The rescue for developers: the companies buying 50 apartments at a time
In March 2025, REIT fund Megurit bought 47 apartments in the “HaSolalim” project by Mivne and Tidhar in Tel Aviv for about NIS 191 million. In October 2025, Rent It and Migdal bought 75% of a long-term rental housing project by Shbiro for about NIS 437.5 million. That same month, Abu Family Housing bought 35 apartments in a residential project in Ashdod for about NIS 46 million. In December, Abu Family bought 40 apartments in the Da Vinci Towers, which were hit by an Iranian missile during Operation “With the Strength of a Lion.” During March 2026, Azorim LIVING completed two purchases, one for 50 apartments in Ashdod for about NIS 107.5 million, and one for 11 apartments, in addition to 98 it had already bought, in a project in Park HaYam in Bat Yam for about NIS 41.7 million. Less than two weeks ago, Abu Family bought 50 apartments in the Romema neighborhood of Jerusalem for NIS 156 million, and shortly afterward Rent It announced that it was buying 52 apartments in the Aura City project in Hadera for NIS 108.5 million.
These purchases total more than NIS 1 billion paid within a little over a year by REIT funds for housing clusters and long-term rental projects, after a very long period of stagnation in the field. Additional deals are in the pipeline. Is the institutional rental sector lifting its head after years of sitting on the fence and waiting for better economic conditions? The potential: “The sector is waking up, and rightly so.”
Real estate funds, or REITs, are private funds for investment in income-producing real estate. In Israel they operate under the provisions of Part Two of Chapter Four of the Income Tax Ordinance, and until 2016 they were mainly engaged in investment in “classic” income-producing real estate, offices, retail and more.
In 2016, the Income Tax Ordinance was amended to encourage REITs to invest also in the residential market, which is also considered income-producing real estate, long-term rental housing. The very holding of these assets over a long period, and generating a return from them, mainly from rental income, is what defines this sector as income-producing real estate and allows REITs to include it in their investments. At that time, many saw a bright future for the long-term rental sector, mainly because in Israel it barely existed and therefore had great growth potential. But after several good years of activity, the cards were shuffled: several developments hurt the attractiveness of this sector, above all the repeated and continuous increases in the policy rate, which made returns on projects in the field especially low. Activity in the sector, both in the private market and on the state side, sank to almost zero.
Now it appears that at least in the private market, things are starting to move. More and more deals are being made in which REITs buy “clusters” of new apartments from contractors, usually in projects nearing occupancy, and turn them into long-term rental units. What caused this market to awaken in recent months? Several developments happened together, and not only the cut in interest rates, as one might have thought.
“High interest rates played a role, but so did the state of the market,” says Nir Shmuel, CEO of the Shnir real estate marketing group, offering one of the main explanations for this awakening: “The accumulation of growing inventories of apartments in developers’ hands is causing them to rethink and decide to sell a large number of apartments at an attractive price for the buying fund. Such a deal reduces the remaining inventory for sale and allows the developer to report to the financing body a reduction in the obligo, the commitments and debts.”
“The developers, who are struggling these days with slower sales and want to free up capital and inventory, are willing to sell an entire long-term rental project or apartments built as affordable housing at a discount,” says Daniella Paz-Erez, founder and owner of Paz Economics and Engineering. “These are projects with a fairly low yield, and a developer who does not want to lock up his capital for 20 years at low returns will agree to compromise on price, sell an income-producing project and free up the capital.”
Sharon Tosia-Cohen, founder and CEO of Rent It: “The prolonged stagnation in the market for apartments for sale is creating significant opportunities today for REITs and companies specializing in long-term rental housing. At a time when the pace of sales of new apartments has slowed, developers are looking for solutions that will allow them to monetize inventory in significant volumes, and we offer them certainty, speed of execution and the ability to buy large clusters of apartments in one transaction. On the other hand, we benefit from a bulk-purchase discount, which allows us to build a quality portfolio at attractive pricing.”
How willing are developers to compromise on price? One of the deals we reported on, in which Abu Family Housing bought 50 apartments in the Rafa Triple project of Bingo Real Estate in Jerusalem, reflects an average price of about NIS 60,000 per square meter. About a year and a half earlier, apartments in the project were sold on the free market at an average price of about NIS 72,000 per square meter.
“The market is waking up, and rightly so, because of a combination of factors leading to the conclusion that the rental market is headed toward something bigger,” adds attorney Erez Tik, managing partner and head of the real estate and hospitality department at Lipa & Co. “There is also the fact that developers are ‘under pressure’ to sell apartments, and accordingly are willing to compromise on price. They also benefit from this, because REITs buy a large quantity of apartments from them, and thus the developers are also more liquid and can present higher sales figures. These are good conditions to start selling from.”
At first glance, it seems this is a good situation for both sides, but in practice it is not that simple: “Purchases by REITs focus mainly on projects in their final stages, after construction risks have passed,” Paz-Erez explains. “That gives them income-producing and stable assets for the long term. In such cases, the developer has already absorbed the low return on equity during the construction period, when the risk is high. At the stage close to construction, or after construction, the risk is significantly lower.
“So yes, the deals help developers free up resources, but as long as interest rates are high and the expectation is for only a moderate rise in apartment prices, it can be assumed that developers will have to recognize losses in order to execute a deal that will be worthwhile for a REIT.”
“These are deals made at minimal developer profit,” Shmuel adds, “and therefore this is not an easy decision for a developer. On the one hand it relieves immediate cash flow pressure, but it also reduces the expected profit in the project, so many companies are debating whether to do such deals, in which the profit is cut significantly. This is especially relevant for public companies, which reported a certain future profit in the project and suddenly slash it sharply.
