The Megureit Israel Ltd. (TASE:MGRT) real estate fund, founded after a change in real estate legislation made it possible to invest in rental residential income-producing properties, today reported its first rental housing deal. Founded four months ago, the company has raised NIS 240 million, but made no deals until now. As reported in "Globes" two months ago, the company tried to buy a rental housing block from the Aviv group, which won a Ministry of Finance tender in Ramat Hasharon and was building a rental project that had reached the advanced stages of construction, but the deal did not go through. "Globes" also reported that the amendment in the law governing real estate investment trusts (REITs) inspired the founding of Megureit, but that this amendment has not yet been completed; there are still several obstacles to the company's principal aim of buying rental apartments or projects.
Megureit will buy 34 housing units in the Midtown project in Tel Aviv for a total of NIS 71.4 million. The three-room 70-sq.m. apartments have 12 sq.m. balconies and are located on floors 6-11 in a tower slated for occupancy one year from now. The purchased apartments will be leased to eligible Tel Aviv residents for 10 years at a fixed and index-linked rent under the affordable housing plan. After the 10-year period expires, the apartments can be leased or sold individually on the free market without restriction.
A simple calculation shows that the apartments were bought at NIS 2.1 million per apartment. Since the apartment have not yet been occupied and are located in a brand-new building with a clear long-term leasing requirement, the product is something new in the market, and it is difficult to compare the price to that of similar deals in the area. At the same time, it is important to keep in mind that the tower in question has many storeys and high maintenance costs. This element is in addition to the future rent, which according to company figures will amount to NIS 4,750 per month. According to sources familiar with the rental arrangement, which was devised in cooperation with the Tel Aviv municipality, maintenance fees for these apartments will probably be limited to around NIS 400 per apartment per month. In this case, however, this amount is considerable. Megureit's figures also show that the fund expects an average annual return of 3% from rent on the apartments.
Megureit CEO Mati Dov commented, "When the rental agreement with the municipality expires, the return is likely to increase, since according to all the indications we have received from a number of professional parties, and according to the prevailing prices in Tel Aviv, monthly rent in the free market on apartments similar to those we have purchased currently stands at NIS 6,500-7,000."
Published by Globes [online], Israel Business News - www.globes-online.com - on January 18, 2017
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