Real Estate REITs Acquire Hundreds of Apartments from Struggling Developers
Translated & summarized from Calcalist by baba
Israeli real estate developers are selling hundreds of apartments to rental housing REITs due to a prolonged sales slowdown and financing restrictions. Tzafati Real Estate is selling 80 units to Azorim Living for NIS 198 million, expecting significant profit and cash flow. Other REITs are also actively acquiring properties, viewing the developers' struggles as an opportunity to expand their rental portfolios amidst rising demand.
The story in 5 lines · by baba
- REITs have purchased 482 apartments from developers this year amidst a sales slowdown.
- Tzafati Real Estate will sell 80 units to Azorim Living REIT for NIS 198 million.
- The deals provide developers with cash flow and reduce their costs and risks.
- REITs benefit from acquiring properties at a discount amid rising rental demand.
- Analysts expect more such transactions as market uncertainty continues.
Real estate investment trusts (REITs) focused on rental housing are actively purchasing hundreds of apartments from developers facing sales difficulties in Israel. This trend is highlighted by a recent deal where Tzafati Real Estate will sell 80 housing units to Azorim Living REIT for NIS 198 million. This acquisition is Azorim Living's third this year, adding to its portfolio of rental properties.
Other rental REITs, including Megurit, Rent It, and Abu Family, have also been acquiring large numbers of apartments, capitalizing on market conditions that are challenging for developers but beneficial for them. Abu Family recently purchased 50 units from Azorim in Netanya.
Raz Domb, a real estate analyst at Leader Capital Markets, explained that the slowdown in sales over the past two years, coupled with Bank of Israel restrictions on developer financing, has created an opportunity for REITs. These bulk purchases provide developers with much-needed cash flow, reduce financing and marketing costs, and mitigate sales risks, even if the sale price is discounted.
For Tzafati, the sale of 80 units to Azorim Living will result in an estimated pre-tax profit of NIS 47 million and a post-tax cash flow of NIS 156 million by the end of December. Moshe Tzafati, controlling shareholder and co-CEO of Tzafati, noted that the slow sales pace, averaging one apartment per month in the project's area, made the deal attractive despite a potential discount.
The deal involves Tzafati selling all units designated for rent and an additional 17 unsold units from a recently completed project. Azorim Living is acquiring these 80 units at a 14% discount to market price. Analysts anticipate more such deals as long as market uncertainty persists, benefiting both developers needing liquidity and REITs seeking rental properties amidst rising demand and rental prices.
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