The recently-released end of year trade figures underscored once again the thriving economic ties between Israel and the United States, with bilateral trade totalling $35 billion in 2014. The United States remains Israel’s largest trading partner. In particular, huge American interest in Israel’s ‘Silicon Wadi’ is hardly a secret, while telecoms, chemical and pharmaceutical products remain cornerstones of this prosperous relationship. However, US-Israel economic and financial ties might be a whole lot closer to home than you think. The fact is, that if you contribute to an Israeli pension fund then you are probably investing in US real estate. And what is even less well known is that these very same pension-holders could be investing directly in American property themselves.
For many Israelis, while the prices of domestic property continue to climb, there is a perception that US property is the exclusive domain of the mega-rich. And it’s easy to see why. Just a quick glance at some of the Israeli investments Stateside reveal truly eye-watering sums. Billionaire Yitzhak Tshuva for example reportedly paid a cool $675 million to purchase Manhattan’s Plaza Hotel in 2004. In 2013, Colliers International ranked Israel as the third largest foreign investor in US commercial real estate. However, this kind of purchasing power cannot be fuelled solely by Israel’s wealthy elite. In truth, much of it is also accounted for by large financial institutions, including those who control the pension fund purse strings. Harel Insurance Investments for example was largely responsible for the $277 million purchase of the tallest building in Minneapolis, the IDB Tower. Harel has also invested in student dormitories in Manhattan and a retail co-op on Madison Avenue. Just last month, both Psagot and Amitim pension funds completed real estate purchases in New York and Texas totalling tens of millions of dollars.
And in a recent trend, these same Israeli institutional investors are taking advantage of a second bite at the US real estate market as well. Israeli bonds have become fertile ground for American property developers. Attracted by cheaper shekel borrowing costs than they would find at home, US real estate giants sold in excess of $14.6 billion worth of bonds during 2014 in Israel, compared to $8.7 billion in 2013. Much of this boom is being spearheaded by some of the most prominent names in US real estate. For example, Extell raised about $270 million last summer while the Witkoff Group and Lightstone Group have followed a similar path, raising $120 million towards the end of 2014. Meanwhile, it was reported last month that Tree Top and Simon Baron will shortly flex their financial muscle on the Israeli bonds market too.
These real estate heavyweights are continuing to raise hefty sums. But who you might ask is purchasing these bonds issuances? The impressive yields (certainly in comparison to local banks) and the opportunity to diversify beyond Israel is feeding the appetite of Israeli institutional investors. For example, Tel Aviv-based Yelin Lapidot Investment House owns a significant portion of Extell’s bonds. With Israeli corporate bonds continuing to do brisk trade, it is clearly a mutually beneficial financial instrument for US real estate developers and Israeli pension funds alike. One of the net results though, is that your pension contributions are even more firmly tied up in US property.
Although you may technically be an investor in American real estate already, the chances of seeing a significant return through your pension and investment funds is slim. Such lucrative sums are likely to remain safely tucked away in the funds themselves. Thankfully, you don’t need to rely on the institutional ‘middle men’ to invest in US real estate. Opportunities are increasingly being offered for Israelis to invest relatively modest amounts in American property development projects, with the prospect of a comparatively high-yield return. And with experts predicting that 2015 will see the US economy in its best shape since the 1990s, US real estate becomes increasingly enticing. The idea of your average Israeli purchasing his or her own little slice of America may have once sounded improbable, but it is now a realistic prospect, even in some of the most desirable locations. Some Israeli companies are offering a stake in a luxury condo development in a prime New York borough for as little as a $50,000 investment.
Much is made of the special friendship that exists between Israel and the United States. It is worth remembering that this has a very strong economic dimension. The bond endures thanks to mutual interests, including very significant economic and financial benefits. Consequently, there are plenty of profitable opportunities for Israeli investors. And as the pension funds have shown, US real estate is one of them. Moreover, it is an investment that is becoming ever more attainable.
Tzviki Ben David is the founder and owner of BH Investments, a property company specializing in New York real estate investments.
Published by Globes [online], Israel business news - www.globes-online.com - on February 10, 2015
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