Urban renewal in Jerusalem finally moving ahead

Yossi Aton and Uri Bar Sheshet Photo: Rafi Kutz

Developers are waiting for a building permit for a project with 130 apartments in Kiryat HaYovel, as demolish and build programs slowly get the green light.

2018 is coming to an end, and although Jerusalem land prices are sky-high, not even a single urban renewal (demolish and rebuild) project has been completed in the capital. A first building was demolished last June in the Kiryat Moshe neighborhood, but no Jerusalemite is living in an apartment built in an urban renewal project.

One of the most advanced projects in the city is the one developed by Kidmat HaYovel at 13 Tehon Street in the Kiryat HaYovel neighborhood. The company founded in late 2014 by haredi (ultra-Orthodox) businessperson Eli Shlossberg, signed an agreement for a partnership in most of the projects with Carasso Real Estate.

Kidmat HaYovel is managed by CEO Yossi Aton, who specialized in real estate marketing at Spirit Real Estate and Investments, and urban planner Uri Bar Sheshet, the company's project manager, who served in a variety of planning positions in public service, including a stint as deputy engineer in the Jerusalem municipality when Ehud Olmert was mayor and Uri Sheetrit was municipal engineer. He left the position a few years before the Holyland Hotel affair made the headlines, and hinted that he decided to leave because he did not like the way the engineering department was run at the time. He was also an adviser to the Planning Administration, Israel Land Authority, and the Society for the Protection of Nature in Israel, before meeting up with Shlossberg and Aton.

Bar Sheshet grew up in Kiryat HaYovel and Aton in Kiryat Menachem. For both of them, the urban renewal areas are their childhood landscape. The company still has no project constructed and occupied, but is waiting right now for a building permit for the first urban renewal project in the city.

In contrast to other young companies founded under the urban renewal banner that lack financial backing or any intention of carry out a project by themselves - in other words, they do nothing but get apartment owners to sign up for projects and then pass those projects on to somebody else - Kidmat HaYovel is backed by four funds that have invested in it from the beginning. This enables the company to take measures for gaining the residents' trust. The four funds - Investream, the Faust fund, the Sherman fund, and ACC Holdings - provide substantial capital for the company's activity and enable it to recruit professional personnel like Bar Sheshet.

"The problem is not with the planning committees"

Kidmat HaYovel's most advanced project is at 13 Tehon Street, at the corner of 31 Rabinovitz Street, in Kiryat HaYovel. It involves demolishing 30 old apartments and building two 20-storey towers with 130 apartments in their place. The project was recommended for deposit in 2016 and approved for validity in 2017 after only 16 months - an unimaginably short time for urban renewal.

"The problem is not in the planning committees like they say," says Bar Sheshet. "The problem is unquestionably with the developers. If you submit proper plans and make the revisions demanded by the committees, there's no reason for delay."

Nevertheless, the developers were too optimistic about the timetable, and as part of a first project, they have already learned a lesson. "The project has a diverse composition of tenants. One of them is completely disabled and has lived on the site for 40 years," Aton says. "We decided to allot him a temporary apartment before the other tenants. When an apartment became available in the Holyland project, we reached agreement with the apartment owner and made adjustments in the apartment that cost quite a bit of money, so that it would fit his needs. He moved to the temporary apartment a year ago, and we pay him his rent every month. The aim was for him to feel secure at a relatively early stage, but we didn't imagine that it would take more than a year to get the building permit. In the projects that came afterwards, we weren't so quick to get the tenants out. We learned."

Aton says that the building permit should be given within six weeks. As of now, 19 tenants have already been vacated, leaving the last 11 tenants, who will leave the site in the coming weeks.

On a nearby lot at 15-17 Tehon Street, at the corner of 27-29 Rabinovitz Street, currently occupied by four buildings with a total of 54 apartments, Kidmat HaYovel plans to build project with four buildings of 11-24 storeys with a commercial façade and 226 new apartments. "We also had to plan a public building. We decided on a cinematheque project in memory of the Yuval Theater where we went to see movies when we were kids, and which closed down," Bar Sheshet says.

