Jerusalem to issue tenders for new business quarter

Nir Barkat photo: Lior Mizrachi

Mayor Nir Barkat tells "Globes" about the new center which will include nine 36-floor buildings and 15 ten-floor buildings.

In the coming weeks, the Israel Land Authority (ILA) and the Jerusalem municipality will begin issuing tenders for the purchase of land on which a new business district near the entrance to Jerusalem will be built. 24 buildings will be constructed on 300 dunam (75 acres): nine 36-storey buildings and 15 buildings of up to 10 storeys. In all, there will be 1.6 million square meters of business space for a city with a 44% poverty rate, compared with a 22% nationwide rate.

"Globes" spoke with Jerusalem Mayor Nir Barkat.

"Globes": Does anybody need so much business space in Jerusalem?

Barkat: "In my nine years as mayor, I've been thinking like a market maker. My main job was to see where Jerusalem was strong, generate demand, and then facilitate supply capacity to meet that demand. The first area was a combination of tourism and culture, which generates an economic dynamic - to generate an enormous mass of demand, following which the supply would awaken. We had 9,500 hotel rooms then, and now we have 12,000 hotel rooms, with 5,000 more rooms in the pipeline. This happens only in Jerusalem. Businesspeople already realize that we're determined to develop culture and tourism in Jerusalem, and generating the demand will also bring the supply.

"The second area is high tech. Medicine, the life sciences, and high tech are spheres in which Jerusalem is growing faster than the rest of the country. Over the past two years, we have added 4,000 more employees: we have gone from 14,000 to 18,000 employees in these fields. It's not only because of Mobileye, which now has a total of 700 employees in Jerusalem. It's very likely that we'll be among the 20 leading countries in the high-tech world in the 2017, and we're regarded as one of the world's fastest-growing cities in high tech. This drama, and this is the infrastructure for the new business district, is infrastructure that we created nine years ago. We don't have an available square meter in the city now. We're starting to develop the business district at the entrance to the city at a time when high tech, hotels, and night life are flying high. Jerusalem has grabbed a position it didn't have before, and with this demand, we're starting to generate the supply. The business district is planned to provide a real solution to demand for jobs. It's located on the most highly developed transportation hub in Israel, at the exit from the regular railway, with two light railway lines, 1,400 parking spaces and a central bus station. It's a little like the Azrieli Center in Tel Aviv, but seven times as big. The business sector and real estate companies will obviously rise to the challenge."

People from Tel Aviv will commute to Jerusalem - only 30 minutes by train.

"That's true, but there are also many Jerusalemites who had no employment in Jerusalem, and who have been going to the central region up until now. The traffic will definitely be in both directions. When you create a business district with 60,000 employees, some of them will come from central Israel, and that's fine."

You planned a business district with no connections to residences. All over the world, people have already realized that it is important to mix residences within largely business zones.

"So here, too, we'll be the most advanced in the world. I toured New York with WeWork cofounder Adam Neumann a few months ago, and he also toured with me here. We'll include both WeWork, shared workspaces and offices areas, and Welive, a complex of shared residences, in the new district, obviously not necessarily through these companies; it depends on who wins the tenders. In any case, the tenders issued will also include such uses, and it has already passed the District Planning and Building Committee. This is a new and exciting option, and these concepts will fit in excellently, and young people will also live here."

International companies are liable to be afraid to come. The US president withdrew his decision to move the US embassy to the capital.

"I'm not hiding the fact that there are several parties who will interfere with their coming here, but this doesn't interest me. Let's say that only half of the international companies are interested in Jerusalem. That's enough. I'm interested in who sees a great opportunity here, and the list is very long. Anyone thinking about where to establish his new business is thinking about Jerusalem."

4.4 square meters per resident

More than Barkat is excited and delighted with the new district, however, he emphasizes that the project cannot save Jerusalem, which of course brings us back to the war with the Ministry of Finance.

