Israel Real Estate Introduction

Israeli Real Estate Investors Seek Profits at Home and in Eastern Europe
Some Israeli real estate companies are primarily active in the domestic market, while others concentrate on buying and selling real estate abroad. There are also Israeli companies in the real estate sector that are active in both the domestic and foreign markets.
Eastern Europe appears to be the area outside of Israel that has drawn the most investment from Israeli real estate companies. While some Israeli real estate professionals believe that investing in Israeli real estate can be highly profitable, others believe that investments in Eastern Europe are generally more lucrative, but riskier.
Stuart Hershkowitz, who was a deputy director general of the Bank of Jerusalem for ten years before becoming a managing director of a real estate investment company called Harbor Group International, says that Israelis’ entrepreneurial drive has led them to invest in Eastern European real estate. “I think Israelis have a very entrepreneurial spirit,” Hershkowitz said. “Wherever there are new frontiers, you’ll find Israelis. So, they were fairly fearless, and they were the first ones to go into to go into real estate in Eastern Europe in a big way. “explains Hershkowitz, adding that Israelis began investing in Poland and Hungary in the mid-1990s, and have discovered Romania more recently.
Several of the company executives interviewed for this report contend that real estate investments outside of Israel are more lucrative than investing in Israeli real estate. Dror Kaveh is CEO of Digal Holding Company, which has holdings in both Israel and Eastern Europe. He says that Eastern Europe has more profit potential, but is also a more dangerous investment. “You can’t get the same high profit margins investing in Israel that you can get in Eastern Europe, which is why a lot of Israeli companies are investing there, but the risks are greater in Eastern Europe,” said Kaveh, explaining that Israelis do not understand the market in Eastern Europe as well as the Israeli market. Also, the Eastern European economies are more unstable than the Israeli economy, Kaveh said.Hershkowitz agreed that investing in Eastern Europe presents substantial risks.“I think that the (Eastern European) economies still need to prove themselves. I think with some of the countries there joining the EU, that there will certainly be some unrest as a result of moving up to the EU standards,” he explainedErez Meltezer, the CEO of Africa Israel, which has one of the largest real estate portfolios in Israel, contended that the real estate markets outside of Israel have more upside than many properties within the country.“I think Russia, CIS, U.S. and the Far East are really engines for growth,“ Meltzer said. “Israel is an interesting and unique situation, where you have to pick the right project in order to be successful and mainly focus on infrastructure,” he added. Other executives, however, believe that it is possible to obtain healthy profits from the Israeli real estate market. Shelly Levine, the owner of Tivuch Shelly, a company that mainly focuses on real estate in the Greater Jerusalem area, said that investors can obtain substantial returns in Jerusalem and its surroundings. “The key in Jerusalem is to find new neighborhoods that are just starting to develop. If you get in early, your money can double,” said Levine.Levine described how she became partners with an Israeli builder who bought land in a suburb of Jerusalem called Beit Shemesh for $1.5 million in 1990. The builder built 850 homes on the land and Levine helped sell the properties for a total of $140 million during the high-tech boom. Property values are climbing rapidly in certain downtrodden areas of Jerusalem that are rebounding, Levine added.“We’re developing new areas of Jerusalem that were rundown,” Levine explained. “Today those areas are becoming quite exclusive and quite expensive,” she added.In addition, there are still suburbs of Jerusalem, including the largest Israeli towns in the West Bank, that are worth investing in, Levine advised. Levine added that neighborhoods which will be near a light rail system currently under construction in Jerusalem are in high demand. There are also properties in the Tel Aviv area that are worth investing in, according to Pini Shafir, one of the owners of RP Real Estate, a real estate marketing company that operates mainly in the Tel Aviv area. Shafir recommends buying properties within walking distance of the Mediterranean Sea in Jaffa, a small urban area next to Tel Aviv. He also recommends seafront properties in the town of Herziliya Pituach and Netanya, a coastal town about 19 miles north of Tel Aviv. Shafir believes that these properties will increase in value by about 20%-30% this year. Hershkowitz adds that investors should take a look at the town of Zichron Yaakov, a small, “partially-discovered” town with many luxury homes just south of Haifa. Citing record performances by the Tel Aviv Stock Exchange and a very good economic climate, Hershkowitz, the former deputy director general of the Bank of Jerusalem, believes that now would be a good time to invest in Israeli real estate.“This is a very good prosperous time for the Israeli economy,” he said. “I think this would be a very good time to invest in (Israeli) properties, particularly in the Tel Aviv area,” he added. Hershkowitz said foreign investment in Israeli real estate has increased dramatically in recent years. According to the Israeli business website Globes, foreign investment in Israeli real estate rose from $1.22 billion in 2005 to $1.44 billion in 2006, an 18% increase
Brief Company Overviews
Africa Israel (Tel Aviv Stock Exchange: AFIL) has vast real estate holdings inside and outside of Israel. With total revenues of about $927 million (based on an Israeli shekel-US dollar exchange rate of 4.02:1) in the first nine months of 2006, Africa Israel is one of the ten largest Israeli concerns in any field. Its largest areas of operation are real estate and construction. The company has built many housing developments in Israel and owns five malls as well as several large office buildings in the country. Africa Israel also has a huge amount of real estate holdings in Eastern Europe, including major commercial properties in the Czech Republic, Serbia, and Russia. In the US, the company primarily has real estate holdings in Florida and New York, although it has properties in other places in the country, including Los Angeles, South Carolina, and Texas. Although 25% of Africa Israel is traded on the Tel Aviv Stock Exchange, a controlling share of the company is owned by Lev Leviev, who emigrated to Israel from the Soviet Union and is one of the largest diamond exporters in the world. Israel’s Bank Leumi also owns a portion of the company.Digal Investments and Holding (Tel Aviv Stock Exchange: DIGL) is building seven apartment buildings in Jerusalem. The buildings will have a total of 395 apartments when they are completed. Digal also has a 150-room hotel, a 26-floor office building an additional 80 luxury apartments, and rents 200 parking spaces in Israel. The company is currently looking to get involved in projects in Romania. With offices in Tel Aviv and Virginia, Harbor Group International has about $2 billion in properties. The majority of its funds come from Israeli investors, and it focuses on fairly conservative real estate investments. Most of the company’s holdings are in the US, but it has properties in Germany and the UK. In the UK, the company focuses on renting commercial properties to AAA tenants, while in Germany it owns a large hotel managed by a well-know chain. In the US, Harbor Group International acquires and sells multifamily dwellings, shopping centers and office buildings. A majority of its properties in the US are in the southern part of the country.RP Real Estate, founded five years ago, markets real estate, primarily in the Tel Aviv area. Its clientele includes wealthy foreign investors who are looking to buy or sell properties in Israel. Some of the towns that RP Real Estate focuses on include Tel Aviv, Jaffa, Ramat HaSharon, and. Herziliya Pituach, One of RP Real Estate’s marketing partners is the website israelestates.com, which contains English-language information about 10,000 properties available for sale in Israel. Jerusalem-based Tivuch Shelly works with developers to sell and design homes in Jerusalem and the surrounding area. The company also manages building projects and acts as an intermediary between buyers and builders, facilitating design changes ordered by buyers. Tivuch Shelly sells several hundred units annually and partners with some of the largest builders in Israel. The Prashkovsky Group is building 600 apartments in Israel, primarily in Tel Aviv and its suburbs. It owns commercial properties in Kazakhstan, Latvia, the UK, and the US.