Migdal Boosts Bet on Long-Term Rental Housing with Ashtrum Investment Amid Market Challenges

Despite an ongoing challenging interest rate environment, Israel's long-term rental housing market is showing signs of recovery as institutional investors increase funding. Migdal Insurance recently announced a 451 million shekel investment in Ashtrum Group's rental housing arm, valuing the business at 2.55 billion shekels. This marks Migdal's second major investment in the rental housing sector this year, following its March acquisition of a 16.7% stake in Rent It, a rental housing REIT. Migdal has emerged as the most active institutional investor in this sector.

The rental housing market had struggled in recent years due to rising interest rates since 2022, which increased financing costs and compressed profitability, with typical rental yields around 3% versus interest rates at 3.75%. This environment led to losses and significant write-downs for established REITs like Magurit and Azorim Living, as well as developers such as Shikun & Binui and G City. However, with a slowdown in home sales, the rental market is gaining momentum, attracting new REITs like Rent It and Abu Family, which have successfully raised capital from institutional investors including Migdal, Clal Insurance, and Yelin Lapidot.

Ashtrum holds a portfolio of approximately 3,300 rental apartments, with 1,126 units currently generating income in Haifa, Tel Aviv, and Jerusalem, and over 1,100 units under construction to be completed by 2028. The company recently won a tender to build an additional 999 apartments in the Tel Hashomer medical housing project. As of March, Ashtrum's rental housing assets were valued at about 5 billion shekels with financial debt of 2.7 billion shekels. First-quarter revenues reached 28 million shekels with a gross profit of 25 million shekels, a 14% increase year-over-year.

Under the binding memorandum between Ashtrum and Migdal, Ashtrum will continue managing the rental operations and act as the contractor for future projects. Migdal will have a right of first refusal to provide financing for construction and income-generating assets. Ashtrum plans to bring in additional institutional partners to fund ongoing development, which requires about 1.2 billion shekels for current projects and over 2 billion shekels for the Tel Hashomer project alone. This capital raise aims to reduce leverage and acquire new projects.

This investment follows a similar move by Gindi, which recently allocated around 1 billion shekels to acquire rental housing projects, capitalizing on developers' difficulties selling apartments. Analysts note a positive momentum in the rental market driven by demand from younger populations seeking institutional rental solutions. Migdal's deputy CEO Erez Madali highlighted the opportunity for superior long-term returns as rental prices catch up with housing prices. Ashtrum's large project pipeline positions it as a leading player in Israel's long-term rental housing market, alongside competitors like Parshkovsky and Shikun & Binui. Migdal continues to expand its rental housing portfolio through multiple project partnerships and investments, supported by other institutional investors such as Mor, Yelin Lapidot, and Clal Insurance.