"I remember how disappointed we were when the movie theater closed down. Now we'll close a circle," Aton adds. The municipality will operate the new cinematheque, of course. The developers believe that the approved plan, which has already been given validity, will get a building permit in about a year.

"It's arrogant to blame the tenants"

"We opened the first office in early 2015 on Tehon Street in order to live with the people themselves," Bar Sheshet says. "We were in daily contact with them. In time, we learned their language, and then we already understood how the tenants think. It's something you can't understand in just two meetings held by the tenants, certainly when there are both religious and secular tenants, and both elderly and young tenants. This is the only way to succeed - to go to the tenants and move a project forward for them that will give all of them the solutions they need. There's no other way. Any company that wants to work in urban renewal has to do it like this."

Aton adds, "I often hear people blaming tenants, saying that they're unwilling to cooperate and accept a new apartment; that they are holding up everything. But it's arrogant to blame the tenants, because it's not just a matter of the apartment; it sometimes affects the entire family and the tenant's whole life. So it's important to go through all of this with the tenants and understand the people and their needs. Every family has different anxieties that require a different solution - sometimes a creative one."

"Globes": Give me an example of a creative solution

Aton: "They often talk only about what the tenants get - 'Instead of an old 60-square meter apartment, you get a new 100-square meter apartment.' But what about the higher municipal property tax on the bigger apartment? What about the higher dues for the house committee? What if the tenant can't pay higher living expenses? Then we've in effect increased his or her burden. So we offered the tenants the option to reduce the apartment they get and get the difference in tax-exempt cash.

"Another creative solution was in a plan on Uruguay Street in Kiryat HaYovel that received validation very recently. It is a project of 28 apartments, half of them occupied by elderly people. We were already aware that senior citizens are afraid of moving to temporary quarters, but we reached agreement with them at the very beginning that when they receive the vacating notice, they will get the value of the new apartments in cash and can move straight into permanent housing wherever they want. All of them agreed. We also had to convince the Israel Tax Authority that the deals were actually apartment purchases, but were really for the sake of carrying out an urban renewal project, and so they had to be tax exempt. Fortunately, the Tax Authority understood this. For the purpose of getting financing for the project, we also managed to pass the value of the new apartments as part of the zero report."

Why haven't urban renewal projects been carried out in Jerusalem up until now?

"There was no planning certainty up until now, because there's no urban building plan for the city. Everyone who wanted to build a project had to submit an individual plan," Bar Sheshit explains. "The municipality was pushing a document that was ready only in 2015. On the basis of the policy document, under which the local committee approves plans, plans can be moved forward. All of this is relatively new. At the same time, there was also progress in urban renewal legislation and taxation measures only in the last few years, for example the construction inputs VAT amendment, which sets VAT at zero for anything for the apartments given to the tenants. Before then, they also paid VAT on the apartments of vacated tenants that were not put up for sale.

"In addition, up until 2010, the only urban renewal was on the municipalities track, not on the taxation track that developed later. The same was true of all of the legislation concerning a recalcitrant tenant and the legal rulings that gave the interest of all of the tenants precedence over the interest of a specific tenant. In Jerusalem specifically, (then-Jerusalem Mayor) Nir Barkat made the decision to exempt developers from betterment tax in urban renewal projects. Barkat deserves the credit for this, which was very significant for the viability of projects.

So have all of the problems been solved?

"No, unfortunately," Bar Sheshet interjects. "Even when the urban renewal problems are solved, new problems always crop up. First of all, one of the unsolved problems is the fact that in contrast to other places in Israel, there are many old apartments in Jerusalem that were expanded without a permit. This makes it very difficult to reach agreement with the tenants, for whom the area of the expanded apartment is the area for which they should be given compensation, while the authorities calculate the construction rights only for the space built with a permit. Dealing with this problem is very difficult.

