By Abe Schear | Guest Columnist
The real estate investment market, particularly as relates to Israeli investment in the United States, surely goes through cycles. Ten years ago, investment in the United States by Israelis was, for the most part, limited to the New York market (though there was also robust investment in our northern neighbor, Canada). There was real truth to that longstanding drawing of New York City and the rest of the country.
In fact, based on a real estate program I attended at the AIPAC Policy Conference in March, New York lawyers still feel that their market is “the” market, though reality would prove them to be wrong.
With the frightening real estate collapse a few years ago, coupled with less predictable investment opportunities in locales like Eastern Europe (and even Western Europe), Israelis saw openings and began to move their feet, meeting partners, exploring assets of different classes (e.g., office, retail, multifamily) and better understanding secondary or even tertiary U.S. markets.
In many ways, these Israeli investors, constrained by the lack of new investment-grade property in Israel and an unpredictable European market, have a better analysis of the U.S. market than we do.
I was reminded of this old-fashioned approach numerous times recently when a handful of Israelis were in Atlanta to discuss new real estate opportunities, not because Atlanta has unique assets that are particularly appealing to the investors, but because Atlanta has an infrastructure that effectively works with these investors, both within and without the Jewish community.
With U.S. developers embracing Israeli investors, in many cases after the developers traveled to Israel to meet with their counterparts, Atlanta has become a significant portal for Israeli funds.
Our community has numerous real estate companies that purchase assets throughout the Southeast, as well as lawyers and accountants who are fully integrated into the daily dialogue with international investors. Understandably, this seems to not be a boom-or-bust scenario because the Israeli investors now own significant property with established management in place.
Additionally, Israeli investors are beginning to look at different opportunities, including in the Israeli securities market, where U.S. real estate debt is essentially becoming a bond payable by the U.S. real estate company to the bondholders (the Israelis), who in turn have security in the underlying real estate. This structure purports to reduce debt cost for U.S. property owners while engaging otherwise fallow monies for the investor. This structure has received a great deal of recent attention, though for sure this investment works best for large portfolios.
Lastly, during a brief recent business trip to London, the subject of Israeli investment was a consistent part of the conversation, particularly as related to large transactions. The London law firms, mostly without offices in Israel, travel regularly to Israel to work with high-tech companies and real estate investors. The London market, of course, has what we in Atlanta have: smart people, clean real estate title and a predictable form of government (much different from a predictable form of politics).
Where will this lead?
That is always difficult to tell, but, for Israelis, the world has become a smaller real estate market. Enough money has been lost in Eastern Europe, and government (and title) uncertainties have made some investors very cautious about other markets. Latin America is a long way from Israel and has clear language barriers. This is likely to lead to a more permanent Israeli investment presence in the United States, one that will amaze us all with its ultimate magnitude and breadth.
Abe Schear is a partner at Arnall Golden Gregory in Midtown.