Direct Financing Expands Real Estate Operations into Developer Loans

Direct Financing, a financial services company, is broadening its real estate activities by entering the developer financing sector. Its subsidiary, Direct Financing Real Estate and Mortgages, has agreed to acquire 85% of Sigma City Real Estate Financing for approximately NIS 34 million. This valuation places Sigma City at roughly NIS 40 million. In addition to the purchase price, Direct Financing will provide owner loans of about NIS 29 million to Sigma City, bringing the total capital and credit commitment to approximately NIS 63 million. The NIS 34 million covers the share purchase, while the NIS 29 million will be injected as a loan to support Sigma City's credit operations.

Uri Dayan and Natan Tubiana will retain their 15% stake in Sigma City and continue managing its operations post-acquisition. Dayan has a background in mortgage financing and insurance, previously serving as VP at Harel and CFO of EMI. Tubiana is an economist and real estate appraiser with experience in credit deals at All Insurance and within the banking system. The deal's completion is contingent on regulatory approvals, including an updated control permit from the Capital Markets Authority and consent from Sigma City's financing banks.

Sigma City, established in 2015, specializes in financing real estate developers, primarily for residential and urban renewal projects. It focuses on providing the equity gap financing developers need to secure loans from banks or other financial institutions. The company operates in areas like Tama 38, evacuation-reconstruction, and combination deals, offering equity gap solutions starting from approximately NIS 3 million. This differs from Direct Financing's existing mortgage business, where it lends to homebuyers secured by the property.

In developer financing, the funds act as part of the required equity for a project. This credit is typically subordinate to bank loans, often secured by a second lien, leading to higher interest rates and increased credit risk if a project encounters difficulties. Sigma City is recognized by banks and insurance companies as an equity gap provider, enabling second lien registrations. As of the end of June, Sigma City's loan portfolio, including accrued interest, stood at approximately NIS 153 million.

For Direct Financing, this acquisition allows immediate entry into the developer financing market with an existing portfolio, underwriting, and management system, rather than building from scratch. The initial financial exposure for Direct Financing is relatively small, representing about 4.4% of its equity and 0.6% of its assets. This move expands Direct Financing's credit chain in the housing market, extending its reach from homebuyers to developers. The company reported a net profit of approximately NIS 74.3 million in the second quarter, with its mortgage sector contributing around NIS 37 million.