International Real Estate Report: Who knew?

Israelis have become major players in Canada's real estate sector.

“The first real estate transaction was in the Bible, when Abraham purchased the site for the Tomb of the Patriarchs in Hebron,” says Elchanan Rosenheim. He mentions this matter of factly, without a hint of preaching, because Rosenheim can drive to that very tomb from his office in Ra'anana, near Tel Aviv, in less than two hours. “You will have real estate forever,” he adds in the assured tone of biblical destiny that many Israelis use. Rosenheim's real estate investment company, Profimex, banks on that credo. It even found places to buy in freezing, secular Canada, with $128 million invested in 14 properties and more on the way.

Israel's real estate sector places a lot of faith in the Canadian market. Over the past decade, Israelis have poured billions into Canadian property and development, quickly establishing themselves at the top of the game here. Estimates are that Israeli investors pump roughly $1 billion annually into Canadian real estate, financing and acquiring properties and buildings in the commercial, residential, retail and industrial sectors. Blake Hutcheson, president of commercial realtor CB Richard Ellis Canada, ranks Israelis among the Top 3 foreign investors in Canadian real estate in the past five years. (Americans and Germans are the others.)

“This is a land of opportunity in every sense,” says Gil Blutrich, who immigrated to Toronto in 1998 and is now president of Skyline International Development, a local subsidiary of his Mishorim holding company based outside Tel Aviv. At 39, Blutrich is one of the youngest and most dynamic Israeli developers in Canada. In Hebrew-accented English, he excitedly talks about new projects such as the spa in his Cosmopolitan boutique hotel in Toronto, and the ambitious “renaissance village” development he is building on the shores of Georgian Bay. Skyline has more than $400 million of assets in Ontario and Quebec, although the income from rentals increases the firm's real value significantly.

The spark that drew Blutrich and other Israelis to Canada was the Jewish state's removal of obstacles to foreign investment during the mid-1990s. For years, Israel prevented private capital from flowing outside, fearing an exodus during rough spells. Those wanting to purchase property abroad had to abide by special regulations, obtain difficult foreign exchange permits from the central bank, and walk through a myriad of red tape that discouraged foreign investment. But about 10 years ago, Israel's heavily regulated economy started opening up, and the central bank lifted regulations to allow free foreign exchange and investment abroad. Around the same time, Israeli real estate slumped, and Canada's picked up.

Despite all the attention it gets, Israel is a tiny country, both in land mass (20,770 square kilometres versus Canada's 9,976,140 sq. km) and population (six million versus 33 million). The Israeli real estate market, therefore, is highly competitive and crowded. “Canada has a lot more players,” says Rosenheim. “If you build an office building in Tel Aviv, who will buy it? How many overseas investors/pension funds will look at it?”

Israeli real estate is also highly correlated to capital markets, making it prone to volatility–a constant in a country that has been in a de facto state of war since independence in 1948. The economy soared in the 1990s, only to dive dramatically during the Palestinian intifada over the past five years. Now it's on the rise again, but the only certainty remains uncertainty. Canada, in comparison, is comfortably predictable. “Risk is very relative,” says Blutrich. “In the past, many Canadians were reluctant to invest in Quebec because of fear of separation. For Israelis, this was no risk; we are dealing daily with life and death.” As the benefit of this outlook, he cites the substantial investment and profit Israeli billionaire Yitzhak Tshuva made in Montreal over the past decade.

A former bricklayer, Tshuva is one of Israel's wealthiest businessmen, whose Delek Group has interests in gas, energy and real estate in Israel, Europe and North America. He recently purchased New York's famed Plaza Hotel for US$675 million. A pioneer among Israelis seeking opportunity in Canada, Tshuva entered Montreal forcefully when few other investors dared, scooping up offices and apartment buildings in the years after the last sovereignty referendum. He bought the 28-storey Tour Bell tower in 2001 for $202 million. Last year, EL-AD Group (Canada), Tshuva's primary real estate company here, purchased 39 apartment buildings in Toronto and Montreal from MetCap Living, for $700 million, making a big entrance into the residential market. In October, Delek Group purchased some 30 strip malls from the Jean Coutu Group for $111.7 million. These are just the biggest purchases by Delek and EL-AD. Tshuva's Canadian holdings are estimated to be worth more than $2 billion, placing him among the country's larger real estate moguls.