"Another problem is betterment tax. The law exempts residential areas in urban renewal from betterment tax, but planning committees now justifiably require multiple uses. Commerce on the ground floor is required in almost every project, and then the municipality wants to levy betterment tax on this space, which change the project's viability.

"I believe that a legal solution will also be necessary for this problem. For this reason, it doesn't matter how much progress we make on urban renewal in Jerusalem; we're still just beginning."

Aton adds, "When we start the process with tenants, it's for the long term. If they live in subnormal conditions, we sometimes decide to renovate the entire building, even though it will be demolished within a few years. It's a confidence-building measure, and the investment is worthwhile in the long term, because the tenants also deserve to live with dignity."

With what money do you make all of these investments at such early stages, when you haven't yet actually marketed a single new apartment?

"That's exactly the reason why funds that believe in the potential of urban renewal, like we do, invest in the company, and enable us to invest both physically in the tenants and also in personnel," Aton explains. "We have planning coordinators and social coordinators, and there's no equivalent to what the company invests in projects and tenants before they go through. In order to share the costs, we made an agreement with Carasso Real Estate a year ago. The model is that we do everything with the tenants up until the construction stage, and when the construction stage comes, they enter the picture with their development and performance experience."

You have a large project in Katamon I-J. As people with roots in Jerusalem, doesn't it seem crass to you to build towers in a neighborhood whose charm lies in its low construction?

"The project in Katamon is a flagship project on the verge of deposit that includes demolishing five sets of buildings with 376 families and construction of five 32-storey towers with 1,000 housing units. This is the place from which the Israeli Black Panther movement sprung, and the son of one of the movement's leaders lives in one of the buildings in which we're promoting the project," Bar Sheshet says. "It's unfair to tell tenants to stay in the same buildings with the same infrastructure from the 1950s, that nothing has changed, without services and without public buildings that the neighborhood needs so much.

"The project in Katamon isn't just apartments. It also includes construction of four kindergartens, two cultural clubs, a mother and baby station, and 1,300 square meters of commercial space. In the end, a person wants to live with dignity, and the only way to improve his or her quality of life is through change."

Urban renewal in Jerusalem: 17,000 housing units in various stages

The Tehon Street project in Kiryat HaYovel is the first urban renewal project in the neighborhood to be constructed and the second in the city after the project in Kiryat Moshe, in which 13 buildings with 68 apartments were demolished in June, with two 25-storey towers with 260 apartments being built in their place. This project was developed by Galnor Building and Development, Galnach Investments, and Yesodot Tzur.

Even though no new building has been constructed yet in an urban renewal project, the Urban Renewal Administration was established in 2014 with support and financing from the Ministry of Construction and Housing in order to promote and implement urban renewal projects in the city. The Urban Renewal Administration is part of the Moriah Jerusalem Development Corporation, the main implementation arm of the Jerusalem municipality, which manages planning and execution of infrastructure projects in the city.

The Urban Renewal Administration explains that the area on Tehon Street is setting new records for timetables. It was slated for urban renewal by the government in December 2013 and stands to receive a building permit soon. The Urban Renewal Administration adds that in the past two years, it has also begun advising developers in projects and removing planning obstacles, and assisting developers in dealing with apartment owners.

50 urban renewal projects with 17,000 housing units are currently in various promotional stages in Jerusalem. "Urban renewal in Jerusalem constitutes the right future for the city and a social, educational, community, and economic goal in it," says Moriah CEO Doron Noiwirt. "This is a tool for strengthening the older neighborhoods in the city and realizing their potential by building thousands of new housing units in the city. Construction of new projects will also encourage expansion and upgrading of existing infrastructure."

Published by Globes, Israel business news - en.globes.co.il - on December 14, 2018

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

Yossi Aton and Uri Bar Sheshet Photo: Rafi Kutz
Yossi Aton and Uri Bar Sheshet Photo: Rafi Kutz
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