"We must be cautious and must not take too much leverage even when interest rates are low. Everyone knows what can happen when interest rates rise," David Zisser, son of the late tycoon Motti Zisser, told the real estate conference in Tel Aviv, organized by international law firm DLA Piper.
Zisser came to the conference as CEO of OMNAM, a real estate group specializing in investments in hotels in Europe. His late father was controlling shareholder in the Elbit Imaging real estate company, which collapsed under the weight of its huge debt.
Elbit Imaging developed real estate, mainly in Eastern Europe and India and got into difficulties following the global financial crisis in 2008. In 2014, the company passed into the hands of its bondholder creditors as part of an debt settlement of unprecedented proportions that included a haircut of about 70% of the NIS 2.5 billion debt.
With this in mind, Zisser junior warned against leveraging during a dialogue about the disruptions in the commercial real estate market. Among other things, he spoke about the entry of Airbnb and the way in which it is disrupting a traditional sector.
Sarit Polevoy, head of real estate at the Amitim Senior Pension Funds said that they approached these disruptive companies with the same skeptical assumptions as they have had in the past. "For example, will an investment in an office tower in provincial regions be relevant in 20 years? Will an investment in a residential development far from public transport in outlying regions hold up? Will commercial housing that currently looks very strong still exist in the future? All these assumptions must be doubted."
The conference was attended by: the heads of DLA Piper Israel - Adv. Jeremy Lustman, and Adv. Naomi Maryles; Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) head of international real estate Jonathan Ross; Eli Rosen, CEO of Credifi, a platform providing big data cloud based solutions for the income producing real estate market and which recently raised $13 million; Avi Rothner, CEO of Altitude Health Services, which owns dozens of senior citizens homes in the US and is currently issuing a $55 million bond on the Tel Aviv Stock Exchange; and many other guests from the real estate industry.
A comprehensive survey of hundreds of senior executives in the US real estate sector conducted by DLA Piper was presented at the conference. The survey found that a majority of 68% of those polled believe that despite the tough blow currently being dealt to the malls and shopping centers, smart retail companies (such as Amazon) will find the balance between traditional retail and ecommerce by setting up omni-channels citing the way that Amazon bought the Whole Foods chain. 8% claimed that the sector is doomed. The remainder of those questioned thought that the retail industry would succeed in re-positioning itself through mixed-purpose projects, new developments and rebranding existing shopping centers. Not surprisingly only 7% still think that retail real estate is an attractive investment option.
DLA Piper Senior Partner Jay Epstien and Co-Chair of the law firm's Global Real Estate Practice said, "Growth in online commerce will be a disruptive factor most influencing the commercial real estate sector in the coming year."
Epstien added that most ironically it could be that ultimately the savior of shopping malls could be the online commerce giants with physicals stores becoming the "changing rooms" of Internet stores."
Published by Globes [online], Israel business news - www.globes-online.com - on May 6, 2018
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