"Israeli real estate will rise - it's a fantastic market"

Roni Biram  credit: Eli Dassa

With his longstanding partner Gil Deutsch, Roni Biram plans to take real estate finance company Bareket public. He tells "Globes" why.

The wave of Tel Aviv Stock Exchange IPOs is expected to be joined soon by non-bank financing company Bareket, which as far as is known, plans to raise about NIS 100 million, at an estimated target pre-money valuation of around NIS 400 million.

The size of Bareket's plan is not unusual, given the intensive IPO activity that has characterized the stock market for several long months. But aside from the expected disclosure of company activity, it’s the people behind it that are of interest: veteran partners Roni Biram and Gil Deutsch, founders of investment house Excellence Nessuah, which was sold to The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) for close to a billion shekels.

Biram and Deutsch have been two of the most prominent and respected investors in the local capital market for many years. Since selling Excellence to Phoenix Holdings (then controlled by Yitzhak Tshuva's Delek Group), they have used the huge amount of capital to develop an extensive business network, spanning a variety of businesses in renewable energy, infrastructure, real estate, finance and investment funds.

Bareket was founded by Biram, Deutsch and CEO Adi Gazit in 2015, and is now one of the most prominent lenders in non-bank financing for real estate. The company specializes in, among other things, providing support and bridging loans for construction projects, both for developers and buyer groups. Its credit portfolio is estimated at NIS 2 billion.

Ahead of Bareket's expected IPO, Biram spoke to "Globes" about the company's business development, plans, as well as providing insights into Israel's real estate market, capital markets and more.

About the company's beginnings, he says, "We started by financing buyer groups, because we recognized that the risk there was low relative to financing developers, and had adequate returns relative to the prevailing economic environment where good interest rates are hard to get. We started small, with a pool of private, financially strong investors, who were the main funding source for this activity. Gil and I also invested.

"Later," Biram adds, "we started to grow, interest rates went down a bit and we brought in more investors to finance the projects. At the same time, we also started providing bridging loans for projects awaiting building permits, and short-term loans, and today we also provide loans for construction."

Strategic partnership with Clal Insurance

Among the most notable projects to which Bareket has provided credit to over the past two years, each amounting to several tens of millions of shekels, are buyer groups for residential projects in Tel Aviv and Givat Zeev, credit to purchase land for an assisted living facility project in Jerusalem, and an urban renewal project in Holon. Bareket also made a "strategic entry" into a partnership with Clal Insurance - providing credit of NIS 130 million to an buyer group in Bat Yam.

How is Bareket's risk profile affected by its focus on financing buyer group projects?

"The risk is actually relatively low because, for example, if there are 200 borrowers in a project, each with their own apartment, and a personal guarantee, it's much less risky than when there's one developer for the project, in the event of financial failure. Although buyer group logistics are much more complex than working with a single developer and it requires detailed checks, the risk is more spread, so it's lower. There are many good buyer group managers and good buyer groups on the market today, and we know all of the projects and developers, so our chances of failure are low."

Biram adds that, "To date, we haven't had a default on any project, and you can also see that the banks haven't had defaults in the residential sector. The real estate market has some specific problematic areas, but not in the residential market."

Recently, Bareket marked a substantial step up in its business with the provision of funding for the luxury residential project under construction in the Tel Aviv's Kikar Hamedina. Bareket agreed to provide funding in the huge amount of NIS 1.8 billion, together with Clal Insurance, which will finance about 50% of the project's budget, which is an estimated NIS 3.5-3.8 billion.

In the project, three residential towers, containing about 450 apartments, are being built next to a park and an artificial lake. Regarding the project, Biram says, "It's a case of a group of landowners who want to maximize the profit on their property in the best way, via a buyer group. The land represents 50% of the loan, and the risk in this project is very low."

How much did Covid-19 damage company activity?

"Not at all, even the reverse. You can see activity is accelerating. The housing market today is very strong, and it seems that some people have transferred funds from other areas to the this sector. Coronavirus has damaged commercial real estate and office space, but even there I think they won't be hurt for long, because companies need to get back to working in offices. "

How is Bareket different from the other publicly traded non-bank credit financing companies?

"There aren’t many companies that do real estate financing, and that’s the area that we focus on. There's one more company in the field that recently went public -- Menif Financial Services -- but it's difficult to make an exact comparison between the two companies. Bareket deals more with senior debt, and Menif more with mezzanine debt."

Will prices in the housing market continue rising?

