foresee the current impact of what is happening in the market?
“If we refer to the areas of demand – in recent times we no longer see the fast pace. Apartments are not stolen like buns. There is monotony, and you have to remember that along with the moderation – prices also went up in July. Therefore, I believe that price reductions will not apply. On the contrary, there will be increases, even if moderate.”
A developing market
How do banks treat non-bank credit institutions?
“The banks do not see these entities as true competitors. Especially not in the industry we are in. By and large, they see us as legitimate entities that enable competition. We will state facts for their accuracy: most of the construction market is accompanied by the banks; Over 90% of the loan portfolios are in the hands of the banks. It is true that the competition is biting little by little, but the non-bank credit institutions are an alternative at a slow pace – which has only recently been increasing. This led to a much more competitive market, but it is worth remembering that for many years we were – compared to the USA – at a level thirty years ago.
“Now there has been a change in the level of competitiveness – the interest rate has also decreased in the non-bank entities, the accessibility of these entities has increased significantly, the loans are received with less bureaucracy and regulation, and there is a priority for customers to receive a tailored loan. These are essential elements for the customer. And this is what gives the non-banking market the opportunity to move forward.”
And in short, do you predict growth for non-bank real estate financing entities?
“The last period was characterized by two things that happened at the same time. On the one hand, inflation has risen and the US is broadcasting an interest rate hike, as it tries to curb inflation by raising interest rates. The Bank of Israel also raised the interest rate, and a domino effect was created, with analysts predicting further increases of about another percent, which means that the financing costs for buying an apartment have gone up, both for citizens and entrepreneurs. It is true that this is a reflection of the real value of the money, but the entrepreneurs should prepare with sufficiently large safety margins, for the days when the prime will be 3.75%. Another percent means: for every hundred million – another million. If until today the entrepreneurs received high financing and could leverage themselves almost without bringing equity capital, today they need a ‘mazanin’ – supplementing equity capital; An industry we recently entered.
“The second thing that happened is reaching the capital adequacy threshold in loans for real estate and infrastructure up to 26% of the value of the bank’s equity. When the banks discovered that they were approaching the upper threshold of capital adequacy, they were forced to close the doors to entrepreneurs and public companies that were considered old and excellent customers. This led to a close acquaintance of these entrepreneurs and companies with the non-banking real estate financing bodies”.