The acquisition of the Greek Patriarchate's land in Jerusalem by Gary Barnett, founder and president of US real estate company Extell, first reported by "Globes" two weeks ago, created a groundswell of responses, certainly in Jerusalem real estate circles. The land, sold for NIS 750 million, is leased from the Jewish National Fund (JNF) and has been subject to ownership disputes for years.
It could be that the acquisition by Barnett will calm things down a little. In an exclusive interview with "Globes" from his office in the US, this is exactly the message he tries to convey, with an eye to the tenants who live on this land and have had to cope with years of uncertainty. "In the States, we have often worked on projects with both rent-stabilized and rent-controlled apartments," he says. "We always made sure to cooperate fully with the tenants. This has always been our way.
"Therefore, if everyone approaches this project in a spirit of cooperation, and not stubbornness, and doesn’t only look to maximize profits, together we can reach good results and all parties will benefit. This is definitely the spirit we bring to the table. It is also the reason why this deal was of interest to me: because it's an opportunity to work on a project that will benefit everyone, including us."
"Not in Israel to evict people from their homes"
The enthusiasm with which Barnett talks about the deal after the acquisition wasn't there at first. When Barnett heard about the opportunity for the first time, and learned about the legal complexities in connection with the land - especially concerning the existing tenants - he passed. Only later did he become interested in the purchase. "About a year ago, I was told about the opportunity to purchase the land," Barnett says, "and I realized that it was a very interesting property located in one of the best areas in Jerusalem. I was told that there are several important public properties there, and a great many private houses.
"The idea sounded good, but I said there and then that I had no intention of coming to Israel to evict these people from their homes. The matter was dropped, but later I realized that there are other opportunities to seize in the land, among other things, carrying out urban renewal in the built-up areas, which I believe could be a win-win situation. I examined the opportunity in depth, and realized the great potential it has as an acquisition in which everyone could benefit."
A way of cutting the Gordian knot
The Patriarchate's land amounts to about 520 dunams (130 acres) in the neighborhoods of Talbieh and Nayot in central Jerusalem. There are about 1,000 existing housing units on the land, alongside public institutions, hotels (for example: the Inbal, Prima Kings and the Dan Panorama), public buildings (parts of the Great Synagogue and the Israel Museum), and open spaces. The property also includes over a dozen plots for development, but the complexity of the situation prevents that from happening. This is partly because it isn’t clear what the Jewish National Fund, which owns the lease rights until 2051 and 2052 (in separate leases) plans on doing.
An urban renewal project on this land could be one way of resolving the impasse. Such a project could also allow the tenants to benefit from development of the land and from other initiatives. For this to happen, a dialogue with all parties involved is required - and Barnett is well aware of that.
"We realize that we will have to negotiate with several parties, including the JNF, which is considered the 'super tenant'," he says. "But the tenants also have to be involved. Besides JNF and the tenants, there are many other players: state authorities, non-profits, public institutions such as schools and synagogues, the Jerusalem Municipality. Many parties and many people each with their own interests. There are also different types of property involved - public, private, empty and undeveloped, but there are also opportunities, so it is important that all parties are involved in the process. I don't think there should be a problem: if we look at things holistically, if everyone approaches the matter with good will, we will reach a deal that will be win-win-win for all parties."
The uncertainty led to a 40% drop in property prices on the land. Are you familiar with situations like this?
"I have seen many situations like this in New York. There are a lot of properties where the lease is old, for 75 years or 100 years, and it’s coming to an end. The closer the lease period is to its end, the lower the value. Of course, some bought properties on that land at a low price to begin with because of the complexity, but as you move towards the end of the lease, prices continue to drop.
"This is the why, in my opinion, even in land we have now purchased in Jerusalem, some of the tenants wish to see something happen soon that will increase the value of the property they own. They can double the value, triple it, and even more, and would rather do it now than wait another five or ten years, during which value will drop even more. In the US we faced very similar situations, and in all of them we came to the negotiating table with full faith in the parties. And I hope that all parties in the case of the Patriarchate's land will share this spirit as well."
Hoping to deepen ties with the tenants
The lessees, it seems, are worried about the lease. The Campaign for Saving Leaseholders in Israel and the tenants on the land recently wrote to Barnett. They asked him to "examine the issue thoroughly", and to reach an immediate agreement with the JNF to extend the lease period. "We will not leave our homes, and we will insist on our right to keep living in them," they write in the letter. "It never occurred to us that someone would purchase the land on which the homes that we built stand, in which we raised our children, and that this person would be able to do as he pleased. You didn't buy real estate, you bought the lives of thousands of Jerusalem residents - and we are not a commodity for sale."
Barnett, who claims he first heard about the letter through the media and never received it, says in response: "I intend to deepen my acquaintance with the tenants during my upcoming visits to Israel, and to work together with them in order to improve the properties and improve their quality of life. Extell and I have a long and positive history of working with unionized tenants in the US, with very successful results for all parties, and I intend to continue to do so in Israel."
Have you managed to talk to JNF representatives, before or after the deal?
"No, not at all. I'm a big believer in avoiding conversations with any of the parties before I'm in a position of control. We didn't talk to anyone before the acquisition, because we weren't in that position, but I intend to visit Israel in the near future, in a few weeks, and I'll make sure to meet all the relevant players and parties. I hope we will be able to start moving forward in a cooperative spirit."
