No Parking or Rent: Residents Give Up Benefits to Save Evacuation-Reconstruction Projects

"If you see a developer offering 30 square meters, do not let that happen. In the end there are projects in which residents are forced to give up rent so they can go ahead. We have a role in making sure developers do not make promises they cannot keep," attorney Ziv Groman, founder of Groman & Co., said this week at the annual conference of Madlanim.

His remarks come against the backdrop of growing erosion in the financial viability of urban renewal projects. The slowdown in the construction industry, high interest rates, rising financing costs and the surge in execution and labor expenses are pushing more and more projects to the edge of profitability. ● Developers are fleeing Tel Aviv, "Many projects are not economically viable. It is better to avoid exercising permits" ● New data reveal: High-tech workers are buying fewer apartments in Tel Aviv

The result is that in many cases agreements signed with apartment owners are reopened, the promised benefits are reduced, and sometimes residents are even asked to make concessions to prevent the project from being canceled. People in the industry say that requests to reduce construction additions, shrink the size of new apartments or change other benefits have become more common in recent years. Just in recent days it was reported that in 2025 there was a 20% drop in requests for building permits for urban renewal in Tel Aviv District, indicating among other things a decline in the attractiveness of these projects. At the same time, housing starts in Tel Aviv also fell by 5% in urban renewal projects.

"Most contracts in Tel Aviv's District 4 are reopened"

According to attorney Groman, in a review he conducted, he found that his firm has 81 projects in which developers returned to residents and reopened the contracts because of lack of economic viability. "In District 4 in central Tel Aviv, it is about 80% of the contracts, but the phenomenon exists throughout the country," he says. "There are zoning plans that began six years ago, when everyone was euphoric, but reality has changed. We need to change the mindset. When we promote a zoning plan, we are talking about a profit range of 15%. But one small blow is enough, and everything falls apart."

Urban renewal developers, a highly competitive sector dealing with a harsh reality of low sales and especially high financing costs, are also pointing to a growing trend of contract reopening in recent months. In other words, despite a signed contract with the developer, which commits to certain benefits, residents are forced to be flexible and accept much less, with the understanding that the future of the project depends on it. A large share of the agreements were signed in 2021 and 2022, before the interest rate hike cycle began, before construction costs rose and sales fell sharply, and they no longer reflect current market conditions.

"Projects signed in those years are only now actually beginning construction, but since then market conditions have changed significantly. Construction costs have soared, interest rates have risen, and not a few projects that were once profitable are now not viable," explains Tomer Reifman, CEO and owner of Yaaz Yezamut, which mainly builds urban renewal projects in Tel Aviv. "We are not fleeing Tel Aviv, but there is no doubt that the rise in construction costs has significantly affected economic viability across the country, whether in Tel Aviv, Hadera or Sderot."

"We do everything we can not to change agreements"

Reifman stresses that reopening agreements and amending contracts is a long process that everyone prefers to avoid. However, he notes that "the landowners, meaning the owners of the old apartments, are basically our partners. And many of them already understand that there is no choice but to amend the agreements to fit the new market conditions. The changes range from reducing square meters, only if this is possible in planning terms, to waiving rent, lowering the technical specification, reducing floors and paying for parking that was promised earlier in the contract. There are also cases of a combination of all these things."

From waiving rent to cutting floors, the price residents pay

Waiving rent, agreeing to self-finance housing during the construction period Reducing areas, lowering the promised square footage, if possible from a planning standpoint Paying for parking, buying the parking space from the developer instead of receiving it for free Lowering the specification, compromising on the quality of materials and fittings in the apartment Cutting floors, agreeing to cancel floors in the residential tower

Oren Yoshefa, co-CEO and owner of the Yoshefa Group, echoes these remarks: "We are clearly seeing a deterioration in profit. Projects that were closed in the peak years after COVID were based on high sale prices and relatively reasonable execution costs, in a very competitive environment. The sharp rise in execution costs is the main factor harming viability, while prices have not risen accordingly."

As a result, Yoshefa says, in some cases a process of changing the benefits becomes unavoidable. "In the vast majority of cases, the changes will not be in the area or in the planning of the apartments themselves, since such a move could delay the project by additional years," he says. "It is clear that neither the owners nor the developer want that. The solutions usually take the form of other benefits."

In other words, so as not to return once again to the planning committees, if square meters are reduced from the apartments, the developers and residents agree to concessions that are not part of the building itself. According to him, "among the options being considered are limited financial participation by apartment owners, purchase of parking spaces from the developer by those who want them, or various adjustments to the project's financial framework, such as waiving rent payments during the construction period."

Developers say apartment owners are internalizing the change. Yoshefa: "They understand that the economic uplift of the property is very high compared with the 'concession' required of them."

The problem is that waiving rent creates a financing problem for many residents, who are forced for the first time to pay rent themselves after years of living in an apartment they own. "For some apartment owners, the solution is indeed sometimes challenging in terms of cash flow," he says. "In such situations we as developers know how to bring solutions through the project's financing body. In our experience, when there is open and transparent dialogue, solutions are found."

"A mechanism is needed to ensure projects are realized"

Nati Gilboa, partner and CEO at the public urban renewal company Gefen, explains in a conversation with Globes that "one of the main problems in the industry is the long period that passes from the moment plans are approved until actual execution begins. This applies whether it is small urban renewal projects or large-scale evacuation-reconstruction complexes. This time gap creates deep uncertainty, which has led, among other things, to dozens of urban renewal projects currently being economically unviable, since the developer finds it difficult to estimate what the market will look like in five years and whether the project will still be economically viable."

Planning committees examine the scope of rights according to an appraiser's standard that determines economic feasibility. But over time, the appraisal analysis often becomes irrelevant, while the developer and residents are stuck with a project that cannot generate proper profitability. According to Gilboa, those ultimately paying the price are the residents themselves. When projects stall because of financing difficulties or erosion of viability, the residents remain in old, deteriorating buildings and sometimes without protection.

To deal with the phenomenon of reopened contracts and even project collapses, Gilboa believes the regulator, the planning committees and the Urban Renewal Authority, must change the pricing mechanism and the way rights are determined, making it more flexible. "Already at the initial planning stage, a developer profitability requirement should be set with a significantly wider profit margin, of about 25% to 30%, to allow as much certainty as possible, enabling the developer to move ahead and advance the project. But he proposes that upon completion, a renewed review be conducted on the basis of a more moderate threshold, of about 20%, for example, with any excess profit above that returned to the state's or authority's 'pool', either through a levy or through a reduction in rights in another project being promoted by the local authority or district committee in the same geographic area. In this way, on the one hand we will allow certainty and rapid implementation of renewal plans, and on the other hand there will be no endless accumulation of unnecessary construction."

Even at the Housing Ministry and the Finance Ministry, the state appraiser himself was aware of the need to make changes to Standard 21. At the beginning of the year, he published an update to the standard examined in every urban renewal project, which set higher values in different districts and also allowed ranges of deviation, for example 15% to 17% in central Tel Aviv and Jerusalem, or 16% to 18% in the north, Haifa and the south. For the first time, clear minimum profit rates were set with geographic differentiation, out of an understanding that the market is dynamic and that the main purpose is for these projects to indeed get underway.

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