Dallas-based Encore Enterprises became the latest U.S. real estate company to successfully issue debt on the Tel Aviv Stock Exchange this week, raising roughly $147 million in a deal displaying the Israeli bond market’s increased comfort level with American firms based outside of core markets like New York.
Encore, which owns and operates around 50 commercial, multifamily and hotel properties located mostly across the southeastern U.S., issued two series of bonds backed by 23 of those assets—nearly half of which are multifamily—valued at roughly $580 million.
The company raised 435 million shekels, or just over $123 million, through the first series—which was secured against seven of the company’s properties—at an interest rate of 5.4 percent, according to sources with knowledge of the transaction. Encore issued another 82 million shekels, or more than $23 million, at a rate of 7.2 percent through the second, unsecured series of debt.
Encore initially raised around $135 million across the two series through an “institutional tender,” the first phase of a Tel Aviv Stock Exchange bond offering open to Israeli banks, pension funds, high-net worth individuals and other institutional investors earlier this week. The firm closed the issuance Thursday by raising another $12 million through a “public tender” open to a broader range of investors. Both series of bonds are due to mature in 2024.
The deal was met by outsized demand from investors that could have supported an offering up to $190 million, according to Yossi Levi of InFin, the Tel Aviv-based financial consultancy which advised Encore on the issuance.
Levi said the demand was impressive given the relatively modest BBB+ rating placed on Encore’s portfolio by ratings agency Standard & Poor’s Israeli subsidiary Maalot, as well as the Dallas firm’s status as a company focused well outside the New York real estate market with which Israeli investors are most familiar.
An overwhelming majority of the nearly two dozen American real estate companies to have successfully raised money on the Israeli bond market to date—including the likes of Related Companies, Extell Development Company, The Moinian Group and retail landlord Jeff Sutton’s Wharton Properties—are either based in New York or have significant holdings in the city.
“Until now, because the market in Israel was very sensitive [to U.S. bond issuers], New York City was an easy negotiation point,” Levi said, citing Israeli investors’ relatively “shallow” knowledge of American real estate markets outside of New York.
The Encore deal, however, shows that the Israeli bond market “is now open to companies outside of major gateway cities” in the U.S., as well as “lower-rating companies” not backed by an exceptionally robust portfolio of Class A assets, Levi added.
“This gives an opportunity for players outside of New York City, like Encore, with cash flow-generating assets,” he said. “The fact that we had such big demand shows the market is in a very comfortable position.”
Encore is understood to be allocating the proceeds from the deal to buy out minority partners at several properties and refinance existing debt.
“Our very successful bond offering in Israel is just the beginning of a continued trend of success for Encore,” Patrick Barber, the company’s president and chief executive officer, said in a statement. “We look forward to the rapid expansion of our company to come as a result of this deal.”
Update: This story has been updated to include comment from Encore Enterprises.