Unorthodox methods

American real-estate entrepreneur Henry Kauftheil has bought an Israeli stock-market shell and has begun to conduct business activity here.

Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY) chairman and controlling shareholder Lev Leviev said recently that there is nothing to search for in the field of real estate in the US. Another orthodox Jew, Henry Kauftheil, the new controlling shareholder of public company Yuli Capital Markets Ltd. (TASE:YULI) thinks otherwise. "I do not agree with Leviev. The potential is huge, you only need to know where to look. If you take a car and drive all over the US, as I have the habit of doing, you will see that there are thousands of shopping centers, below the radar of the contractors, that can be bought at low prices, have the necessary changes made in them and sold after a short period for a large profit", he says.

Kauftheil (43), an American businessman who started life far from the real estate world, actually became known when he set up an online commerce website in the early nineties, when the internet was still in its infancy. This enterprise won him the Einstein Prize for Technology.

Today Kauftheil owns ACG Equities LLC, which operates throughout the US, mainly in improving commercial properties. During the past three years the company made 33 deals worth over $500 million, encompassing 5.3 million square feet.

Recently, Kauftheil has developed an appetite for business in Israel. In the past, Kauftheil tried to acquire a market shell called Tree Top Investments Ltd. (TASE:TRTP). In the end, however, he chose Yuli Capital, whose name will be changed soon, and which he acquired jointly with accountant Shlomo Ness. Through Yuli Capital, he plans to raise capital through a bond issue on the Tel Aviv Stock Exchange in order to purchase commercial buildings in the US and elsewhere, including Israel. Control of the shell, which is traded at a market value of NIS 80 million, was officially transferred to Kauftheil and Ness in January.

Kauftheil's affinity to Israel is not new. His children and grand-children live here. "My children are here, and I have grandchildren that I am always looking for an excuse to come and see, and now I will have a splendid opportunity," he said.

"There is interest in my American company on the part of Israeli investors, and they will have a convenient platform to invest through us in the American market. "I, for my part, was looking for a vehicle for these investors. I am not interested in a small company. I hope that operations will soon reach hundreds of millions of dollars", adds Kauftheil and stresses, "we will not come with a bang, but rather deal by deal. I want a solid and robust company. We chose a market shell so that we would not have to start everything from the beginning, and also the choice of a public platform allows us to start quickly".

According to Kauftheil, "Our advantage is that we are well known in the US, so the brokers come to us with proposals, and we have connections with the biggest chains. We are known as a company that keeps to agreements. We will offer deals to Yuli's management, and if they think that it is appropriate we will take it from there".

The entry into Israel will certainly constitute a change of focus from Kauftheil's point of view. Kauftheil up to now operated only within the US, but, as he says, "it is true, I am an orthodox Jew from Brooklyn, but if you drop me from a plane I will tell you exactly where I landed. I feel comfortable everywhere. Israel will be the base, and through it we will be able to find deals not only in the US but all over the world. The real estate in Israel interests me as well".

A merchant's point of view

Kauftheil is not interested in standard income-producing real estate deals with fixed margins intervals, and he prefers to acquire assets at moderate prices, usually commercial centers that can be improved. The transformation includes cosmetic changes in the building, changing the lessees, changing the borders of the lots and more, while Kauftheil's starting point in examining the deals he enters originates in his past, from the time he was a merchant, before he even considered entering real estate.

"I buy assets with my nose, and with a lot of work and a bit of luck sell at a good price", he explains. "We bring a merchant's outlook to the real estate business and do not employ regular techniques. The contractors view things from too high up, unlike a merchant, who has to be satisfied at the end. Once you change your viewpoint, I think that any commercial building can be improved. Most investors make deals with regular margins, and our added value comes from a different way of looking at things. I come to a commercial center and see what can be done to improve it. There were a number of cases where I said to myself that with a cosmetic change costing $50,000 the appearance of the shopping center can be changed completely and it can be sold rapidly at a much higher price."

Even though he does not agree with Leviev, who claims that there are no more real -estate opportunities in the US, he agrees that in residential real estate the prices are too high. "The residence market in the US is definitely too hot, and it is starting to slow down and correct itself downwards", says Kauftheil.

"After the impulse to buy residential apartments, at the end of the day the purchasers need commercial areas near the new houses that they have bought. There are entire regions all over the country that are not set up for this, and that is where we come in. We make deals of a size that wouldn't interest large contractors, and in regions that some of them are unaware of.

"The transactions look too small for them because the real estate market is hotter today than ever, and they are looking for deals worth hundreds of millions of dollars and so they forget the small shopping centers.

"In the regions we focus on this does not happen. On the contrary, we work in regions that are less heard of here in Israel, such as Mississippi, Alabama, Georgia, Tennessee and North Carolina, with a focus on commercial real estate, where the opportunities are waiting if your outlook is a bit different".

Kauftheil is part of a wave of orthodox Jews who decided to make "business aliyah", and to conduct widespread activity here. An outstanding example from recent times is Shaya Boymelgreen, who took over Nochi Dankner's Azorim Investment, Development and Construction Ltd. (TASE: AZRM). Kauftheil claims that the new "trend" does not stem only from religious motives.

"The orthodox Jews have many assets in the US, and those who succeeded found it appropriate to invest in their roots", he says and adds that "there is always a need to invest in Israel, but even if I was not a Jew I would invest here. It is very pleasant to work with smart people, and here you can find them in abundance. There is no "bullshit" here and you can do good business. Ask Warren Buffett"•

Published by Globes [online], Israel business news - www.globes.co.il - on March 4, 2007

© Copyright of Globes Publisher Itonut (1983) Ltd. 2007

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