Moinian lends MDG cash raised in Israel - at double rate

Joseph Moinian

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Moinian has lent $65 million to David Marx's MDG to finance a hotel project in Manhattan.

Sources inform "Globes" that real estate company Moinian Limited, which in May this year raised the huge amount of NIS 1.4 billion in a bond offering on the Tel Aviv Stock exchange, last month lent $65 million (NIS 250 million) to MDG, owned by David Marx, which also issued a bond in Israel recently.

The loan was granted for the purpose of financing a project for constructing a hotel in Manhattan, and it replaces a previous loan granted to MDG Real Estate Global by the Related group. Related too has raised debt in Israel.

Moinian granted the loan to MDG for ten years, at annual interest at 10%, reflecting the high risk of the deal. This interest rate is more than double the rate paid by Moinian to its bond investors in Israel, who in effect financed the risky loan.

The two companies, Moinian and MDG, have not reported the loan to this day, although MDG's prospectus states that the company is conducting negotiations for replacing the finance for the asset. Sources close to the Moinian offering said that from the company's point of view the loan did not constitute a material sum. This is despite that the fact that it represents almost 20% of the debt raised in Tel Aviv.

Moinian Limited's prospectus states, "The company has earmarked the proceeds of the offering for its real estate asset activity (both independently and with partners)," but no mention is made of loans to third parties.

A source familiar with the offering said today in response, "The loan to Marx is against a first and sole mortgage on the asset. The asset is shown in the books at a value of $112 million. All the interest on the loan has been paid in the form of a deposit in advance, and Marx has personally guaranteed the debt. The aim of the loan is to enter at an opportunity price into an investment in an attractive project, because of the borrower's pressing need for cash. The group has great experience and many assets in the streets next to the asset, while Marx has no experience in hotel construction in the city. Moinian believes that in the coming year it will be able to generate considerable value from this investment. The company will continue to identify investments in assets in the areas of its business and expertise, and has no intention of investing in granting loans as a financial activity."

The asset in question is a 399-room hotel being constructed by MDG in the Hudson Yards area of Manhattan, a mega project being developed by Stephen Ross's Related Companies. The asset is located on 34th Street and Tenth Avenue, and there is a franchise agreement with the international Marriott hotel chain. The hotel is adjacent to the main shopping thoroughfare of the project, to the new subway station, and to the largest convention center in New York. Construction of the hotel is expected to be completed at the start of the second quarter of 2017, and the asset's value was assessed by CBRE before the bond offering at $112 million.

Published by Globes [online], Israel business news - www.globes-online.com - on October 29, 2015