At the upcoming Israel Hotel Investment Summit, Nov. 19-20 in Tel Aviv, Michael Karmon, an investment banker with Cukierman’s international property investments division, will participate in the panel "Investment: Where are the Deals and Who is Investing?" The panel will examine the main investors in Israel’s market (and in what they are investing), how to attract more diverse investors (international, local, private equity and funds, among others), what categories of assets are available and the options available for development or conversions.
1. What is Cukierman Real Estate’s position in Israel?
Even though Cukierman Investment House’s heart lies in Israel, with its HQ in Tel Aviv, it is an international company with a global scope of interests. Our focus is commercial properties, but we also are involved in the high-end residential market. Our aim is to bring foreign investors to Israel and offer real estate investment opportunities to our Israeli and foreign clients.
2. How important is hospitality within your company’s strategy?
Currently, the hotels market is significantly outperforming other real estate opportunities and is one of the most lucrative real estate investments, particularly in Europe. Our company is following market trends, which is why we are focusing most of our international real estate efforts in this sector, offering our clients top-class investment in this very sought-after asset class. The regions where we currently are working have the highest expected yields and high-paced growth outlooks—Greece, Croatia, Italy, Albania, Spain and Peru.
3. What makes Israel’s hotel market an interesting opportunity for investors?
Over the recent years, Israel has enjoyed superior GDP growth relative to other first world economies. Real estate is one of numerous Israeli investment sectors that has benefited from this growth and has shown strong and consistent returns. This is confirmed by the recent upgrade to Israel’s credit rating by both Moody’s and S&P.
The tourism industry also is structured very beneficially for hotel owners. Firstly, hundreds of thousands of Jewish people come to Israel each year to visit their families, do business or simply visit the place where their ancestors came from. In fact, people from all three monotheistic faiths are attracted to visiting the land of the Bible. Secondly, the pleasant weather and access to beautiful beaches is a powerful attraction. Thirdly, the Israeli tourism market is not subject to seasonality due to sunny summers and mild winters, so occupancy is high most of the year. As such, prices for hotel rooms are relatively high, even compared with top tourist destinations, and demand remains strong. So, hotel owners and operators are in a good strategic position. Though the market structure is quite small, it is not too saturated. Some local players also are actively exploring new niches to focus on, such as business hotels.
4. What cities or destinations are seeing the most amount of investment activity and why? Is this likely to change in the coming years?
Tel Aviv has become an increasingly important city for both business and tourism. Large real estate players are entering the market, multinationals such as Facebook and Amazon are expanding their offices in Israel and hotel operators have established many kinds of hospitality facilities in Tel Aviv. Other cities in Israel have also experienced a construction boom in the past 10 years, including Netanya, Ashdod, Haifa and Tiberias. We see great potential in third-tier cities and we are expecting strong investments in cities such as Arad, Carmie and Nahariya.
5. What hotel brands or properties do you think are the ones to watch in Israel now?
Photo credit: Cukierman
Ritz-Carlton has brought a class of luxury that was previously unknown in the market. They are successfully working with high-end clients and offering top-of-the-line levels of service. We expect more big players like them to come to Israel soon. Meanwhile, leading Israeli hotel chains, such as Fattal, are expanding to Europe as well as other international locations, making Israel’s hotel industry a more significant player in the hotel business worldwide.
6. You’re involved in a project by the Dead Sea: what makes this region an interesting destination, and what are the challenges to overcome?
This is one the most famous health resorts in the world. The area is transforming by offering not only hospitality with health facilities and therapies but also providing clients with higher-level hotels and as such, is becoming a prestigious destination. Do not forget the cultural draws, such as the Masada musical events.
The main challenge to overcome is the environmental risk—the Dead Sea is slowly drying up. The government has started to address the issue and various proposed initiatives are supposed to help preserve one of the most unique environmental sites in the world, rich in minerals that can treat dozens of diseases.
7. How does hotel development in Israel compare with other classes of real estate? Is it a safer or riskier bet?
Overall, returns for real estate investors are quite high in Israel. The residential market yields 3 percent to 3.5 percent, commercial properties can bring 6 percent to 7 percent and hotel yields could be even higher as they are in a league of their own. If there is a good hotel operator yields can be very high.
The main concern for investors is geopolitical risks. These are highly exaggerated. In the long run though, tourism will flourish and the political situation will become more and more stable. In addition, the Israeli real estate market has a proven track record of being resistant to geopolitical and financial crises, outperforming well-developed economies. In the long run this is the most important factor for investors.
8. What is keeping you busy now?
Currently, one of our most-ambitious projects is a commercial real estate REIT fund—to be known as IVREIT—which will be listed on the Tel Aviv Stock Exchange. We have partnered with a team of top-notch Israeli and international real estate professionals. The fund will provide a convenient and efficient instrument for international investors with exposure to the flourishing commercial Israeli real estate market with a good and stable income. We are currently finishing the first round of investments and are planning to file [an] IPO in Q2 2019.