The most surprising thing in the list of investors in the Faire real estate investment fund, revealed by "Globes" last week, is the inclusion of four US and Canadian multi-millionaires. Unlike other Israeli and foreign investors, they did not flee Israel during the present slump; they invested millions of dollars. It is a vote of confidence in the Israeli economy and real estate market. If Lawrence Tisch decides it is feasible to invest $4.5-7.5 million in Israeli plots, it is a clear signal to many others that he believes the economy in general, and the real estate sector in particular, have a future.
The list is also a kind of citation for the fund and its organizer, Shlomo Grofman and Zalman Shoval, who recruited first-class North American and Israeli investors. Grofman, who once headed Africa-Israel Investments, activated his real estate connections, while Shoval contributed the connections with US businessmen he developed while he was Israel's ambassador to Washington.
The willingness of leading businessmen to invest in Faire is the first light at the end of the tunnel of the greatest real estate crisis in Israel's history. It is also a signal of needed investment in the sector at this time. Each of the investors was induced to risk what amounts to a small sum for them, but the combined capital is sufficient to exploit opportunities.
Grofman told ''Globes'' in an interview that this was only the beginning. "Until now, we recruited businessmen from the East Coast of the US. In the next stage, we will bring in investors from Miami and the West Coast. I also hope to bring in Canadian investors," he said.
''Globes'': How much capital do you have, and how much will there be?
Grofman: "We have raised $24 million so far, with each investor buying at least one participant unit of $1.5 million. We plan to raise $40 million. With the right leverage, this equity can finance investments of $200 million."
Following are the names of the investors, nearly all of whom bought a $1.5 million participant unit:
- Moshe (Mozi) Wertheim is a shareholder of United Mizrahi Bank and the Coca-Cola franchise in Israel. He recently bought the stake in the bank and company from the heirs of Abraham Feinberg for $200 million.
- Rami Ungar owns Telcar, importer of Daewoo and Daihatsu cars, as well as real estate properties in Israel and overseas. Ungar negotiated to buy the Daewoo office building and is a partner in a project to build 500 apartments in Ness Ziona.
- The ORS manpower agency, which has 5,000 employees. It is owned by Gabi Sebbag and his son, Doron.
- Harel Insurance Investments, Israel's fourth largest insurance group, controlled by Gideon and Yair Hamburger and Yoav Manor.
- Ayalon Insurance, Israel's sixth largest non-life insurance company, owned by Levi Yitzhak Rahmani.
- FIBI Holdings, a subsidiary of The First International Bank of Israel. The First International Bank will provide financial coverage for future projects, although it does not have exclusivity.
- Lawrence Tisch, co-owner with his brother Robert of Lowes Corp, and one of the most important donors and fundraisers for Israel in the US. Tisch is the largest single investor in the project, buying three units for $4.5 million, and has options on two more, for $3 million.
- The Renco group, controlled by Ira L. Rennert, one of the 100 wealthiest men in the US. A religious Jew, Rennert has donated millions of dollars to build synagogues in Israel, including the synagogue at the President's residence in Jerusalem.
- The Silverstein family of New York, who owns numerous real estate properties, including World Trade Center 7, which collapsed in the 11 September terrorist attack.
- The Feuer family of Toronto.
- Grofman and Shoval, who each invested $240,000, which will later grow to $400,000 each. They will each own at least 1% of the fund.
Faire raised the money through a prospectus for a private placement, as required by US law for all real estate investments. Lehman Brothers will provide financing.
The investors will be limited partners in Faire, liable for its debts proportional to their investment, but will not participate in its management. They will have silent partner status, eligible for dividends. Faire's management will be by a new joint company Grofman-Shoval, which is now being set up. This is a normal structure for real estate funds in the US, and the main method for raising money for real estate activity there.
The method is also usual in Israel for venture capital funds, but this is the first time is being used to raise money for real estate investments. Shlomo's son, Adv. Yaron Grofman, who worked for a leading US law firm, introduced the method to Israel.
Feuer will invest only in residential real estate, and not in income producing properties. Shoval and Grofman proposed the three following three instruments for them:
- Buying land for the construction of 2,500-3,000 apartments. Faire will gradually buy the land in the center of the country over the next four years. The fund will utilize financial leverage provided by First International Bank, and possible other banks as well, for this purpose. Faire is currently negotiating to buy four such plots, in New Ramat Aviv, Ramat Hasharon and elsewhere.
- Becoming a partner in contractors' existing projects, in exchange for a percentage of the profits. A management company would be established for this purpose, and the company would also manage and market the apartments. Unlike other companies in the sector, such as Bilu Enterprises, Gemolab and Gindi, Grofman-Shoval would invest equity in the project, rather than providing loans.
- Establish a consortium, in partnership with leading companies in the sector, to buy compounds for the construction of 700-800 apartments.
Faire has no intention of buying income-yielding properties at this stage, but it may buy properties overseas, if interesting business opportunities arise.
Faire’s business and legal structure was designed by PricewaterhouseCoopers, Kesselman and Kesselman, Arthur Andersen Israel (Luboshitz Kasierer). Faire's legal counsel is Adv. Philip Rosen of Weil, Gotschel &Manges LLP, of New York, and Yaron Grofman and Yizhak Pound, partners in a Tel Aviv law firm. Zalman Shoval’s son, Gideon, who has an investment background, is also a member of the founding team.
Through Faire, Grofman is returning to his youthful real estate dreams. He managed Africa Israel Investments for 11 years. Anyone who wants to know what Faire’s investment interests will be, should remember that Africa-Israel under Grofman’s leadership, mostly bought land in the center of the country, in Tel Aviv and Ramat Hasharon, for the immediate construction of luxury apartments. Grofman did not participate in adventurous purchases of land in peripheral towns.
Shlomo Grofman left Africa-Israel after Lev Leviev acquired control of the company. In the past four years, he has been active with various ventures, mostly in conjunction with Israel Land Development Corporation. He is currently chairman of Grofman Holdings, and chairman (without shares) of government company SAREL Supplies and Services for Medicine.
Zalman Shoval is chairman and controlling shareholder of Export Investment Corp. Bank of Jerusalem is an investor in the company. Real estate was also one of Shoval’s youthful interests.
Grofman says, “This is the right time to buy land, by exploiting current prices and the high demand for good plots in Tel Aviv and the center of the country. There will be a shortage of apartments in 12-18 months, and prices will go up.”
Grofman and the investors he recruited should hope this comes to pass, and that they will not be left with an inventory of useless plots.
Published by Israel's Business Arena on 9 December 2001