Q&A: Why Israeli Bond Buyers Love Multifamily

U.S. apartment building owners who meet certain criteria may want to consider issuing debt on the slowly recovering Tel Aviv Stock Exchange.
Amir Giryes, Founder & CEO, Giryes Capital Group.  Image courtesy of Giryes Capital Group

When Westdale Asset Management raised $140 million on the Tel Aviv Stock Exchange, the portfolio behind the bond issuance was mostly multifamily―with a few office assets as well. MHN interviewed Giryes Capital Group Founder & CEO Amir Giryes, who advised Westdale on the capital raise. We asked him about opportunities for other U.S. multifamily owners to tap this funding source, which is making a comeback following a steep downturn at the end of last year.

What does the Westdale issuance say about the Israeli bond market’s affinity for multifamily?

Giryes: The Israeli markets loves multifamily, especially multifamily Class B in major markets. When you issue a bond, you have to remember, the investors are not looking at the upside but at the negative―what would happen if there is a recession. People can stop shopping, but they still need a place to stay. And that’s why multifamily in major markets are very appealing to the Israeli institutions that are involved in buying the bonds and definitely Class B and Class C assets are more recession-proof than office buildings or luxury apartments or retail centers.

How much of the Westdale portfolio was multifamily?

Giryes: About 75 percent of the Westdale portfolio is multifamily in the Sunbelt and they had two apartment assets in Washington state. It checked all the boxes for what the Israeli institutions like: long-term holdings, not IRR-driven, went successfully through recession several times.

With the Westdale portfolio, we saw that in 2008, 2009 and 2010 the occupancy in their multifamily assets did not drop below 90 percent, which gave a lot of confidence to the Israeli investors.

Who can access the Israeli bond market? Based on the Westdale transaction, is the Sunbelt a preferred market?

Giryes: So far, if you look at most of the U.S. companies in Israel, especially in the beginning, they were concentrated in New York, especially Brooklyn and Manhattan. And the main reason was the first real estate owners that came into the market were Jewish owners, which makes sense, but slowly we grew to non-New York and non-Jewish owners and operators of real estate. The majority is still New York, but we definitely see more from the Sunbelt and the West Coast, and I see this trend going more and more to the West Coast and the Sunbelt states.

How is the Israeli bond market doing since the December crash? Is it easier to access the market now?

Giryes: The market is better than four months ago but tougher than a year ago. But the market also went through a kind of maturity. The Israelis understand a little bit more what to look for. They are more cautious.  It’s harder to just sell them a narrative. You have to back it up with the numbers. So, I believe the market will be more picky, and the market will accept only stronger operators. 

Originally, we wanted to get into the market with Westdale in December. But December was a rough month in the capital markets. In Israel and around the world. We had to postpone it for a little bit. We were the first U.S. company that issued in the last seven months. It was now a big success and we got oversubscribed for the issuance. But I think we could do it only with a strong company like Westdale. And then there is the amount of trust the market has in Barak Capital as an underwriter. Barak invested their own money in this bond offering. That is an important thing. It also brought a lot of confidence.  

Why then raise only raise $140 million?

Giryes: We were restricted by a deed of trust. We did the maximum amount on this bond series. If we do another bond, we can do several hundred more. Which we might do in the future.

What advice do you have for multifamily companies?

Giryes: The Israeli bond market allows multifamily owners to put another layer of fixed debt on top of their normal agency debt with the same pricing―unlike the alternative, which typically ranges in the double-digits. The Israeli market allows them to grow their portfolios or grow their ownership in their portfolios with a very sophisticated and liquid market.

Any caveats or precautions our readers should keep in mind?

Giryes: The market is looking for owners of north of a half a billion dollars’ worth of properties who have been in the market for a while and understand the cycle and are willing to do the transition from a private company to a public company.

For the right company, it is a great tool and alternative source of capital to grow and strengthen their capital structure and capital sources. The Israel market is definitely looking for good operators to invest into their equity or debt or other structures.

The market has actually been quiet since the Westdale offering. Can we expect to see more offerings soon?

Giryes: There is definitely activity. The quietness is because several companies were waiting on the sideline to see what happened with Westdale, and the outcome was extremely good. I work with companies that are set to move forward and other companies that do what I do are doing the same. In the next several months, we will see companies trying to come back to the market.

Are they multifamily companies?

Giryes: I know of two companies, which have multi housing in their portfolios but not only multifamily. They have a mix of other property types.