Yakir Gabay's Yellowstone Seeks $400 Million for US Real Estate Push

Yakir Gabay's US real estate arm, Yellowstone, is seeking to raise between $300 million and $400 million in a pre-IPO private placement, valuing the company at up to $1 billion. This move follows a recent NIS 600 million debt raise in Tel Aviv and aims to inject new capital to acquire and improve distressed properties, particularly office buildings and hotels, which are struggling with high interest rates.

The capital will be raised through a partnership where Yellowstone holds approximately 27.6%. Major Israeli institutional investors like Clal (28.4%), The Phoenix (27.8%), and More (16.2%) are participating, with existing shareholders expected to contribute proportionally. Harel and another institutional body are also being considered for entry. Gabay plans to leverage Israeli institutional funds to expand his US real estate operations, valued in the billions of shekels, while maintaining control through Yellowstone.

Yellowstone's strategy focuses on converting struggling office buildings and hotels, impacted by remote work and rising interest rates, into residential units. This approach has shown success in New York City, where municipal policies encourage office-to-residential conversions, especially in Manhattan, which faces a persistent housing shortage. A notable example is the 1740 Broadway property in Manhattan, acquired for about $186 million, where Yellowstone is developing over 400 apartments for sale and rent, backed by a $480 million construction loan.

The partnership currently holds four major New York properties undergoing development, with a total cost of approximately $708.5 million and a balance sheet value nearing $1 billion. These include projects near Times Square and on Broadway, aiming to create hundreds of new apartments. Despite the rising asset values and potential for significant appreciation, Yellowstone reported an operating loss of about $25 million and a net loss of $29 million in the first half of the year. Net Operating Income (NOI) from existing income-generating spaces also declined to $3.6 million from $7.5 million last year.

The current capital raise is crucial for Yellowstone, providing funds to acquire more assets without proportionally increasing leverage. This strengthens the company's equity base before its planned IPO. The company previously raised NIS 600 million in June through bonds at a 7.5% annual interest rate. Gabay brings extensive European real estate experience from Aroundtown and aims to replicate a crisis-driven acquisition and value-enhancement strategy in the US, with the ultimate test being the conversion of paper value into tangible returns through completed projects and rental income.