In recent years, the Tel Aviv Stock Exchange (TASE) has become a popular platform for American-based real estate companies to raise debt. It is estimated that twenty-one American real estate companies over the past ten years have raised 14 billion shekel (approximately $4 billion dollars) by issuing bonds on TASE. In 2015 and 2016 alone, they have raised approximately $1.07 billion and $878.5 million dollars respectively.
Cheaper financing, the ability to garner higher credit ratings, and access to corporate grade debt unattainable to them in the US have attracted American developers in flocks to Israel. The Israeli bond market has been especially receptive to developers situated in New York, as they love the transparency and perceived stability of its property market. Firms ranging from Gary Barnett’s behemoth Extell Development to more local players such as Boaz Gilad’s Brookland Capital have all tapped into what has been dubbed “the real estate financing land of milk and honey.”
The process of issuing American real estate backed bonds in Israel continues into 2017 with Windsor Capital Group (WCG) most recently filing a prospectus with TASE for a bond offering. They are attempting to raise 400 million shekel ($110 million dollars) by issuing 6-7 year bonds. Interestingly enough, the majority of American real estate firms that have raised debt in Israel have some, if not a large presence, in New York.
Windsor Capital Group is a hotel owner and operator based in Santa Monica, California that, with its affiliates, currently owns and manages ten hotels under the Marriott and Embassy Suites brands. Seven of their assets are located in California, with the three remaining hotels in Las Vegas, Atlanta, and Ashville, North Carolina. WCG also third party manages for other hotel owners and is approved to manage Hilton, Doubletree, Marriott, Hyatt, Starwood, and IHG branded hotels.
The mechanics of this deal are particularly interesting given the uniqueness and operating specialty of hotel real estate assets. Ownership of the ten hotels will be transferred to a special purpose vehicle that will serve as the bond company issuing interest payments to the bondholders. The hotel management company will remain independent and pay annual rents to the bond company.
A 15-year lease agreement will be in place between the two entities, where the management company will pay $35 million annually to the bond company, with 2% year over year increases. The management company will also pay rebates for insurance premiums and taxes into the special purpose vehicle.
Over the past ten years, American real estate developers have only gone to Israel to issue debt on TASE, but that may soon change. CIM Commercial Trust Corp (CMCT), a public REIT trading on NASDAQ, filed with Israeli regulatory agencies earlier this month to list equities on TASE. CMCT, managed by the CIM Group, is a stabilized class-A office investor, with most of its assets in the Los Angeles and San Francisco bay area. While CMCT’s bread and butter is the office market, CIM Group as a whole has co-developed or invested in several of New York’s biggest real estate deals including residential buildings such as 432 Park Avenue, 737 Park Avenue and One Madison. CMCT, with its $1.3 billion market cap, has the ability to raise a few hundred million dollars on TASE. If successful, it would be the first US real estate fund to issue stock on TASE.
By: Dylan Margolin
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