Church real estate sale rocks Jerusalem housing market

Greek orthodox church land Photo: Reuters
Greek orthodox church land Photo: Reuters

In some prestigious Jerusalem neighborhoods prices have fallen 30% in the 18 months since the deal due to uncertainty about JNF leases.

In August 2016, a group of private developers named Nayot Komemiyut Investments, owned by the Ben David family, purchased 500 dunam (125 acres) of land owned by the Greek Orthodox Church in the Nayot, Talbiya, and Valley of the Cross neighborhoods in Jerusalem for an estimated NIS 114 million. The land was leased for 99 years in the 1950s to the Jewish National Fund (JNF), which marketed it to developers. These developers built buildings and 1,100 housing units, which were leased to sub-tenants, some of whom live there to this day. The lease expires in 2050-2051, and the effect on the real estate market is already being felt. JNF has an option to extend its lease with the new owners for another 99 years, but has not said whether or not it plans to do so.

"Up until several years ago, 2051 seemed like a very distant date," says Anglo-Saxon Jerusalem Real Estate consultant Moshe Babani, who is active in central Talbiya, "but this date is now approaching. Somebody who has to sell his apartment now, such as a senior citizen who wants to move to protected housing, or a couple that is divorcing, has a serious problem. Furthermore, the banks aren't giving mortgages in deals in which the leasing period is about to end. As a result, the entire market has ground to a halt, and prices have fallen."

Babani says that the difference between an apartment on private land in the same area and exactly the same apartment on church land that was sold is now 25-30%. "Someone who believes that a solution will be found and buys an apartment pays a low price. The deals being made are at NIS 25,000-26,000 per square meter on the leased land, compared with NSI 37,000-38,000 per square meter in deals on private land. All in all, the developers who bought the church's land redeemed it as far as they are concerned, because it has now passed into Jewish hands. At the same time, it has created uncertainty."

There is more serious uncertainty in the Gan Rehavia neighborhood. Land there was sold by the Catholic Church to a different group of developers, but JNF is not the main lessor there; the tenants rent their apartments directly from the developers who rented it from the church, and the leasing period ends only 18 years from now.

"The tenants are aware that there is now no renewal of the lease"

The report of the sale of the church's land to private developers in mid-2017, particularly the land leased by JNF, has given rise to questions about JNF's behavior, which is leaving the current tenants in the dark.

Advocate Avraham Aberman from the Ephraim Abramson & Co. law firm represents the Nayot investment group that bought the 500 dunam from the Greek Orthodox Church. Aberman revealed details about the deal and its objective to "Globes," saying, "Every tenant on the land has a lease with JNF, which determines when his or her lease expires. Every tenant is aware that as of now, the lease has not been renewed. The Nayot group is taking the place of the Greek Orthodox Patriarch; instead of the Patriarch leasing the land to JNF, the owner is now Jewish and Zionist concerns. To tell the truth, however, we also have no control over what will happen after 2051. The only one who knows is JNF; it holds the key. In the agreements signed with the church, JNF has an option to extend its lease, and it must decide either now or in 2051."

Aberman says that the deal by the Nayot group is very similar to a build, operate, transfer (BOT) deal. "In the 1950s, JNF wanted land in Western Jerusalem, and signed an agreement with the church. Under the agreement, JNF can do whatever it wants with the land for 99 years in exchange for a nominal rent. At the end of the period, the land was supposed to revert back to the church, but JNF has an option to extend its lease for another period. In the 1960s, JNF marketed the land in Talbiya and Nayot to developers, who built 1,100 housing units on it. JNF made hundreds of millions of shekels from this."

The 500 dunam also includes hotels, such as the Inbal Hotel, the Prima Hotel, and the Dan Panorama Hotel, and important public buildings, such as part of the Great Synagogue of Jerusalem and the Israel Museum. "All this land is leased to JNF, and there are simple solutions to the current situation," says Aberman. "It doesn't matter to us who pays us for extending the leases or transferring ownership of the land, JNF or the tenants, and when also doesn't matter to us. In the current situation, as long as there is no arrangement, housing prices have already fallen 30-35%, and will continue to fall as time passes and the time left on the leases winds down.

"Unfounded rumors are being spread; one says that the Nayot group will build on green areas in the Valley of the Cross. How could anyone imagine such a thing? Does the deal with the church mean that there are no more planning committees? Our plan is for the tenants to eventually obtain ownership. We have no plans to throw anybody out. Before the deal with Nayot, the Patriarch contacted Arab groups and offered to sell them the land at a much higher price. In my opinion, they didn't sell it to them because they were afraid of a political explosion, but who knows what would have happened in another 20 years had the church retained ownership of the land? Who will be the Patriarch then? If there is tension one day about some Church of the Holy Sepulcher, mightn't another Patriarch sell the land in response?

