Housing prices in Israel have skyrocketed by more than 15% in the past year, and in the absence of land available for new construction in areas of demand, more and more factors are being seen in the potential of urban renewal. A recent trend has recently been contributed to by the collapse of a residential building in Holon, and the evacuation of tenants from other old buildings.
The growing interest and potential in urban renewal projects was first identified by construction companies, most of which are increasing the pace of their activity in the field – in order to promote the projects intensively.
In recent months, listed real estate companies have published numerous reports regarding the progress of urban renewal projects, with a combined volume of thousands of apartments planned for construction, which are expected to generate potential revenues of billions of shekels. The reporters are in the planning stage or before it, and it is not clear their chances of feasibility and the length of time that will elapse before they are implemented.
The risks do not prevent additional financial management bodies from injecting large sums of money into the field, in the hope of increasing the return – both for the managed colleagues and for themselves. A Globes survey shows that within a year, the institutional bodies have invested more than NIS 1 billion in entrepreneurship in the field of urban renewal, combined with capital and loans.
Jeremy Blank, Founder of the Community Hedge Fund / Photo: Tamar Mitzpi
The latest deal in the field signed this week was the purchase of 49% of the shares of Yaaz Urban Renewal, a dedicated subsidiary of the Yaaz Group, by the hedge fund set up by Jeremy Blank – who previously headed the York Investment Fund (which previously made an impressive exit at Psagot Investment House). Profit to Apax Fund). The fund’s investment, according to the market, consists of capital and debt and reflects a value of NIS 300-200 million for an urban renewal venture.
Community invests in the shares and bonds of private companies in the field of real estate, technology, telecom and communications in the United States and in Israel. A source involved in its activities claims that Funds of this type do not usually invest in urban renewal, and those that do are companies that specialize in real investments. “
Good potential from an exit with an offering or sale
It seems that the boom in residential real estate in general, and in urban renewal in particular, creates for institutional bodies in Israel the possibility of profits that may be much more significant than future exits through the issuance or sale of their investment, at a higher value.
Many of the recent investment transactions in the field are based on a combination of capital that the institutional entities inject in return for their shares in real estate companies and loans granted to those companies, for the purpose of financing new construction projects.
In these transactions, it is usually not clear what is the share of the loans and what is the share of the equity in the total amount. However, the market estimates that most of the amount is given as a loan that is used to finance the projects directly, or to repay debts to banks at a relatively high interest rate that may even reach a double-digit rate.
This interest rate, which is based on relatively cheap money raised by insurance companies from the hundreds of billions of peers’ funds in provident funds and pension funds, or in the case of banks from public deposits, allows the bodies that fund urban renewal companies to generate high revenues – embodied in high returns for members To their nostro bags.
At the same time, the relationship between the real estate entrepreneurs and the insurance companies provides an additional source of income recently.
Real estate companies expect billions in revenue
These are policies that provide a guarantee for the payments made by the tenants for the apartments, in order for the contractor to keep his promise for the new apartment. According to the Ministry of Construction and Housing, these are commissions amounting to hundreds of millions of shekels every year.
The first to reflect how much the field of urban renewal may be the next “bonanza” in the real estate market are, of course, construction development companies, many of which have recently established subsidiaries specializing in urban renewal.
When we talk about urban renewal, we mean mainly the demolition of old residential buildings and the construction of new residential buildings in their place, while increasing the number of apartments. Companies operating in the field of urban renewal do so within the framework of the “Evacuation-Construction” and “NAP 38” programs. Existing and adding apartments in it, without demolition.
Recently, the urban renewal training company reported the approval of the subcommittee on urban renewal, for a large-scale project that is expected to include about 1,450 apartments in Haifa, with expected revenues of about NIS 1.8 billion. Coral Company, for its part, reported on the approval it received from the local committee in connection with an evacuation-construction project that includes the construction of more than 270 apartments in Yavne, which is expected to yield about NIS 170 million. In addition, the Villar company updated on the completion of the signing of apartment owners as part of the TMA 38/2 project in Tel Aviv, which is expected to include approximately 135 apartments, with expected revenues of approximately NIS 255 million.
A series of transactions between financial entities and entrepreneurs in the field
The Community-Dare urban renewal deal, as mentioned, is the latest in a series of deals between financial entities and entrepreneurs in the field. The Phoenix is the most prominent body in the field, with just over half a billion shekels invested in three urban renewal companies in just five months, beyond its share of investment through a community fund.
In March, the insurance company under the management of Eyal Ben-Simon formulated a memorandum of understanding with the high school builders, an urban renewal that will bring the insurance company to purchase 20% of the real estate project, for NIS 112 million. Urban renewal – and even act to issue it within four years.
Eyal Ben Simon, CEO of Phoenix / Photo: Yitzhak Inbal Marmari
This deal joins an investment of NIS 420 million (combination of capital and debt) in exchange for 25% of the White City Building Company, which began as an entrepreneur in the field of building preservation in Tel Aviv and expanded into urban renewal and hotels, as well as the acquisition of 11% (with Keren Nokd). Urban renewal in the amount of NIS 29 million, both of which were signed last October.
In addition, Phoenix holds 30.5% of the shares of the urban renewal company Beit Vegg, which was issued last month at a value of NIS 430 million. In 2014, Phoenix invested about NIS 120 million in the urban renewal company. In fact, Home and Roof was the first company to integrate institutional in this way. Globes publisher Alona Bar-On is one of the founders of House and Roof and until recently served as the company’s chairman (see full disclosure).
Harel has also established a strong foothold in the field, with two major deals in the field in three months. The first was last July, when Harel acquired 20% of Almog (worthwhile) for about NIS 120 million, and the second is the acquisition of 20% of Etz Hashaked.
Another insurance company that has identified the potential is Menora Mivtachim, but this is a different deal. With the training of the settlement, the insurance company signed an urban renewal cooperation in the amount of NIS 100 million for investment in four projects. That is, Menora Mivtachim secures capital for the construction of the projects. However, shortly before that, the company provided NIS 100 million in a financing transaction to Yam Suf Real Estate, for the benefit of renewal projects. Alongside these companies, Clal Insurance is also involved in the areas of urban renewal – and it holds about 25% of all financing. Banker for Entrepreneurs in Residential Construction.
*** Full disclosure: Alona Bar-On, publisher of the Globes newspaper, is a director of Beit Vagag