Brooklyn Developer Taps Israeli Market Ending Urbancorp Drought

  • Leser Group raising 125 million shekels in retap of 2026 bond
  • First by North American developer since Urbancorp bankruptcy

Brooklyn developer The Leser Group Ltd. is selling 125 million shekels ($32.5 million) of bonds in Israel, reopening a market that was shut to North American real estate companies after Canadian developer Urbancorp Inc.’s April default rattled investors.

The new issue, a retap of Leser’s 6.9 percent bonds due in May 2026, will yield 6.6 percent, according to Poalim I.B.I - Management & Underwriting Ltd., the lead manager on the deal. It originally sought to raise 75 million shekels but decided to increase the offering after getting double that demand from institutional investors, Poalim said. The yield on the existing debt increased for a third day, rising two basis points to 6.6 percent at 3:31 p.m. in Tel Aviv.

Israeli bond investors’ appetite for foreign real estate debt dried up after Urbancorp filed for bankruptcy protection and luxury developer Extell Development Co. said financing for one of its projects would take longer than expected, sending borrowing costs on foreign real estate bonds soaring. U.S. firms have raised at least $2.8 billion in Israel since 2008, lured by cheaper financing costs and higher credit ratings than they could earn at home.

Waiting on Extell

Leser was able to return to the market because it’s already known to Israeli investors, said Yaniv Saylan, a real estate analyst at Tel Aviv-based Israel Brokerage & Investments. New companies without buildings that are already generating income will have a harder time getting cheaper borrowing costs in Israel than at home, he said.

Chairman Abraham Leser “is very well known, he comes every quarter,” Saylan said by phone. “I don’t see the case of any developer coming to Israel and the institutional investor will open the door.”

Israeli investors are still waiting to hear whether Extell has obtained construction financing needed to complete its One Manhattan Square project. Extell, which has borrowed 1.65 billion shekels in Israel, needs to complete the project in order to generate cash flow to repay Israeli creditors, Saylan said.

Extell said in an April filing that its controlling shareholder would lend the firm as much as $30 million for an interim period while the company is seeking financing. Extell later said the loan could be extended through Dec. 31, 2016. Yields on Extell’s 4.65 percent shekel bonds due in 2019 have declined to 10.19 percent from a peak of 13.5 percent in May.

Last Sale

Zarasai Group Ltd. was the last foreign developer to come to the Israeli market, selling 255 million shekels of 4.35 percent bonds due in 2027 in March. New York-based Princeton Holdings LLC delayed plans to raise as much as 100 million shekels, two people familiar with the matter said in June.

The public stage of the Leser debt issue is expected to be held on Wednesday, according to Poalim. Victory Consulting acted as an adviser to Leser, the first North American property firm to issue debt on the Tel Aviv bourse in 2008. It has since sold four series in shekel-denominated bonds.

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