No concrete plans yet
When the acquisition became known, those parties that Barnett mentioned as having an interest in the place must surely have asked themselves, what does the buyer plan to do with the land? Barnett claims that he has not yet formulated a concrete plan for future development.
"We still do not have substantial plans, we are in the development stages. We believe that we will be able to produce a good and beneficial plan for everyone, but this is a field that does not work on the short term. It is something that will be examined over time and in depth. We will build a plan in cooperation with everyone and proceed carefully.
"This acquisition will be a first, and big step for us," he adds. "I own other land in Israel, but nothing has yet been developed on it. We have looked at other properties and land in Israel in recent years, but we wanted to enter the market with a large project, to deliver something significant in our relationship with the Israeli market.
"You have to remember that there is no rush here. We have 30 more years in the current situation, and we enjoy strong financial stability, so there is no need to rush into anything. If it doesn't happen soon, in a few years when the lease expires, everyone will push in that direction."
How do you think the deal will affect Jerusalem’s city center?
"It was in a state of stagnation for many, many years, and now there is an opportunity of giving part of the land to the public, as a kind of donation to the city and the state. We want to develop a certain part of the land, of course - whether it is for residences, hotels, offices or public use, because in the end we are driven by profit and economic viability. We would also like to lead a process of urban renewal and increase the residential capacity the city currently approves. I hope we will reach a plan everyone will be happy with, and that will also be profitable for us. There are good opportunities here, but we will have to work in full cooperation."
As Barnett pointed out, he also owns land in Tel Aviv, and is looking for opportunities there as well. But in his view, the Jerusalem market today has stronger potential. "This is a complex period in Israel. The market has slowed down, interest rates have gone up, and - like anywhere else - when interest rates go up, real estate goes down. This is why it is so important to examine each area, how significant the decline was and how long will it last. Right now, one has to be very specific and very careful when purchasing a property in Israel.
"In my view, the acquisition of the Patriarchate's land, and in fact any acquisition in Jerusalem today, will yield good value in the long term, because there is always demand for more apartments, hotels, and other uses. Jerusalem is a global city which enjoys demand from all over the world, and therefore we strongly believe in investing in the city for the long term. Tel Aviv is also an international city of course, but there, in my opinion, one needs to be more careful and choose projects that are highly likely to generate value potential in the current market. That's the market I would be more cautious about."
How important is Jerusalem to you?
"Jerusalem is of sentimental value for me and for my partners, so it is important for us to invest in it, to do good and feel good. We all want to contribute and build in Jerusalem, and in Israel at large."
Where is the Israeli real estate market heading?
"The population in Israel is growing, and there is an urgent need for apartments of all kinds. In my view, we will witness an extensive increase in apartments being built, both in Jerusalem and in Israel as a whole, in the next 5 to 10 years. It may sound a little strange at this point in time, but in my opinion it’s possible that in the near future Israel will reach an excess of buildings and residences, at least in some cities."
Are you aware of the complexity of planning in Israel? The bureaucracy?
"Everywhere we go, whether it's Austin, New York or Utah - there are different laws and complexities, and you always have to know how to work with the government."
High bond yields on Tel Aviv Stock Exchange
Extell, founded by Barnett, is a real estate development company that operates in the residential sector in New York, in particular in Manhattan, and mainly caters to the luxury and ultra-luxury market segments. According to the company's financial statements, at the end of 2021 its had a portfolio of over 25 million square feet, including the W Times Square Hotel, a 60-story tower, and 995 Fifth Avenue - a residential project opposite the Metropolitan Museum.
Extell has been on the Israeli stock exchange since 2014, when it issued bonds here. Today, it has two bond series on the Tel Aviv Stock Exchange, C and D. The yield to maturity of series C is the higher of the two, at 12% (in December it reached a peak of over 13%). This is a relatively high yield, but it's typical of the bond series of the North American companies that have raised debt in Tel Aviv (BVI companies, that is, companies incorporated in the British Virgin Islands).
Do you intend to expand your activity on the Tel Aviv Stock Exchange?
"At this stage we have no plans to increase activity in the stock exchange."
And what are Extell's plans globally?
"Most of our projects are concentrated in New York and Park City in Utah. Sometimes we are offered a specific project, and if we think it is special, we will consider it. For example, we have a partner in the UAE who sometimes suggests projects, but our focus is on American real estate, and now we look forward to learning and to doing some interesting things in Israel as well."
Profile: Gary Barnett
Aged 67, lives in New York
Professional: Founder and president of real estate development company Extell, which has bonds traded in Tel Aviv.
Holds a bachelor's degree in mathematics and a master's in economics.
One more thing: Barnett used to work in the diamond business in Belgium.
The Greek Orthodox Patriarchate land
Area: 130 acres / 520 dunams
Properties: 1,000 existing housing units in the Rehavia, Talbiyeh and Nayot neighborhoods; hotels (the Inbal, Prima Kings and the Dan Panorama); parts of the Great Synagogue and the Israel Museum, and open spaces.
Plots for development: more than 12
Extell
Founded: 1989
Field: Real estate, mainly in the US
Property portfolio: 3.2 million square meters
Revenue: (2021): $1 billion
Cash flow from ongoing activity: $781 million
Capital: 2.1 billion dollars
Market value of bonds on Tel Aviv Stock Exchange: Approximately NIS 689 million
Published by Globes, Israel business news - en.globes.co.il - on January 31, 2023.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.