Real Estate Funds Buy Hundreds of Apartments at 20% Discount Amid Market Slump
Translated & summarized from N12 by baba
Real estate funds are purchasing hundreds of apartments, and even entire buildings, from distressed developers at discounts of up to 20% due to a stagnant market. Recent deals include large apartment block acquisitions in Netanya, Tel Aviv, Ashdod, Jerusalem, and Hadera. While beneficial for developers by reducing unsold inventory and financing costs, this strategy may affect project prestige. Renters are seeing benefits in longer lease terms and price stability rather than immediate rent reductions, as demand still exceeds supply in the rental market.
The story in 6 lines · by baba
- Housing rental funds are acquiring hundreds of apartments at discounts of up to 20% from developers facing a frozen real estate market.
- Developers are selling blocks of apartments to funds as an alternative to waiting for scarce individual buyers.
- Recent transactions include large purchases in Netanya, Tel Aviv, Ashdod, Jerusalem, and Hadera.
- Selling apartment blocks can reduce developers' unsold inventory and financing costs, making discounts attractive.
- The strategy may impact a project's perceived luxury, affecting current and future buyers.
- Renters benefit from longer lease agreements and price stability, not immediate rent reductions, as demand outstrips supply.
Amidst a frozen real estate market and developers facing distress, housing rental funds are acquiring hundreds of apartments, sometimes entire buildings, at significant discounts of up to 20%. This trend sees developers selling blocks of apartments to funds specializing in long-term rentals instead of waiting for individual buyers who are scarce. The unsold inventory of new apartments stood at 86,000 at the end of August.
Recent transactions include Abu Family Living's purchase of 50 apartments in Netanya for approximately NIS 120 million, and Megurit's acquisition of 47 apartments in Tel Aviv for about NIS 191 million. Rent It and Migdal bought 75% of a 341-apartment rental project in Ashdod for around NIS 437.5 million. Abu Family Living also bought 50 apartments in Jerusalem for NIS 156 million, and Rent It purchased 52 apartments in Hadera for NIS 108.5 million. Azorim Living acquired 50 apartments in Ashdod for NIS 107.5 million and an additional 26 in Jerusalem for NIS 76.5 million.
Industry sources indicate that selling apartment blocks, even at a discount, is often beneficial for developers. It reduces the number of unsold units, potentially lowers sales expenses, and provides a defined timeline for receiving funds. The savings on financing costs, especially for developers with high interest payments, can make such discounts attractive. For instance, the Arnona deal in Jerusalem showed Azorim Living purchasing 26 apartments for NIS 76.5 million, a price about 20% lower than their estimated value without rental restrictions and 6% lower than their value with restrictions.
However, this strategy may impact a project's positioning and perceived luxury, potentially affecting both existing and future buyers. The annual rental income from the Arnona project is estimated at NIS 2.4 million, reflecting about a 3.1% yield before expenses. This does not account for operational costs, vacancies, acquisition expenses, and financing.
Despite the growing supply of rental apartments, demand currently outstrips availability, and funds are not rushing to pass on the purchase discounts to renters. For example, in Africa Israel Residences' project in Jerusalem, a three-room apartment is offered from NIS 6,800 and a four-room from NIS 7,400, comparable to market rates. The primary benefits for renters lie in longer lease agreements, which allow for price stability (usually indexed to inflation) and avoid annual renegotiations, along with centralized maintenance services. Eran Anav, CEO of Azorim Living, highlighted that tenants renewing contracts after five years in their Rishon Lezion project pay an average of NIS 7,500-7,600 for a five-room apartment, compared to over NIS 8,500 for new contracts.
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