Real Estate Funds Buy Entire Buildings Amidst Slow Sales
Translated & summarized from Globes by baba
Israeli real estate developers are selling entire apartment blocks to rental funds at discounts of 6%-20% to overcome slow sales and high financing costs. Recent deals include hundreds of apartments purchased by funds like Abu Family and Rent It. While this strategy aids developers, it may affect building prestige. Despite increased rental supply, demand remains high, and discounts are not always reflected in rental prices, though longer leases and maintenance are offered as benefits.
The story in 6 lines · by baba
- Real estate funds are buying entire apartment buildings from developers facing slow sales in Israel.
- These bulk purchases are often made at discounts of 6% to 20% off the expected market price.
- Developers benefit from reduced inventory, lower marketing costs, and improved cash flow.
- Funds like Abu Family and Rent It have made significant bulk purchases of hundreds of apartments.
- Despite increased rental supply, demand outpaces availability, limiting price reductions for tenants.
- Funds offer benefits such as longer leases and centralized maintenance services to renters.
In response to sluggish sales, Israeli real estate developers are increasingly selling entire apartment blocks to investment funds specializing in long-term rentals, rather than waiting for individual buyers. This trend is exemplified by Abu Family's recent purchase of 50 apartments in Netanya from Azorim for approximately NIS 120 million. This strategy allows developers to reduce unsold inventory, cut marketing costs, and secure funds more quickly, especially when facing high financing expenses.
Several large-scale transactions illustrate this shift. In October 2023, Rent It and Migdal acquired 75% of a 341-unit rental project in Ashdod for about NIS 437.5 million. Earlier this year, Abu Family bought 50 apartments in Jerusalem for NIS 156 million, and Rent It purchased 52 apartments in Hadera for NIS 108.5 million. Azorim Living also acquired 50 apartments in Ashdod for NIS 107.5 million and 26 apartments in Jerusalem for NIS 76.5 million.
Industry insiders report that offers are now being considered for entire buildings containing 100-200 apartments, in addition to smaller clusters. These bulk purchases often come with discounts ranging from 6% to 20% off the expected market price. For instance, a deal in Jerusalem involving Azorim Living saw apartments purchased at a price approximately 20% lower than their appraised value without rental restrictions and 6% lower than their value with such restrictions.
While this provides developers with much-needed liquidity, it may impact the perceived prestige of residential buildings that allocate a significant portion of units for rent. The annual rental income from the Jerusalem project is estimated at NIS 2.4 million, reflecting about 3.1% of the purchase price before expenses, a figure that needs to account for operating costs, vacancies, and financing.
Despite the growing supply of rental units from these funds, demand currently outpaces availability, and the discounts are not always passed on to renters. For example, rental prices for three and four-room apartments in Jerusalem are listed between NIS 6,800 and NIS 7,400, comparable to similar apartments rented on the open market. However, funds emphasize benefits like longer lease agreements and centralized maintenance services. Eran Anav, CEO of Azorim Living, noted that tenants renewing contracts after five years in a Rishon Lezion project pay an average of NIS 7,500-7,600 for a five-room apartment, significantly less than the over NIS 8,500 for new contracts.