Aside from Delek and EL-AD, several other Israeli companies are big hitters in the sector, especially First Capital Realty Inc. (TSX: FCR), a subsidiary of the Gazit-Globe company in Israel. Company president and CEO Dori Segal, who lives in Toronto, and chairman Chaim Katzman, who among other things manages U.S. assets out of Florida, acquired Centrefund Realty Corp. in a 2000 hostile takeover for around $143 million, turning it into First Capital, one of Canada's top shopping-centre developers. With 125 centres coast to coast, First Capital boasts a total market cap of $1.4 billion.

In addition to these big hitters, there are dozens of smaller and medium-sized Israeli (or Israeli-backed) investors seeking returns in Canada. A look at the monthly news clippings on the website of the Israel-Canada Chamber of Commerce & Industry shows a barometer of Israeli interest over the past year, both big and small.

? Eliezer Fishman's Industrial Building Corp. is conducting negotiations to sell Winnipeg's Cityplace commercial centre.

? The Malibu Co. raised $47 million in a bond offering to finance a residential project in Toronto.

? The Ravid firm purchased a commercial site in Montreal for $16.4 million.

? The Jerusalem Economic Corp. completed the purchase of a shopping centre in Toronto for $112 million.

Apartments, hotels, malls, office towers, condos, townhouses. The list, as they say, goes on.

Israeli investment certainly has had an effect on the Canadian real estate market. “I think the entire market has become more competitive, and I think EL-AD is responsible for part of that,” said president and CEO Udi Erez, in a recent interview with Canadian Apartment Magazine. “Five years ago the industry was introduced to foreign investors (EL-AD in particular), and I think it caused a lot of the Canadian players to recognize that there were assets that may have been undervalued at the time.”

According to Raymond James real estate analyst Gail Mifsud, “aggressive” and “competitive” bids by the Israelis helped drive up demand in Canada's real estate market, taking values skyward across all classes. Skyline's Blutrich puts it somewhat differently. “Because Israel is a very small and condensed market, with very talented individuals, it is like an explosion when we leave,” he says, referring to the opportunity a foreign market offers. “This is what we saw [in Canada] the last 10 years.” Even though Israeli investors are arriving flush with cash, the fire and drive of the new immigrant burns within them.

Some unexpected consequences have followed the tremendous success of the Israelis in Canada. The Jewish community in Toronto and Montreal raises tens of millions for Israel each year, driven by a steadfast pledge to protect the Zionist dream. Seeing Israelis making billions in their backyard raises questions. “When you come fundraising for Israel in Canada people say, 'Hey, what do you need money for? You are investing all of it here,' ” says Amos Cohen, manager of the Israel-Canada Chamber of Commerce in Tel Aviv. But that, he insists, is private money.

Israel's institutional investment in Canada, however, is also growing. Israeli pension funds (many from government- owned corporations) are shareholders in Gazit-Globe, the parent of First Capital. “Israel can be compared to the Netherlands,” says CEO Segal. “It's a very small country that had big pension funds, which didn't have anywhere to go.”

Back in Israel, the real estate market is now picking up speed. Among Israeli investors in Canada, there seems to be a consensus that the money is starting to flow back home. Blutrich will soon launch a private $15-million fund called Israel 1, specifically for Canadians to invest in income properties in Israel. Still, he feels opportunity in Canada remains strong, and he predicts we will see more large Israeli investments in real estate, and areas such as oil, gas and mining. “Israelis are fascinated by the vast resources here,” says Blutrich, nodding to the barest natural wealth his country has. “In Israel, the milk and honey ran out.” It seems they are happy to settle for maple syrup instead.