14 years after buying offices for its management, Mizrahi Tefahot Bank (TASE:MZTF) is likely to sell them at double the price it paid. The bank, managed by CEO Eldad Fresher, recently published a tender for the sale of offices in the Moshe Aviv Tower in Ramat Gan. The bank, which bought the eight floors for NIS 152 million, and is expected to ask NIS 300 million for their sale, has already received an offer on this scale. Mizrahi Tefahot Bank does not intend to leave the offices; it wants to rent them back for 10 years, with an extension option.
The 68-storey Moshe Aviv Tower, also known at the City Gate Tower, is located at the intersection of Jabotinsky and Abba Hillel Silver Streets. The tallest building in Israel, it contains 82,000 sq.m. in offices, residences, and commercial space.
If the deal goes through, it will not be the first time that the bank sells a property and rents it back. Mizrahi Tefahot Bank has already done this with several branches, including its branch in the Dizengoff Center indoor shopping mall.
The purpose of the sale is to increase the bank's flexibility, so that if it chooses to reduce its space at a later time, it can do so more easily than in the current situation, in which it owns the space.
Mizrahi Tefahot bought the space in two deals in 2000 and 2002. Implementing these deals was no easy task, because the bank management at the time opposed moving to Ramat Gan, preferring the construction of its management offices in Tel Aviv. The bank's shareholders were also divided about the deal, but the board of directors eventually decided to go ahead with it the first time that a large bank moved outside of Tel Aviv. Management was anxious about this move, but in retrospect, the move to Ramat Gan did not hurt the bank.
Another bank likely to leave Tel Aviv in the coming years is Israel Discount Bank (TASE: DSCT), which is expected to move to the Elef compound in Rishon Lezion.
The banks have been in the process of cutting costs for several years, including reducing their real estate space, in addition to cutting back on personnel. Among other things, they have been closing branches, and have sold a great deal of real estate space in recent years. The trend has been particularly prominent at Bank Leumi (TASE: LUMI) and Discount Bank, which have sold properties for hundreds of millions of shekels in recent years.
Mizrahi Tefahot Bank has the best efficiency ratio among Israeli banks, and has been expanding, including its staff and the opening of new branches. At the same time, in order to improve its managerial flexibility and control over its real estate space, it prefers renting properties to owning them.
Published by Globes [online], Israel business news - www.globes-online.com - on July 20, 2016
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