"They also spread rumors that representatives of the Nayot group knocked on tenants' doors and pushed them to pay, threatening to throw them out otherwise. Such a thing never happened. All the people involved in the deal took into account that they might see a return on the deal only in another 30 years. So people are indifferent. Our profit is enormous every year, amounting to about 2.5% on land worth $1 billion.

"In contrast to us, the tenants' interest is to get ownership in their names as soon as possible, because every year that passes, the supposed price rises. Are bills are being proposed because of the political interests of all sorts of groups? It's no problem for us to wait until 2050. The tenants have a different interest."

Aberman continues, "Since the Nayot group bought the land, it can offer the tenants something that they couldn't dream of when the church owned it: ownership. This means that even if they have to share some cost in order to acquire ownership, they will get a property that is worth more, because it is no longer leased; it will be in their names. In this way, they will have no problem about getting a mortgage to pay for acquiring full ownership. Keep in mind that there is no way to do urban renewal in any of this area; no developer will get involved in a project in which the apartments can't be marketed because the lease is for only 30 years. For sharing in the cost, the tenants also get ownership, but the prospect of urban renewal will also give them more space, an elevator, parking, and more.

"For us, there is no preferable solution; every solution is good for us. Every day that passes is economically good for us. There are solutions; they are like a treasure on the ground that only needs to be picked up. Instead, people are busy proposing demagogic bills that will not stand up legally."

"Why prefer Rehavia to Ofakim?"

One of the solutions proposed by Aberman involves available lots that were owned by the church, which for reasons known only to itself JNF has not marketed to this day. "In Liberty Bell Garden, behind the Inbal Hotel, there are three very valuable lots zoned for hotels. JNF, which leased these lots, has done nothing with them. It has never marketed them, and no one will buy them now when they will either revert to us in 30 years, or must be paid for again.

"One possible magic solution is for JNF to give them to us, and we'll count it as full value for the lots, instead of paying us for extending the lease. This takes land with no value and gets full payment for it - creates something out of nothing. But instead of sitting down and talking about uncomplicated solutions, they are proposing bills designed to threaten Nayot with expropriation or giving land for free. These proposals will not meet the test of law, and those who are making them should ask themselves why they prefer residents of Rehavia to residents of Sderot or Ofakim."

Advocate Uri Yamin of the Yehuda Raveh & Co. law firm also believes that there has been a lot of disinformation about the purchase of the land. "The private developers who bought the land from the church did a great service to the renters. The troublesome uncertainty being spoken of was much greater when the church was the landowner, because the church is a religious entity and sometimes a political one, with various influences, while the developers who bought ownership from it can sell ownership to the renters without any problems or political considerations."

"Uncertainty is ruining the market"

Advocate Allon Diskin of the Gideon Koren & Co. law firm, on the other hand, believes that the current situation, in which the land has become privately owned, is not good for the renters. He says, "For the tenants, it's no less of a catastrophe that the church sold the land for a mess of pottage out of fear of expropriation, and the expected profit for the developers is enormous. When the leasing period expires, the developers will either lease the land for an additional period at a price similar to ownership, or masses of people unable to pay will file lawsuits, and the courts will have to rule that they must leave their homes. A catastrophe is likely. It is impossible to even make an educated guess about what will happen. JNF will have to deal with it in the end, or suffer severe public criticism and explain why it did not deal with the problem earlier, while it has chosen to ignore the problem up until now.

"Meanwhile, uncertainty is ruining the market, and prices are falling dramatically. No one wants to buy a headache. There will be big trouble in the best neighborhoods in Jerusalem, such as Rehavia, Givat Oranim, Talbiya, where entire neighborhoods are passing from the church ownership into private hands. The big problem will be a mass of old people unable to pay for extension of the lease for another period. The state can't tell them to go up against an active developer by themselves. The problem can be solved by setting a key for the value of a lease extension, or by a planning appraisal in which the municipality awards construction rights making it worthwhile for the developer to continue the lease. The working assumption was that the church was a public body that would cooperate with the state in finding a way to extend the law in a way similar to state-owned land. It is also possible to reach agreement with a private developer, but it can cost everyone much more money."

JNF said in response, "Everything that JNF has done over the years, starting with the deal with the Greek Patriarch in the 1950s, was done for the benefit of the residents and as the JNF's response as a patriotic body to the state's needs. The problem is a national one, and after the deal became known, JNF therefore contacted all the relevant parties in the government and outside it on its own initiative in order to find tools as soon as possible for accommodating a solution to the problem for the residents' benefit."

Published by Globes [online], Israel Business News - - on March 14, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Greek orthodox church land Photo: Reuters
Greek orthodox church land Photo: Reuters
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