Eyal Lapidot is a name that evokes considerable emotions in the Israeli capital market. But today the former CEO of Phoenix and Housing and Construction – which gave him an unprecedented compensation package, and which he left in harsh tones a year later – operates under the radar, among other things through the non-bank credit company that focuses on the real estate sector, Archimedes, which he owns Its shares and founders, along with Roy Yakir, who was the chief investment officer at Phoenix when he ran the insurance company. Archimedes is managed by Tali Richman, who is also one of the founders. In her first interview in the position, she tells “Calcalist” about her confidence in the ability of the small companies to compete in the hot field of banks, precisely in view of the current upheavals in the market, and about the destination that Archimedes will eventually reach – an IPO.
“There is a clear trend of growth in the field of non-bank credit for real estate. If 15-20 years ago the banks’ market share in business credit was close to 100%, then today their market share is about 50%. The rest of the credit is provided by institutional bodies and foreign banks. But this process did not take place in real estate credit. The banks continue to hold 90% of the market, even though it is an attractive market, with high profitability and relatively low risk. It is clear that the institutions want to take a more significant part in it, only that their direct involvement is limited, among other things Due to regulatory reasons. That’s why they operate in the field, among other things, through non-bank entities, such as Archimedes,” says Richman.
It is clear what potential you see before your eyes, but still, there is a difference. You are not the head of a bank. You don’t have the same financial ability.
“I think differently. Our financing entities are the largest financial institutions in Israel, such as the Moore Investment House. Large banks also finance us. We raised NIS 1 billion when we started, and we use this money to become a company that is actually a real estate banking company. We are not a classic non-bank credit company. Our clients are large companies, some of them public, that traditionally work with banks. So it’s not that they don’t have alternatives, and they still work with us.”
You have dominant partners, mainly torches. How involved is he?
“He is involved in all areas. He comes to meetings with the companies. He is not only a brilliant partner, but also a friend. We get along great. He is one of the smartest people I have ever met.”
Your portfolio is about a billion shekels, and today you can easily add the word “only” to it. It’s not exactly a large amount.
This statement arouses immediate objection in Richman. According to her, “We raised one billion shekels in addition to the investment of the entrepreneurs. This is much more than any other body. In the year we closed transactions with a credit volume of about half a billion shekels and sales guarantees of over 2 billion shekels. We are also in preliminary negotiations for transactions with a guarantee volume of over 3 billion shekels more”.
“The increase in interest rates causes a substantial real increase in the price of the apartment without the nominal price changing. All this leads to a realistic, even if uncertain, scenario of a decrease in land prices”
Archimedes focuses on the financing of the residential sector, and in particular the financing of the urban renewal sector. According to Richman, “This is a field that requires different expertise. Companies that started operating 15 years ago are reaping the benefits today. The supply of land is in short supply, the prices were rampant, at least until a few months ago, and those who equipped themselves with projects are not required to take part in this rampage. Urban renewal is the future of residential construction in Israel. But this is an area that suffers from operational and legal difficulties. This also affects the financing area. We offer ways to significantly shorten the credit approval process.”
How much capital was invested in Archimedes and what happened to its financing costs following the current crisis?
“The founders of Archimedes invested substantial equity, which naturally I cannot reveal precisely, since it is a private company. But it is many millions. Regarding the financing costs, our sources are a mix of fixed and variable interest, and the uses are all variable interest, so the increase in interest actually did us are good”.
Are you not experiencing a decrease in activity and demand due to the changes in the macroeconomic environment?
“The financing market underwent a shake-up in the debt sector. The financial system financed real estate in large volumes and on attractive terms, and when it reached its regulatory limits, the market changed sharply. The hungry market has become a fortified market. When the banks, which dominate the industry, stop providing financing, the effect is dramatic, even traumatic. Real estate entrepreneurs depend on the financial system and cannot operate without it. This sharpens the need for an alternative to banks. Even the biggest entrepreneurs understand this. The entrepreneurs who work with us are exactly like that.”
“When the banks that dominate the industry stop providing financing, the effect is dramatic. This sharpens the real estate developers’ need for an alternative to the banks”
What will happen to apartment prices? Where is this market going?
“This is the million dollar question. No one has an answer to it. The price depends on four factors – the price of the land, the cost of execution, general costs and financing costs. A 1% increase in long-term interest rates effectively affects the apartment buyers who took out a mortgage with a 5-10% increase in spending The developer is also affected at a rate of 2-4%. This is a substantial realistic increase in the price of the apartment without the nominal price changing. There is no expectation of a decrease in the other costs. All of this leads to a realistic, even if uncertain, scenario of a decrease in land prices.”
So where do you see opportunities in the coming year?
“The Israeli economy is experiencing substantial growth. In our estimation, the real estate financing market will grow along with it. And in the future the mix of this market will approach the business mix. That is, the banks will weaken to a market share of only 50%. Even now, the approach of the banks and foreign financing bodies towards real estate entrepreneurs is more conservative. Bottom line, the entrepreneurs need greater equity. This is an opportunity for us, because our main activity is placing inferior debt and even entering into equity partnerships, and we do this more than the entities the traditional ones that provide financing. We help entrepreneurs finance the equity they need.”
1 Viewing the gallery
Right: Roi Yakir and Eyal Lapidot, co-founders of Archimedes
(Photographs: Yariv Katz, Oral Cohen)
What is the profile of your average customer?
“An entrepreneur with proven experience and a quality reputation. The quality of the entrepreneur himself is even more important than the quality of the project, even though in this field of urban renewal there are almost no credit failures, except for one defining event that everyone remembers.”
“Exactly. And why does everyone remember her? Because it’s the only case. And it’s the only case because the macro environment is stable, the demand is firm, the supply is in short supply and the escort system is controlled.”
How many dipoles did Archimedes have?
“There were no diplots at all, tap tap tap tap.”
What is the value of the largest company that took credit from you?
How did the events that took place in Unit Credit and Backing Holdings affect the non-bank credit market?
“It’s a completely different world. They don’t deal in real estate financing.”
Are you planning to issue the company?
“Of course we will get there, but at the right time.”