Africa Israel Investments Ltd. will post a fourth-quarter loss of about NIS 2.7 billion after the value of a landmark property, the former New York Times building, fell by $380 million.
The real estate holding company controlled by diamond entrepreneur Lev Leviev will also take writedowns of NIS 1.3b. on other properties worldwide, Africa said today in a Tel Aviv Stock Exchange statement. Part of the loss will probably be offset by changes in the exchange rate, it said.
"The figure is definitely high and what's even more surprising is that the drop in the value of one property had such an impact," said Yuval Zehira, an analyst at Israel Brokerage & Investments Ltd. in Tel Aviv. "It shows the state of the real estate sector."
Leviev, whose Yehud, Israel-based company, also has acquired real estate assets in Russia, Germany and eastern Europe, has been struggling amid the collapse of real estate prices and financial markets. The company has been seeking to sell assets, such as its Ramat Aviv shopping mall in Tel Aviv, to raise cash to meet bond repayments.
The newspaper's former headquarters, now known as the Times Square Building, on Manhattan's West 43rd Street is one of the landmark properties snapped up by Africa Israel over the last several years along with the Metropolitan Life Clock Tower and the Apthorp apartment building on the Upper West Side. It also has bought and is developing properties in Florida, California, Arizona and Nevada, according to its Web site.
Midtown Manhattan office vacancies may rise to 25 percent by 2012 as companies cut jobs, property broker TenantWise said in a March 6 report. Steven Roth, chief executive officer of Vornado Realty Trust, said March 2 it may take as long as four years for commercial real estate demand to catch up with supply.
"Africa Israel will record lower fair value estimates that correctly reflect conditions in the world and New York real estate markets," Chief Executive Officer Izzy Cohen said in an e-mailed statement, citing "the worsening global economic crisis in recent months."
Africa Israel, whose shares have plunged about 95% since its peak in May 2007, dropped as much as NIS 2.35 or 7.24% in Tel Aviv to close at NIS 30.12, leaving it with a market capitalization of about 1.7 billion shekels.
The Times Square building is now worth $315m., although the figure would rise to $500m. if it were fully rented, Africa said. At the end of the third quarter, the building had been valued at $671m. and the company had since invested in renovating its approximately 750,000 square feet of office and commercial space, it said.
Africa, which bought the property in April 2007, has been in talks to sell 49% of it to an unidentified Asian investment fund in exchange $49m. in cash and the assumption of a similar proportion of the building's $711m. in financing costs.
"Given current market conditions and the lower value of the property, the company believes there is a real concern that negotiations won't lead to an agreement, or at least not before a financing agreement is reached," Africa said today.
Africa said the depreciation in the value of the shekel will probably add NIS 600m. to its balance sheet at the end of the fourth quarter, which will help offset the forecast loss.
