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As U.S. Mall Values Erodes, Starwood’s Israeli Bond Price Takes Nosedive

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Starwood Capital Group’s 2013 purchase of a group of U.S. shopping malls “has been a struggling investment for years. Now, that portfolio of shopping centers has become a losing bet in Israel, too,” reports the Wall Street Journal.

“A recent Starwood bond offering that trades in Tel Aviv and is backed by seven malls is one of the worst-performing Israeli bonds this year. The bond price has fallen 42% since it was offered in March, rattling some bondholders who have asked if Starwood would consider buying back the bonds, some of these debtholders say,” the Journal notes.

The Tel Aviv bond market offers cheaper financing at better rates than in the U.S. While Israeli bonds issued by other real estate firms in the U.S. trade at yields between 2.8 percent and 5.9 percent, Starwood’s yield on the mall debt surged to 23.6 percent, reports TheRealDeal.com. “A Starwood unit raised about $244 million, or 910 million shekels, to refinance the portfolio of seven malls in March, according to the Wall Street Journal. The combined net operating income of the shopping centers fell 4.8 percent between January and September of this year, which Starwood attributed to rent cuts dealt to tenants to maintain occupancy.”

It was nearly a year ago – March 9, 2018 – that Bloomberg covered the company’s efforts in a story headlined “Starwood Woos Israeli Investors With Debt on Aging U.S. Malls.” Looking to refinance loans on seven aging U.S. malls, the piece went, Starwood Capital Group had secured commitments from a distant source: Israeli bond investors.

“A subset of the global property company led by billionaire Barry Sternlicht raised 910 million shekels ($264 million) through a debt offering, which began trading on the Tel Aviv Stock Exchange this week,” Bloomberg noted.

“Investors snapped up the bonds in an auction ahead of public trading, and demand exceeded the amount Starwood sought to raise, according to Ori Eisenberg, who advised on the offering through his firm Barzell Global.”

In a related item, propertyfundsworld.com reported that an affiliate of private investment firm Starwood Capital Group (Starwood Capital) has formed a new build-to-rent (BTR) residential platform in Ireland with Urbeo Residential (Urbeo) and the Ireland Strategic Investment Fund (ISIF).

“The platform – which will be known as Urbeo – will acquire, predominantly via forward purchase and forward funding arrangements, rental accommodation with an element of social and supported tenancies in Dublin and other major Irish cities. The platform will be seeded with a portfolio of three assets totalling 334 private and social units in Dublin, with a pipeline of over 2,500 units in negotiation or exclusivity,” the site said.

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