The man behind the NIS 750m Jerusalem land deal

Gary Barnett credit: Reuters Lucas Jackson
Gary Barnett credit: Reuters Lucas Jackson

Born into an orthodox New York family as Gershon Swiaticki, "Globes" charts the rise of Gary Barnett into one of New York's most influential real estate developers.

US businessman and real estate developer Gary Barnett said yesterday, "I'm excited to announce a major deal at the center of one the most important cities in the world. This is a win-win-win-win situation for the State of Israel, for the city of Jerusalem, for Extell and for the residents. We have great reputation with complexed projects in the US, including the Belnord Project on UWS NYC, which has over 200 tenants in complexed situations. We are going to treat the tenants in Jerusalem with the same respect and fairness as we are doing in all of our projects. This project will strengthen Extell's connections to the Israeli market and will boost the development of central Jerusalem."

The deal speeds up the development of Jerusalem

Barnett is the owner, founder and president of Extell, which has issued bonds on the Tel Aviv Stock Exchange (TASE) over the past eight years. Extell bought land in Central Jerusalem from Nayot Komemiyut Investments the Greek Orthodox Patriarchate's Land for NIS 750 million. "Globes" was the first to report earlier this week that the land had put the land up for auction with Barnet as one of the bidders. NIS 750 million was the minimum amount set in the sales process.

The lands being sold by the group of investors incorporated in the Nayot partnership was over the years. Nayot decided to sell the land recently following internal disputes between its partners. The land is in the center of Jerusalem and the neighborhoods of Talbiah and Nayot. There are currently about 1,000 housing units on the land, as well as hotels, public buildings and institutions. As well as the existing buildings, there are plots for development, which are at the heart of another dispute over the date of their development.

The lands being sold are held by KKL-JNF as leaseholder, under lease agreements that will expire in 2051-2052. Despite the long time remaining until the end of the lease, the existing situation in the area has led to great uncertainty, and as a result to a price drop of up to 40% in apartments built on the land compared with nearby apartments that are not on the leased lands Now, Barnett will have to deal with this issue instead of Nayot partnership, when he comes to promote new development plans for the land.

Noam Ben-David, one of the partners leading Nayot, said after the deal was announced. "We are happy about signing the deal with one of the largest real estate companies in the world, owned by a warm Zionist Jewish businessman who loves Jerusalem. We entered into this project more than a decade ago, after an impasse between KKL-JNF and the church, and we managed to resolve a conflict that the State of Israel was unable to move forward on despite major efforts.

"We did a deal that was considered impossible, and also very dangerous financially. Today, after the redemption of the land has been completed, we are handing over the project with a calm heart and a trusting hand to whoever will complete it in the years to come."

Luxury high-rises and double-digit yielding bonds

Gary Barnett, who has bought the church's land is 67. He was born as Gershon Swiatycki into a religious Manhattan family and graduated with a B.Sc. in Mathematics and an MBA. His father and grandfather were rabbis. He went into the diamond business of his first wife's family in Belgium in the 1980s. In the 1990s he returned to the US and went into the real estate business after changing his name.

In Extell's most recent report to the TASE, it says that the company was founded in 1989 and "developed into one of the most active and biggest real estate companies in New York," with a portfolio of assets at the end of 2021 covering more than 25 million square feet. According to the company, Barnett was even chosen by local New York journalists as one of the city's most influential real estate businesspeople.

Most of the company's activities are in residential development in New York City in general and Manhattan in particular. He owns especially high-end projects that are for the very wealthy.

Among the projects that he has been involved in that are well known and part of the Manhattan urban landscape are Times Square W Hotel, a 60-floor high-rise and 995 Fifth Avenue, a residential development opposite the Metropolitan Museum.

Extell first issued bonds on the TASE in 2014, when foreign developers first discovered the liquidity and ability to raise debt at more convenient terms on the Israeli market. The Extell report says, "The good name of Gary Barnett and the Extell Group, including the company, over the years, has created for them powerful access to sources of financing in the US and abroad. This is because from 2000 to the end of 2021, the group took out loans totaling over $20 billion from banks and financial institutions, and returned every loan on time."

However, the bonds issued by Extell on the TASE trade at high yields that reflect investors' concerns. Two series of the company's bonds are currently traded on the stock exchange: Series C, amounting to NIS 600 million, trading at a junk yield of 12%, and Series D, amounting to NIS 89 million with a yield of 10%. The larger series is scheduled for maturity in March 2026 and carries an interest rate of 7%, and the smaller series is scheduled for maturity at the end of 2027 and carries an interest rate of 6.5%.

Quality management alongside a problematic financial profile"

Israeli ratings agency Midroog recently left Extell's rating unchanged with a stable rating. According to Midroog's economists there was volatility and instability in the company's New York business in 2020-2021, following the Covid crisis, which led to a fall in demand, which returned after the crisis.

Since February 2022 when interest rates began rising in the US, there was again a fall in the number of deals and demand with a new low reached in August 2022. More specifically, Midroog refers the very high-end Central Park Tower project, in which the inventory of apartments for sale is the main asset on the company's balance sheet. According to the company, "The size of the project weighs on business dispersion."

Midroog also added that the rating is negatively affected by the failure to meet the company's forecasts over time regarding the scope and rate of sales in the projects, in a way that has weighed on its financial profile. On the other hand, Midroog notes that the company's business profile is positively influenced by the management's significant experience and quality.

Published by Globes, Israel business news - - on January 18, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Gary Barnett credit: Reuters Lucas Jackson
Gary Barnett credit: Reuters Lucas Jackson
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