Commercial Observer 03 21 2017

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Commercial Observer 03 21 2017

Retail landlord The Klein Group has issued its second series of debt on the Israeli bond market, raising around 80 million shekels—nearly $25 million—through an offering on the Tel Aviv Stock Exchange this week, sources told Commercial Observer.

The Florham Park, N.J.-based firm, which owns retail properties mostly across Manhattan and New Jersey, secured the raise via an “institutional tender” open to Israeli banks, funds, institutional investors and high-net worth individuals. The company expects to raise up to $30 million in total in the coming days upon the completion of a public tender open to a broader cache of Israeli investors.

“We had a target amount and we just stuck to that number and got much better pricing”

The Klein Group sealed the institutional raise with an interest rate of 5.7 percent, and the series is due to mature in 2025. The issuance is the second time the retail landlord has raised debt through the Israeli bond market; in November 2015, The Klein Group raised north of $55 million at a 6.4 percent coupon through a first, Series A offering.

In addition to major developers and landlords like Related CompaniesExtell Development Company and Jeff Sutton’s Wharton Properties, the Tel Aviv Stock Exchange has proven an increasingly popular vehicle for small-to-midsized U.S. real estate players—particularly multifamily and retail landlords—to raise low-cost, corporate-grade debt that would not be accessible otherwise.

As with its first offering, the bonds issued by The Klein Group are backed by a portfolio of assets consisting of 25 properties valued at $300 million in total. Tel Aviv-based financial consultancy InFin advised the firm and also served as underwriter on the deal.

InFin Vice President Yossi Levi said the issuance was met by strong enthusiasm from Israeli institutional investors. The Klein Group received demand for an offering exceeding $60 million given the portfolio’s A- designation from ratings agency Standard & Poor’s Israeli subsidiary Maalot, but opted not to raise that amount given the company’s relatively modest portfolio.

Jacob Klein, the president of The Klein Group, confirmed the deal to CO and said that while the firm could have raised more given outsized demand among Israeli institutional investors, “We had a target amount and we just stuck to that number and got much better pricing”—as a larger offering would have likely led to higher borrowing costs.

He added that the funds raised will be used to help finance “prospective [acquisitions] we’re working on.”

The deal “symbolizes that there’s room for smaller companies in this market,” InFin’s Levi told CO, noting that the Israeli debt market has taken an increasingly optimistic view on American bond issuers in recent months.

“[U.S. real estate] companies are becoming more appealing to [Israeli] investors,” Levi added. “We see the penetration premium for U.S. companies [to issue debt in Israel] being minimized from day to day, and it’s a game-changer for relatively smaller companies. You don’t have to be a giant to benefit from this market.”

The Klein Group’s retail properties include 660 Columbus Avenue on the Upper West Side and 111 Fulton Street and 20 Pine Street in the Financial District, as well as shopping center and strip mall locations across New Jersey.

New York- and Florida-based multifamily landlord Copperline Partners raised around $75 million through its own offering on the Tel Aviv Stock Exchange last month, as CO first reported. That deal represented the second time Copperline has tapped the Israeli debt market, having issued roughly $105 million through a previous offering.

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