Goy-ing Strong! Stoler on Israeli Investors
Tom Acitelli Aug. 16, 2011, 1:50 p.m.
Earlier in the year, the Association of Foreign Investors issued its latest report, noting that foreign investors see the U.S. as the country providing the best opportunities for capital appreciation. In fact, more foreign investors feel that way than during any time in the past 10 years. This interest seems to be much more highly concentrated in just two cities: New York City and Washington.
A few weeks ago, Globes, the Israeli publication and website, released the results of a survey it commissioned that found that Israelis invested $1.15 billion in U.S. income-producing properties in the one-year period ending June 30, 2011. The survey by Bregman Baraz Real Estate found that Israelis were the second-largest foreign buyers after Canadians.
Foreign investment accounted for 7.5 percent of total investment in U.S. income-producing real estate in this period, with Israelis accounting for almost a 10th of that. Israelis invested $1.15 billion to buy 36 income-producing properties over the past 12 months; Canadians invested $4.22 billion. The total foreign investment for the period was $12.15 billion.
Foreign investment in the U.S. rose by 33 percent in the second half of the one-year period tracked by the Globes report over the first. A breakdown by subsector shows that office towers and shopping centers attracted the most investment, 38 percent and 36 percent, respectively. Almost all of the balance was invested in residential properties, especially in rental projects but also in homes for sale.
Some of the major purchases during the past 12 months were completed by institutional investors, including Harel Insurance Investments and Financial Services, which invested $152 million in several properties, including residential rental properties in New York City and Boston. Tel Aviv Stock Exchange companies Midgal Insurance and Financial Holdings and Menorah Mivtachim Holdings jointly invested $150 million to buy a property in Manhattan.
Azrieli Group, another company listed on the Tel Aviv exchange, purchased three office buildings in Houston, Texas, for $176 million. Last year, Azrieli Group, which is controlled by Canadian businessman David Azrieli, raised over $680 million in what was Israel’s largest public offering by a private company on the stock exchange.
Big Shopping Center, also traded, is the largest open-air shopping-center operator in Israel. In 2010, Big and Kimco Realty Corporation announced a joint venture to purchase shopping centers in the U.S. Their first deal was in June, when they purchased 15 shopping centers for nearly $422 million.
Earlier in 2010, a group of investors led by Israel’s Elbit Imaging Ltd. agreed to purchase seven retail malls for $75 million. Four of the malls are located in Georgia, two are in Oregon, and one is in Florida. The malls are grocery-anchored, with an occupancy level of 91 percent, with tenants including Publix, Kroger, Albertsons, Safeway, Trader Joe’s, Marshalls and PetSmart.
The purchaser was a joint venture of Elbit, its Dutch subsidiary Plaza Centers N.V. and Eastgate Property LLC and EPN Real Estate Fund.
As I reported earlier in the year, in December, Harel signed an agreement for an investment of $28.5 million, together with SL Green and Jeff Sutton. The joint venture will develop a building featuring high-end retail space on the lower four floors and 23 floors of dormitories rented to Pace University. SL Green and Mr. Sutton will retain a 51 percent controlling interest in the properties, at 180-182 Broadway and 2 John Street.
In November 2010, Harel, in a joint venture with Beacon Investment Properties, acquired two office buildings for $85.2 million in Houston, Texas.
Over the past 18 months, New York City-based investor Ziel Feldman, principal of HFZ Capital Group, has acquired distressed debt in Manhattan. Earlier in the year, HFZ and the Israel-based Acro Group won the tender for the $147 million construction loan from Anglo Irish Bank Corporation on the unsold condominiums at the 34-story residential condo conversion at 40 Broad Street. The Wall Street Journal reported that they paid approximately $80 million to acquire 65 percent of the Setai Wall Street, a property that has 159 residential condos.
This spring, an IDB Group affiliate paid $117 million, or more than $1,000 a square foot, for the new Barney’s building at 15 East Oak Street in Chicago. Early in 2010, the IDB Group, Israel’s largest holding company, and its New York-based partner, Joe Cayre, purchased HSBC’s U.S. headquarters at 452 Fifth Avenue for $330 million.
One of the most active investors is Fishman Holdings, traded on the stock exchange. In July, Fishman subsidiaries Industrial Buildings Corp. and Darban Investments Ltd. completed the purchase of two adjacent lots on Second Avenue and 51st Street for $40 million. This was their third purchase in Manhattan within a year. They plan to build a 20-story residential condo with an investment of approximately $91 million.
In November, Fishman’s real estate unit, Darban Investments, purchased a residential building under construction on Franklin Street in Tribeca for $21 million. When completed, the 18-story building will have a total of 84 apartments. In September, Darban purchased a 12-story building in Manhattan for $44.5 million.
Finally, Phoenix Holdings and Menorah Mivtachim, both traded on the Tel Aviv exchange, are expanding their U.S. property portfolios. As reported in Globes, the two insurance companies in July teamed up with Gala Real Estate LLC to purchase an office building in Jersey City. The nine-story building includes a 715-space parking garage.
Michael Stoler is a managing director at Madison Realty Capital and president of New York Real Estate TV LLC. He writes regularly for The Commercial Observer on investment.