Israel Land Development Company (Nasdaq: ILDCY) will buy its headquarters building, which is has been renting from Migdal Insurance. Israel Land Development will probably pay $15.8 million in one the largest recent office real estate deals. The deal was triggered when Migdal exercised its put option on October 1.
Migdal obtained the option two years ago, when it leased the 5,000 sq.m., six-storey building to Israel Land Development. When the deal was signed, Israel Land Corporation got an option to buy the building for $18 million, while Migdal was granted an option to sell the building to Israel Land Development at a price between $15.8 million and $17.8 million, with the difference to be determined by an assessor.
A month ago, Migdal announced it was exercising its option, and the companies chose an assessor. In view of the fall in office real estate prices, a reasonable assumption is that the assessor will determine that the building is worth less than $15.8 million. Under the terms of the contract from two years ago, however, Israel Land Development is obligated to pay $15.8 million.
When the contract was signed on August 15, 2000, the parties estimated the building’s value at $17.5-18 million. The office real estate market was booming at that time, before the outbreak of Palestinian violence. Over the past two years, however, office prices have dropped substantially, due to the economic situation and the high-tech crisis.
For this reason, the value of the building may have fallen as low as $10-12 million.
Migdal Insurance CEO Izzy Cohen confirmed the report.
Published by Globes [online] - www.globes.co.il - on November 10, 2002