Rising Interest Rates Turn Overseas Real Estate Investments into a Trap for Israelis

Investments in overseas real estate, once marketed to Israelis as a path to higher returns than available domestically, are now proving to be a financial trap due to soaring interest rates and increased financing costs. The formula that underpinned these investments has fundamentally changed, leading to a decline in property values and making debt refinancing significantly more difficult. These consequences are now directly impacting Israeli investors.

SDB, a major player in private overseas real estate investments for Israelis, is facing significant challenges. An investigation by Calcalist revealed that several projects involving SDB clients have entered insolvency, receivership, or are experiencing severe cash flow problems. In four UK properties where public purchase and sale prices could be identified, the losses already amount to tens of millions of pounds, illustrating how shifts in financing conditions can transform seemingly attractive investments into significant losses.

Israeli investment firms flocked to US and UK real estate markets over the past decade, seeking higher yields. This model thrived on cheap credit, but the landscape shifted dramatically. The US Federal Reserve's interest rate, which was near 0% in early 2022, climbed to over 5% within 18 months, drastically altering the economics of leveraged real estate deals. Calcalist previously reported that some investments marketed by Israeli firms were highly sensitive to rising rates, falling property values, and difficulties in refinancing debt, with some investors losing their entire capital.

SDB, which manages over $1 billion in real estate across the US, UK, and Spain for 1,700 investors, is now grappling with these issues. Co-CEOs and foundersשרוליק חנוך and דן ליברמן lead the company. In the last two years, several of their clients' projects have faced receivership, external management, forced sales, or cash flow crises. The documented losses on four UK properties alone exceed tens of millions of pounds, with additional large projects facing uncertainty.

Specific examples highlight the severity of the situation. The Spires, a commercial center in North London purchased by SDB for £28 million in 2021, saw its holding company placed under special administrators in March 2024 due to an inability to service debt amid high financing costs. The developer, BYM Capital, also went bankrupt. Another property, Riverview, intended for conversion to residential units, was sold at a loss of approximately £600,000, leaving SDB investors with little to no recovery after secured creditors were paid. The Treaty Centre, acquired for £46 million in 2022, is also under enforcement action by its lender due to developer collapse and high financing costs. Astral Towers, purchased for £11 million in 2021, is projected to be sold for £4.5 million in April 2025, a nearly 59% drop in value. An additional project in Manhattan, East 101, a 34-unit residential building bought for $12.5 million, is facing cash flow issues and potential partial or full loss of investor funds.

SDB attributes these difficulties to significant shifts in market conditions, including rising interest rates, inflation, and geopolitical factors, which have substantially reduced property values. The company's investment agreements reportedly place a significant portion of the risk on the investor, with clauses stating awareness of potential total loss and the investor's responsibility for independent risk assessment. Some affected clients are reportedly exploring legal action, while others have accepted SDB's offers of potential profit sharing from other projects in exchange for waiving certain claims.