"We identify the housing market as very attractive in the future as well. It is a consumer product with a chronic shortage, and the shortage is expected to continue in the coming years. Israel's population has been growning by 2% per year, so 30 years from now, to meet population needs, the built-up area has to double. In order for people to have a place to live, new cities like Harish must be built every two or three years.

"That's why this is a fantastic market to be in, on the finance side as well, because this sector will need a great deal of money, beyond even what the banks provide, because there are needs that banks can't always meet, and that's where Bareket comes in. Unfortunately, I think real estate market prices will go up because this is what happens when demand exceeds supply.

"So, Bareket's activity will also continue to focus on Israel. There's a large enough real estate market here, it's a market that we know, and the company's activity has no advantage abroad."

"Considering an IPO for a long time"

Bareket is moving towards going public during a period characterized by a large number of IPOs, most of which have benefitted from high demand, on the heels of a peak year for the number new issues on the Tel Aviv Stock Exchange in 2020 (26) and th amount raised (NIS 4.6 billion).

"We've been considering an IPO for a long time," Biram says. "The company has been operating for five years, its loan portfolio has grown, and it has matured. Bareket wants extra flexibility, which will allow the company to respond more quickly to projects. The IPO is part of the evolutionary process of the company's development, and this is a good time to raise money that will be used for Bareket's ongoing activities.

"We already knew two years ago that we wanted to go public, but market conditions need to allow it. If we were in a period of market collapse, we probably wouldn't have gone in. Some companies have filed prospectuses quickly, because now is a good time to get stock market money, but that's not the case with us."

Biram adds that, "Because Bareket doesn't have a large shareholders' equity, we've had to raise funds for each project. But now, with the public offering, if there's a project that looks good to us, we can support it and provide it with financing -- together with other investors -- within a few weeks. We can provide an immediate response and then raise money."

Do you think the markets are overpriced and that companies are raising money too easily?

"All central banks have been injecting money, and in recent years -- especially in the wake of the coronavirus crisis -- there has been a worldwide inflation in asset prices. The chase after assets means their share prices rise. There are cheaper sectors and more expensive sectors.

"In Israel the situation is even better than in the US. The finance sector on the Tel Aviv Stock Exchange is neither expensive nor inflated, and the banks are trading below shareholders' equity."

One of the most prominent industries riding the IPO wave, as well as in the rising Tel Aviv Stock Exchange indexes, is green energy. That sector, encompassing various industries, has seen several IPOs, while shares in veteran publicly traded green companies have been enjoying sharp increases for a long time now.

It seems like this area is precisely where Deutsche and Biram's keen senses have faltered. Sunflower Sustainable Investments, which they control, is an industry old-timer currently focused on wind energy in Poland. It previously operated in the solar sector in Spain, Italy and Israel, but withdrew from this activity in disappointment. As a result, the company lags behind with a low market cap (relative to other companies in the industry) of about NIS 250 million, after the share rose just 8% last year, which compares with high, double- and triple-digit returns posted by local competitors' shares.

"There are companies on the stock exchange with unreasonably high market caps, while Sunflower is unreasonably undervalued," Biram says. "Sunflower was the first public company to operate in green energy, and it was ahead of its time. It's been hit hard by regulatory changes over the years, and I hope sentiment towards it will change."

Another significant Biram-Deutsch holding is real estate investment trust (REIT) Keystone Investment Fund, which invests in infrastructure in Israel (desalination plants, highway operations, etc.). Keystone is also expected to go public soon, probably by the end of the year, in accordance with the regulatory provisions on the basis of which it was founded, encouraging REIT investment in infrastructure projects.

"Financial institutions are as dominant as the banks once were"

Biram and Deutsch are among the market's longest-lasting partnerships, together for almost 30 years after meeting in 1992, when Deutsch (now 56) came for a job interview at Zmicha Investment House, owned by Mordechai Einhorn and Aharon Meir, where Biram (60) worked.

After the options market launched on the Tel Aviv Stock Exchange that same year, the pair decided to found a company specializing in options trading, based on their experience in options pricing. Two years after Excellence, was founded, it was listed on the Tel Aviv Stock Exchange. In 1996, they came full circle when Excellence acquired Zmicha.

About his veteran partner, Biram says, "The partnership with Gil is very long and very good," adding with a smile, "Sometimes it's harder than being married."

Published by Globes, Israel business news - en.globes.co.il - on February 11, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Roni Biram  credit: Eli Dassa
Roni Biram credit: Eli Dassa
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