Israeli real estate company Azrieli Group (TASE: AZRG) has won the Israeli Government Housing and Rent Co. and Israel Land Administration (ILA) tender for the Galil Yam neighborhood in Herzliya. This is Azrieli's first tender win in the long-term rental sector and it sends an optimistic message to a market that has suffered major setbacks in recent years.
Azrieli bid NIS 85 million and a further commitment of NIS 19.3 million in development costs. The tender was first closed two months ago when it initially failed to attract any bids, which led the ILA to cut the minimum for the bid by 50%.
In recent months, the long-term rental sector has suffered some very serious blows, mainly due to the continuous increase in interest rates. In a field where profit is calculated over the very long term compared with "standard" residential real estate projects, every single percent increase in interest significantly affects the economic viability of each project. The increase in interest rates over the last year has seriously shaken up this sector.
The impact was immediate with a range of Israeli government long-term rental sector tenders closed without any bidders for the first time in over three years, while others received far lower bids than expected including a tender for 741 housing units in Sirkin, Petah Tikva and a tender for 243 housing units in Rosh Ha'ayin.
The Herzliya tender won by Azrieli Group is for the construction of 147 housing units in the Galil Yam neighborhood for renting for at least 20 years. 50% of the apartments will be government rent-controlled and the rest will be for rent on the free market. Azrieli's bid plus the development costs reflects a price of NIS 710,000 for the land for each housing unit.
Although Azrieli Group has not previously won a long-term rental tender, the company does operate long-term rental projects independently. These include 67 apartments in the Modi'in Shopping Mall project, while 80 more apartments are under construction in another project for long term rentals. Azrielli also plans 380 apartments for long-term rental in the Azrieli Tower and Azrieli Center Spiral Tower projects in Tel Aviv. Azrieli is also planning 110 apartments for long term rental on the land currently serving Abraham Hostel in Tel Aviv.
Published by Globes, Israel business news - en.globes.co.il - on April 30, 2023.
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