“In most cases, the developer companies that do turn to this option are those that tried for a long time to avoid it, but realized the market situation was not improving. A project in Hadera where Rent It bought apartments. ‘Significant opportunities’ / Photo: Courtesy of Aura
“Such companies, whose project is usually already within a financing framework from a bank or non-bank entity, are also under pressure from that direction: the high financing costs significantly erode profit, and sometimes the bank or the financing body will demand additional equity from the developer when the pace of sales is slow, while execution advances and the developer reaches the credit line ceiling. The developer has several options for how to act in such situations, and one of them is the sale of a ‘cluster’ of apartments to a REIT, instead of, for example, a second-ranking lien on other assets it owns, which carries a high double-digit interest rate.”
The interest-rate question: “A reduction of one percent is a huge difference”
For many years, the policy rate was close to zero, and from mid-2022 Bank of Israel began a prolonged series of increases, which brought the rate at its peak to 4.75% around mid-2023. Since the market operates according to the prime rate, which is usually the policy rate plus a margin of about 1.5%, every debt a company carries becomes a huge burden. In a market where returns are already very low, this is a death blow.
Today, after the latest rate cut, it is 1% lower than the peak it reached in 2023. How significant is that? In such deals, usually up to half of the amount for buying the apartments comes from the company’s equity, and the other half is raised as a loan. If we take, for example, a deal worth NIS 150 million, then by that rule, NIS 75 million of it is taken as a loan. One percentage point less in annual interest means about NIS 750,000 a year for the company that took the loan. Of course, the higher the sums, the greater the “savings.”
“A 1% drop in interest means a huge difference for these funds,” says attorney Tik, “and therefore it is clear that rate cuts matter here too. But it is still not enough to constitute a critical mass. Interest-rate cuts have begun, and the market expects them to fall further in the short to medium term, whether because the war ends or because of other factors, but the interest-rate issue is still not decisive. Right now this is not yet the decline they expect at the end of the road.”
“A difference of one percentage point from the peak is significant, and it reduces the expected ‘loss’ for that fund,” Shmuel adds. “Many of these funds’ deals are, of course, financed with bank loans at prime, so every rate cut by Bank of Israel makes the deal better. The added tax benefits enjoyed by these funds, along with expectations of future market recovery, lead them to believe this is a good deal in which they are also taking advantage of improved market conditions and perhaps the developer’s distress.
“To understand what the relevant interest rate is for a rental project during the income-generating period, one needs to look at the yield to maturity on a 20-year government bond, which today stands at about 4%,” says Paz-Erez. “That is still too high a number for the rental model to be worthwhile, without a significant discount in apartment prices or land prices. In any case, I think the wave we are seeing now will strengthen, because the existing REITs need volume in order to reach proper diversification and achieve economies of scale.”
Tosia-Cohen adds: “This model generates profitability and good returns for us even in the current interest-rate environment. As the interest-rate environment continues to improve in the future, we will be able to refinance part of the assets under better conditions, a move that could significantly increase profitability and return on equity over time.
“At the same time, the market conditions that make it harder to buy an apartment are pushing more and more households into the rental market. We are seeing strong demand for long-term rental housing and a continuing rise in rent levels in many areas across the country. The combination of purchasing at attractive prices with growth in demand and rental income strengthens the sector’s attractiveness and establishes long-term rental housing as one of the most interesting and stable investment channels in the Israeli real estate market today.”
The future: “Land needs to be marketed”
Does the current wave of REIT purchases, which may even intensify, indicate a possible recovery of the sector as a whole? “The institutional rental market depends on tenders, because the state controls the land,” Paz-Erez explains. “We have seen a serious slowdown in the marketing of land for rental housing, and today developers are more cautious and the land is purchased at a significant discount compared with land for housing. To increase the supply of institutional rental housing, much more massive marketing of land is needed, as well as creating certainty for developers.”
“Long-term rental housing is a significant need for many audiences, who will be able to rent an apartment with peace of mind and will not have to think every year about moving to a new apartment. The great hope of many people, who currently cannot afford to buy an apartment, is that the institutional rental market will awaken,” says Shmuel. “But unfortunately, there is no serious long-term rental market in Israel right now, and I find it hard to see the state, in the current situation, with a huge defense budget and enormous debt costs to finance the war, diverting significant budgets toward long-term rental apartments.”
Attorney Tik is optimistic about the sector’s future: “In my view, one of the reasons REITs are returning to this market is the assumption that rental market conditions will continue to improve. Israel will need many apartments to meet the expected population growth, and with the understanding that purchasing power is limited, apartment prices today are simply unreasonable. The rental market will awaken further, and become a more sophisticated market, as happened everywhere in the world.
“This market is already on the rise, and it is expected to improve, among other things, in terms of returns. If today they stand at 3% to 3.3%, they will reach 4% and perhaps even more. The most likely scenario is that the rental market will rise much more than apartment prices, because today there is no alternative in it, and that is excellent for REITs.
“Although these funds, as part of the economic calculation, are also ‘betting’ on an increase in apartment values at the end of the rental period, it is no longer certain there is room for further increases, but the rise in returns will make the projects worthwhile. It is no coincidence that many developers have already entered the field, such as Azrieli Group, and many others are looking for ways to enter. When that happens, and when the most serious players enter the market, they will contribute to creating a much more sophisticated market than the one we have today.”
