Investing

Ha'kirya's new "Toblerone" building, replacing IDF headquarters with high-end commercial & residential space
Ha’kirya’s new “Toblerone” building, replacing IDF headquarters with high-end commercial & residential space

One of the best indicator of Tel Aviv’s economic success is foreign investment. You can literally see it in Real Estate, as building after building goes up and more of the skyline resembles Hong Kong or Singapore in their early days (1960s – a980s). Tel Aviv is not there yet, but the steady economic growth and strong technology start-up business is starting to influence our international status. The interest in investment here keeps on growing from a few different directions. International investors, especially from the US and Europe are aware of the opportunities of investments in Israel. This is especially true in Real Estate, technology, tourism (especially hospitality), finance and M&A. There are many investment opportunities in Israel which make sense to these investors. In certain market sectors, international investors see the value of the Israeli market. Another attraction to investment in Israel come from personal relationships. Many foreign companies, