When looking at the top foreign-investment sources into U.S. commercial real estate, Israel’s outbound capital pipeline was among the hardest hit by the COVID-19 pandemic. According to Real Capital Analytics (RCA), investors from the small Middle Eastern nation placed only $881.9 million into U.S. properties in 2020, down 62% year over year. Of the top 15 countries that invested in U.S. real estate last year, only the neighboring nations of Turkey (down 71%) and Bahrain (down 65%) recorded larger annual declines than Israel.
Due to the global instability wrought by the coronavirus outbreak, however, this backtrack is somewhat misleading when taken at face value. Israel’s investment decline, all things considered, was rather par for the course as only six of the top 15 investor countries posted annual deal-volume growth, per RCA. In fact, Israel still ranked eighth last year among all foreign sources of capital into the U.S., down only two spots from 2019 and better than the ninth-place finishes it logged in both 2017 and 2018, RCA reported.
All told, Israel retained its position as the most reliable source of funding from the Middle East, beating out the aforementioned countries of Turkey and Bahrain, as well as Kuwait, Saudi Arabia and the United Arab Emirates (UAE). Still, the decline in activity from Israeli funding sources was jarring nonetheless.
Israeli companies were at least partial investors in 80 U.S. properties in 2019, but this number was slashed to 35 last year, RCA reported. In 2019, the Delek Group, one of Israel’s largest conglomerates, was the sixth-largest cross-border investor for both U.S. multifamily and industrial properties, acquiring $540 million in apartments and another $367.7 million of industrial real estate. Last year, however, Delek didn’t crack the top 10 for either property type.
The usually big-spending Delek largely stayed out of the picture last year after instability in the price of oil, its main business venture, threatened its financial fortunes in the wake of the pandemic. Despite an encouraging revival in share prices in the latter half of 2020, Delek’s auditors chose to place a “going concern” warning on the company’s financial statements, putting the scope of activity moving forward in question.
Thus far, not many Israeli companies have stepped in to fill the investment void. RCA lists Global Holdings (which acquired $380.6 million in U.S. apartments in 2020) as having Israeli roots due to its chairman, Haifa native and billionaire Eyal Ofer, although the multinational company has corporate offices in New York, London and Monaco.
Otherwise, only one Israeli company (Alony Hetz Properties and Investments) finished among the top 10 foreign buyers in 2020 for any U.S. property type. It placed $74 million last year into the distressed U.S. hotel market. All of this makes the task of projecting future Israeli investment a rather murky one.
Despite the recent pullback, Israeli investors retain impressive capital reserves and, pre-pandemic, the trajectory of Israeli-funded U.S. real estate acquisitions was moving upward. These investors remain keen on putting their money to work and reportedly have an active eye on the UAE’s real estate sector since the two nations formalized peace accords in September 2020. It’s likely that this enthusiasm will soon spread again to the U.S., although as with many things during the COVID-19 crisis, uncertainty is the only certainty. ●