A skyscraper here, a shopping center there, one acre after another – the Israelis
are again buying US real estate. A survey by Bregman Baraz Real Estate
commissioned by Globes found that Israelis were the second-largest foreign
buyers of US income-producing real estate in the period from July 2010 to June
2011, after Canadians.
Foreign investment accounted for 7.5 percent of
total investment in US income-producing real estate in this period, with
Israelis accounting for one-tenth of the foreign investment, or 0.75% of total
investment in the sector.
Israelis invested $1.15 billion to buy 36
income-producing properties in the United States over the past 12 months. That
put them ahead of the Swiss, who invested $1.14b., and second only to Canadians,
who spent $4.22b. Total foreign investment was $12.15b.
Israel, with a
gross domestic product that is 1.5% of the US’s, accounts for just a sliver of
foreign direct investment in the US, outside real estate. To put it another way,
Israel is a small country with a large shadow – proportionally a very large
shadow – in the US income-producing real-estate market.
Israelis are not
the only buyers of US income-producing real estate.
According to Real
Capital Analytics, which Bregman Baraz Real Estate represents in Israel,
transactions in the sector more than doubled in the first half of 2011 over the
first half of 2010 – the largest growth in any country except for Singapore. The
volume of the global income-producing real-estate market rose 25% to $235b. in
the first half, mostly due to the increase in transactions in the US. Asian and
European markets, except for Germany, were flat.
Foreign investment in
the US rose 33% in the first half of the year, compared with the corresponding
period last year. According to Bregman Baraz Real Estate partner Daniel Baraz,
the biggest investors, which he defines as investing hundreds of millions of
dollars in the past three months, are UBS AG and Canadian companies and
real-estate investment trusts (REITs), including Artis REIT and Westmont
Hospitality Group Inc.
While no Israelis made the grade in the second
quarter, they did in April 2010, when Nochi Dankner bought the US headquarters
of HSBC in Manhattan for $330 million through IDB Holding Corp.
Ltd. units Property and Building Ltd. and Koor Industries
Harel Insurance Investments and Financial Services Ltd. real-estate
investments manager Gadi Ben- Haim said: “There is no doubt that it’s better to
buy in Manhattan than in remote locations, but the current 4 percent return
there is illogical and much lower than a year ago, although there are still
We bought property in Boston because it’s a large
metropolis of 6 million people. We try to focus on key markets because they are
less risky. We won’t go to Tier 3 towns of 300,000 residents, but to locations
with liquid properties.”
A breakdown by subsector shows that office
towers and shopping centers attracted the most investment, 38% and 36%,
Almost all of the balance was invested in residential
properties, especially rental projects, but also in homes for sale. In practice,
however, the proportion of residential real estate is larger because
transactions also involve additional investment in renovations for rent or
There were several large deals by Israelis in July 2010-June
Harel bought several properties for $152m. It was followed by
Migdal Insurance and Financial Holdings Ltd. and Menorah Mivtachim Holdings
Ltd., which jointly invested $150m. to buy a property in
Azrieli Group Ltd. bought a Houston office building for
$176m., with a return on investment of almost 8%. Big Shopping Centers (2004)
Ltd. made a number of small purchases for $143m.
through its joint REIT
venture with Kimco Realty Corporation.
Property and Building, which
bought Barney’s New York flagship store in Chicago for $121.5m. in January,
bought another Chicago building in mid-July (not included in this survey) for
Other acquisitions include: a Chicago building by Ziel Feldman,
Acro Real Estate Ltd. and Property and Building; and several Manhattan
properties and lots by Fishman Holdings units Industrial Buildings Corp. and
Darban Investments Ltd.for more than $100m., not including construction
“For investment institutions with a high home bias, heading abroad
with proper expertise and caution could help diversify their investment
portfolios,” Bregman Baraz Real Estate partner Nilit Bregman said.
of the large transactions were made through joint ventures between foreign
investors and local partners familiar with the market – a common practice in the
“Two aspects come into play,” Baraz said. “One aspect is to
spread the risk. But on the other hand, there is increased risk due to the
limited control, or even absence of control of a property, which can cause
problems if conditions change in the market or in one of the
The possibility of disputes between partners is not a
theoretical issue, and the survey for the past 12 months found one: the
liquidated partnership between Lev Leviev and Shaya Boymelgreen. In January,
Optibase Ltd. unit Optibase Real Estate Miami LLC bought 21 condominiums in
Miami from Leviev Boymelgreen Marquis Developers LLC for
Leviev-controlled Africa-Israel Investments Ltd. has been selling
properties in Manhattan at a loss, after they were purchased at the peak of the
market. And they are not the only ones; real estate is not a one-way ticket to
There is no question that Israelis have again fallen
in love with Manhattan.
Almost 40% of the deals (in dollar terms) in the
past year were in Manhattan, and 46% were in the metropolitan New York area. The
figure only refers to large deals, and there were probably many small ones as
Ninety percent of residential transactions in the first half of
2011, totaling $236m., were in Manhattan.
The rest were in south
Total deals in Manhattan in the first half were
Israelis’ absence from Washington, DC, stands out, as it attracted
one-third of foreign investors in US real estate in the first half of the
Israelis look farther afield when it comes to non-residential real
Houston tops the list, accounting for 60% of Israelis’ investment
in office space in the US in the first half, thanks to two purchases by Harel
In contrast to residential and office property, the name of
the game in commercial real estate is dispersal. A review of Israelis’
investments stretches across the US. For example, Aviv Arlon Global
bought a shopping center outside Indianapolis, Big Shopping Centers
and Kimco bought properties throughout California, and Dizengoff Group Ltd.
bought properties in south Florida.
The Bregman Baraz Real Estate survey
only included transactions larger than $2.5m. made in the second half of 2010
and the first half of 2011. The data was provided by Real Capital Analytics. The
survey did not include transactions made by US subsidiaries of Israeli
companies, such as Gazit-Globe Ltd. unit Equity One Inc. or investments made by
US private-equity funds that manage money from sovereign funds or private