Israeli company Dashkad and US company PMG are currently establishing Israel’s first real estate investment trust (REIT). Dashkad will raise $55 million from Israeli investors. The new fund will invest in the US, and, after the Knesset passes the relevant bill, in Israel.
Polar Real Estate owns 80% of Dashkad, and CEO Dubi Weiss owns 20%. American Jewish real estate businessman Ziel Feldman controls PMG.
Under the business plan currently being presented to investors, the new fund will raise $20-25 million from institutional investors in Israel, mostly pension funds, insurance companies, and banking corporations. The two developers will invest an additional $5 million.
Participation units in the fund will cost $25,000 each. The fund will purchase US projects with 40% equity and 60% bank leverage, which means that the amount raised could reach $140 million.
The company plans to buy income-producing properties in the US, mostly office buildings, and rental apartment buildings. A 7-8% return is anticipated, and the fund will undertake to distribute 90% of its profits as dividends.
The fund will be private in the initial phase, but the developers will undertake to make it public after five years. This restriction is important, because it means that purchasers of units will be unable to sell them on the free market for five years. The proposed law authorizing REITs in Israel, however, required them to be public from the outset.
PMG, which owns 200 properties in the US, will manage the fund, and will undertake not to sell its properties to the new fund. PMG will receive the usual US management fee, 2% of revenue, plus 20% of capital gains, but only when a sale is made.
The new fund will not invest in Israel yet, since no law exists authorizing the tax benefits recommended by the professional committee. When the law is approved, the fund will also buy properties in Israel.
Weiss said, “We decided to establish the new fund because Israel is becoming increasingly aware of this type of real estate investment. Until a law has been passed, we’ll propose that Israelis invest in the US in the initial stage.”
Published by Globes [online] - www.globes.co.il - on February 19, 2004