"1.6 million square meters is huge, inconceivable, but it still doesn't get us anywhere - certainly not to the city's independence. Jerusalem now has 4.4 square meters of business space per resident, while the nationwide average is 13.6 square meters per resident. I need 8.5 million square meters of business space in order to reach the nationwide average five years from now. In order to reach the numbers of the Forum of 15, which includes the 15 strongest cities in Israel, I need to build another 9.5 million square meters. In order to reach the average of the three metropolises (Tel Aviv, Haifa, and Beer Sheva), I need to build 13.5 million square meters. So you understand that even if I'm building 1.6 million square meters, the gap is still growing.

"The business district is substantial. It will create 50,000-60,000 jobs and help to bring more people into the work cycle, but in the basket of services that the municipality gives its residents in education, culture, cleanliness, welfare - critical factors for the city's success, basic things - the inferiority will remain. So it's no wonder that people are leaving the city."

What does this mean in terms of money?

"Were we at the national average, we'd see NIS 1.13 billion more in revenue from municipal property taxes for businesses. The exemptions forced on us by the state cost us NIS 270 million more, and so forth. All these are the city's structure, not something I can change tomorrow.

" I'm now going to build 1.6 million square meters at the entrance to the city, but it's obviously impossible to build it overnight. The country adds 650,000 square meters of new business real estate space every year. Let's assume that Jerusalem manages to build 150,000 square meters of business space a year, double the population growth. It will still take at least 10 years to build and fill all those square meters, and then I'll have 6 square meters of business space per resident - less than half the nationwide average."

So what is the solution?

"First of all, you have to realize that the problem isn't the mayor's management and development capabilities; it's the country. It's a national problem, not a problem of local government. I'm doing everything in order to get out of poverty. Give me another idea I haven't thought of, and there's still a structural problem in the city. Our quarrels with the Ministry of Finance are therefore macroeconomic discussions. The bug isn't in the city; it's in the system. The state sets distorted rules, and doesn't understand why 200 out of 256 local authorities need equalization grants. I'm very disappointed with the way the Ministry of Finance thinks at a macroeconomic level. They think like their predecessors, and get to the same point."

A fifth of the outlying areas

"Their talk about streamlining and cost-cutting is nonsense. We're substandard according to every criterion. It's true that I was handed a less efficient city, but look at the numbers. The proportion of municipal tax collection in East Jerusalem is 74% (74% of residences, 60% of businesses, and 83% of institutions). In the seven largest Arab towns, the collection proportion is 72%. In West Jerusalem, the collection proportion is 89% (93% of residences, 85% of businesses, and 83% of institutions), and the nationwide average is 90%. And that's with two thirds working (except for education and welfare, which is proportionate to the population)."

What is the solution, then, if even the Jerusalem Law giving you NIS 700 million is not enough?

"The biggest inequality coefficient between cities is definitely municipal property tax for businesses, which of course is also related to the socioeconomic level. The gap is there, and the amount of business space per resident predicts a city's prosperity. That's where the solution lies."

How about a practical solution?

"Cancel municipal property tax for businesses and replace it with 2% VAT, and divide it up according to population size."

The strong local authorities will not forego their municipal property tax.

"I proposed to the Ministry of Finance not canceling municipal property tax for everyone. Anyone who has less than 10 square meters of business space per resident, however, should get NIS 1,000 per capita. Instead of VAT, call it SAT - social added tax. It can be a 1% addition to the existing VAT. At the same time, cut the municipal property tax in half for businesses in poorer local authorities. You'll see gaps suddenly being narrowed. As of now, the local authorities have no chance of providing a solution. In contrast to income tax, VAT, and national insurance payments, which are collected from everyone, the state has left the inequality coefficient to the local authority to deal with by itself."

It looks like you are alone in this battle.

