The intriguing math that turns Manhattan Properties into shekels

Manhattan copy


What do Israeli investors know about retirement homes in Indiana? Enough to lend them 265 millionshekels.
Strawberry Fields, a real estate investment trust whose facilities cater to Alzheimer’s sufferers in the Midwest, is the latest of at least 14 U.S. property companies that have borrowed a combined 8.1 billion shekels ($2.07 billion) in the Israeli market since 2008, securing interest rates they could only dream of at home.
In Israel, U.S. property developers pay 5 or 6 percent interest on debt that in the U.S. would cost them twice that, according to Israeli bond buyers. Because the U.S. government’s credit rating is higher than Israel’s, the bonds get better grades, too. So what’s considered junk stateside can become investment grade in Israel, where there’s plenty of demand for the debt from funds flush with pensioners’ cash.
Gal Amit and Rafael Lipa, who structured the first such deal in 2007, have now done about 20 with eight companies. Several other Israeli investment banks and advisers have also arranged transactions. With competition heating up, Amit and Lipa, who initially marketed their services in the New York area, have taken their show on the road, pitching developers from Baltimore to Los Angeles on selling corporate bonds in Israel.

Cheap Equity
“It’s the cheapest equity you can dream of,” Amit said over lunch in Manhattan last month as he buzzed between meetings.
“On the other hand, too much of it and it’s only a matter of time until you default. It’s for conservative issuers.”
Amit, a former auditor, and Lipa, an ex-pension fund investment manager, founded Victory Consulting in 2006 to advise on the deals. Amit said they take existing buildings, pool them together in a new holding company and borrow against their collective equity — the fair market value minus the amount of the loan. Such “cross-collateralization,” or giving creditors claims on the value of an income-producing asset if payments from another property falter, violates the so-called golden rule of U.S. real estate finance — never pay for one building with the assets of another — but it’s been common practice in Israel for decades, Amit said.
Victory Consulting completed the first, a 140 million shekel, eight-year bond for The Leser Group, a Brooklyn, New York-based developer, on March 10, 2008, coincidentally when Bear Stearns Cos. was in the middle of its epic collapse.
Amit said some U.S. developers balked at first, and others still don’t feel comfortable issuing the debt. But the cost savings are hard to pass up.
the U.S. while developers are paying 5 or 6 percent in Israel, though yields have risen in recent months, said Ilan Artzi, chief investment officer at Holon, Israel-based Halman-Aldubi Group, which has bought and sold some of the U.S. real estate bonds.

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