Kardan NV (TASE: KRNV;AEX:KARD) unit Kardan Real Estate Enterprise and Development Ltd. (TASE: KARE), which owns 30% of Holyland Park Ltd., had a good year in 2013, like many developers. It posted a net profit of NIS 52 million, triple its profit in 2012, thanks to large sales of apartments in projects in Petah Tikva, Rehovot, Herzliya, and Lod.
Kardan Real Estate's disclosure of Holyland Park's results reveal a completely different picture about the megalomaniacal residential project in Jerusalem. This is the project that led to last week's indictment for bribery and money laundering of former Prime Minister Ehud Olmert and a slew of other officials.
Holyland Park has lost NIS 230 million since it was built, and a similar shareholders' equity deficit. Its liabilities total NIS 360 million, mostly to shareholders, and the rest to banks and NIS 33 million to Mikhail Chernoy who sold the land for the project. The company's cash reserves are near zero.
Holyland Park's auditor attached a going concern warning to its financial report, stating that it owes Bank Leumi (TASE: LUMI) NIS 71 million, which it probably cannot repay, mainly because of a decision by the Jerusalem Regional Planning and Building Commission to redesign the project. Under the new plan, the company will likely lose its remaining lots, zoned for apartments.
The auditor also warned about the lawsuit filed against the company by the Jerusalem Local Planning and Building Commission over a NIS 129 million capital gains tax payment. The company's lawyers believe that the lawsuit has a 50% chance.
Holyland Park's shareholders are the biggest losers. They include Kardan Real Estate; Polar Investments Ltd., with a 60% stake, which was once run by Avidgor Kelner, one of the men convicted in the case, and has ended up in a debt settlement after years of decline; and Bank Leumi, the project's financier, with a 10% stake.
From Holyland to Holey-Land
A fantastic location, a famous architect (the late Ram Carmi), hundreds of apartments in one of Israel's most desirable cities, and, of course, an overheated real estate market, ought to have ensured the Holyland project's success. Instead, it is on the verge of bankruptcy.
Construction of the Holyland project on a hilltop in Bayit Vegan with a breathtaking vista of Jerusalem began in 2000. The grandiose project was originally planned to have 1,015 apartments in eight 20-storey buildings and two 32-storey high-rises. Only five of the buildings and one of the high-rises were built. The project's generous building rights won it the local sobriquet "the monstrosity on the mountain", and it is hard to look at it without feeling a sense of environmental catastrophe.
Even before the scandal over the project erupted, Kardan Real Estate reported that apartment sales were flagging, and that Holyland Park would not meet its financial covenants set by Bank Leumi. The company's financial situation went downhill rapidly after 2010, when the first suspects in the case, which at the time the police called "the worst case of corruption in Israel", were arrested.
Construction halted, apartment sales staggered, and property values of the remaining apartments and lots plummeted, even as Holyland Park continued to bear high financing costs.
In June 2013, the Jerusalem Regional Planning Commission announced the deposit of a new plan, which cancelled Holyland Park's remaining building rights, and expropriated the unbuilt lots in favor of the Jerusalem Municipality.
"It's impossible to deny that the scandal has affected apartment prices in the project, lowering prices every time the case makes headlines," says Anglo-Saxon Real Estate Jerusalem manager Benny Lobel. He says that a four-room apartment in the project which would have sold for NIS 2.35 million three months ago, cannot be sold for NIS 2.2 million today. "This is a project that is part of an entire neighborhood, but construction on the site stopped when the scandal erupted," he says. "The project has no grocery store, school, or public building, which will only be built when construction is completed, if it's completed."
Lobel adds, however, that the apartments already built are quite nice, with large balconies with an open vista. The area has good access to the Begin Highway. "The Holyland project's problem is that its facade is gross, violating the vista. You don’t have to be a Jerusalemite to see that its aesthetics don’t work."
Published by Globes [online], Israel business news - www.globes-online.com - on April 8, 2014
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