"I'm very disappointed with the Ministry of Finance. The minister doesn't meet with me, and the officials are constantly nitpicking, instead of thinking systematically. Had there been meetings with the minister without a solution being found, I'd agree that the disagreement between the two sides was a professional one. When the minister is unwilling to meet the mayor even once to discuss macroeconomic matters, however, and leaves the discussion to the professional echelon, which thinks solely inside the box, the challenge is much bigger and more difficult. This is a national challenge, not a municipal one.

"A solution to the challenges in Jerusalem will have an effect on all the outlying areas. Jerusalem constitutes at least a fifth of the outlying areas, and the solutions aren't out of reach. This city is being cheated out of tens of billions of shekels because of the atrocious formula used by the state, and in spite of that, we have no deficit. We’re increasing our proportion of tax collection by 1% a year, but we're barely keeping our heads above water. Right now, there's a gap of NIS 1.6 billion, compared with the national average, and that's not such big money."

The Ministry of Finance thinks you're just being difficult.

"For years, the Ministry of Finance had a system: they told my predecessors that they would give them a shekel for every shekel they provided. How can the municipality get money? Either by raising the municipal property tax or by cutting back on services. My predecessor did this, and in 2011, Jerusalem spent 63% per of the national per capita average, while the municipal property tax in the city was among the highest in Israel. That explains why people left the city.

I decided for nine years not to raise municipal property taxes by one shekel over the legal requirement. I'm also the only mayor that has cut the municipal property tax for businesses for four years - 1% every year. That's how I make it worthwhile to do business, even though every 1% cut costs the city almost NIS 10 million a year. In addition, spending per resident rose to 66% of the national average in 2015 and 70% in 2017. I still have to increase spending by 30% in order to reach the national average, but we'll get there eventually. I have no mandate from the people in Jerusalem to abandon this struggle."

Will you stay in the municipality to see it?

"I'll decide towards the end of the year whether I'll run for mayor in the next elections (in October 2018). I've already said that I'm going national after Jerusalem; the question is when this will happen. Whether I'm here or there, there's no way to sweep the challenge of Jerusalem under the rug, and certainly not if I'm mayor. It's a matter of distributive justice for all of the outlying areas and the entire country, not just Jerusalem.

"A cross between Rothschild Boulevard and Herzliya Pituah"

The first tender for construction of the new business district is scheduled to get underway in the fourth quarter of year. It will contain land for building two 36-storey towers - a total of 96,000 square meters. As in the entire site, there is a mixture of uses. The first floor will be commercial space, with offices, hotels, and cultural uses above it (the site will contain a total of 2,000 hotel rooms, 800 of which will be on the Binyanei Haooma site). Work will be carried out through Moriah - Jerusalem Development Corporation.

According to the plans that have already been approved, the new business district will have "only" one million square meters of space. The mayor is talking about 1.6 million square meters, under the assumption (supported by initial contacts with the District Planning and Building Commission) that the area of the plan will be greatly increased. Eden the Jerusalem Center Development Company deputy CEO Lior Grunhaus, who is managing the project at the entrance to the city, emphasizes that the project will compete not only with Tel Aviv, Israel's business capital, but also with the leading business districts in the world. Grunhaus repeatedly stressed the project's urban advantages, calling it "a cross between Rothschild Boulevard in Tel Aviv and Herzliya Pituah."

Grunhaus added, "Our biggest task is creating towers with a harmonious design that will not be alienated, both in uses and timetables. This is real municipal urbanism - you can reach the Mahane Yehuda outdoor fruits and vegetables market within minutes by walking slowly, and a slightly faster walk will take you to Safra Square. This walking experience didn't exist before in Jerusalem, which was a collection of sites. The project at the entry to Jerusalem creates connectivity to the governmental compound, the museums area, and the city center. It's really something new, and we assume that we'll feel it within five years."

Published by Globes [online], Israel Business News - www.globes-online.com - on July 19, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Nir Barkat photo: Lior Mizrachi
Nir Barkat photo: Lior Mizrachi
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