Israeli businesspeople, companies, and institutional investors invested USD 2.3 billion in overseas real estate in 2022

Categories: Real Estate

Whichever way you slice and dice it, these are challenging economic times around the world, and yet outbound real estate investments for Israeli clients are holding up well, according to a recent article in Israeli business press, Globes.

Israeli businesspeople, companies, and institutional investors invested USD 2.3 billion in overseas real estate in 2022, down only 5.7%, despite the interest rate rises.

We caught up with some of the leading real estate lawyers in New York, Toronto, London and Hamburg to gather some of their views.

What do you attribute this to?

Historically, Israeli capital has been very opportunistic,” said Yariv Ben-Ari, partner in Herrick‘s Real Estate Department and a co-chair of both the firm’s Israel practice group and Real Estate Hospitality group. He added: “

Given the growth of relationships between Israeli investors and their US partners over the last decade or so, these relationships have allowed Israeli capital to reach quality assets in prominent locations and other opportunistic investments. While most institutional capital wasn’t exposed to the prior recession because they hadn’t yet significantly invested in the US, after going through a learning curve that included a decade or more of investing and then adjusting for COVID-related scenarios, Israelis have reached a higher level of comfort in US investing. We also attribute the growth to the uncertainty in Israel that has been going on for months given the political environment. Notwithstanding the current economic environment, the US is still a stable investment target.”

We have not seen a particular slowdown in activity from Israelis looking to buy real estate in the U.K. this year,” says David Prais, leader of the Real Estate department at Asserson. “
The Israel economy is facing a dual challenge of soaring interest rates and the uncertainty presented by the proposed judicial reforms which is prompting many Israelis who may otherwise invest in Israel, to look elsewhere.

The U.K. has always been and continues to be an appealing market to Israeli investors given its proximity to Israel, its transparency and its stability. As UK property owners begin to suffer from rising borrowing costs we are starting to see heavily discounted investments – downturns offer opportunities which Israeli investors are looking to take advantage of. However investors do need to invest smartly – not necessarily focusing on London but considering other large population centers such as the West Midlands (Birmingham), Northwest (Manchester, Liverpool).”

The opportunities presented by the 2020 Abraham Accords offers another route for Israelis abroad. “Increasing relations with the Middle East is a factor,” points out Alexander Gold, London partner at Charles Russell Speechlys. “With our offices based in the UAE and Bahrain we are seeing a number of Israelis looking at these rapidly developing markets that represent huge opportunity for investment.”

Israelis are always looking for safe investment opportunities,says Nili Goldman, real estate partner at Canadian law firm, Aird & Berlis, and Canada holds huge appeal for Israeli investors. She adds: “Canada is the fastest growing country in the G7 by population and provides great benefits to investors through its strong economy, global market access, highly skilled and educated workforce, political stability, safe banking system and low corruption.

According to Statistics Canada, foreign investment in the Canadian real estate market in 2022 went up by 5.56% from the previous year, despite the rising interest rates. This is in part due to the fact that large cities across the nation provide lucrative investment opportunities yet are still more affordable than some of their counterparts in other countries. Canada also has well-established laws and regulations governing real estate transactions, making the investments much more risk-averse.”

Israeli investors are strictly rational and analytic on the one side and more risk accepting than others on the other side,” added Daniel Ajzensztejn, a partner in the Hamburg office of Taylor Wessing, and part of the firm’s Israel Group. He went on: “From our perspective this means that the understanding that an investor is paid for managing risks is visible in investment activities by Israeli investors when others avoid the market out of fear. The Israeli investor typically is still able to seize the opportunity in such situations.

Which are the real estate assets attracting the most interest?

We are seeing significant increase in the hospitality industry, particularly in the luxury sector and the extended stay sector,” Herrick’s  Ben-Ari points out, adding: “we are seeing significant increase in the hospitality industry, particularly in the luxury sector and the extended stay sector. Luxury hotels are consistently sought after, but it’s no surprise to see brands such as Marriott and Hilton, as well as Airbnb, increasing their inventory of extended stay brands for a few converging reasons. Perhaps the most significant are the current economic realities – including a high-interest rate environment and significantly-reduced lending options – with these less costly assets allowing for reduced development costs for sponsors, even amid an economic slowdown. The continuation of “work from home” and “home away from home” trends make these properties more attractive to a broader swath of visitors. Reduced fees and development costs naturally lead to higher profitability for these developers and longer stays with more, albeit reduced, fees for the brands.”
Prais of Asserson adds: “They should also consider their sector carefully too; the jury is still out on the ‘wfh’ question which means the office investment is no longer the solid mainstay of the commercial property market it once was. We see investors also increasingly buying with cash when they have available resources rather than relying on bank finance. Those relying on banks to funds their acquisitions are having to work harder to find satisfactory loan terms but with the support of a good finance broker this is possible. There has been a move away from the traditional office and retail investments with keener interest in the light industrial and logistics sectors. Residential acquisitions are also a very attractive sector as investors are able to negotiate healthy discounts from developers looking to quickly off-load stock in bulk. Returns are strong in the residential market as the rental market is buoyant as mortgages become less affordable for aspiring homeowners. Those looking at offices and retail are careful to consider those with add-value opportunities, such as options to add space through roof-top development. Specialist sectors continue to be strong such as care homes, hotels, affordable housing.”“Forward-thinking people, many Israeli investors are putting their money into alternative and potentially ‘safer’ assets,one of these being the living sector,” adds Gold, at Charles Russell Speechlys. He adds: “Demand for living assets, which includes student housing, co-living, multifamily, affordable housing and healthcare, has increased since the pandemic, as investors look for safe havens and stable income. Logistics and life sciences represent further areas of interest for Israeli investors. Whether it is drug development, drug transportation, or building state-of-the-art labs for scientists, life sciences is proving to be a strong real estate asset, while demand for commercial property dips. Equally, the ongoing ecommerce boom, onshoring, supply chain reconfiguration and modernization are important drivers for investment into logistics.Daniel Graske, also a Hamburg-based partner at Taylor Wessing, agrees that “there are the usual categories of office, logistics, residential as well as data centers – less so retail.”

Goldman at Aird & Berlis adds: “In response to recent housing supply and affordability issues, the federal government enacted the Prohibition on the Purchase of Residential Property by Non-Canadians Act, on a temporary basis, intended to prohibit the purchase of residential real estate by non-residents. This, however, does not impact the opportunities for investing in commercial real estate or residential properties outside metropolitan areas. As Canada’s population continues to grow, new areas are rapidly developing around central hubs and the market offers a wide array of investment options including retail, industrial, office or mixed-use spaces. Many retail, industrial, office or mixed-use spaces have long-term leases and guarantee consistent cash flow, making them attractive for investors and developers.”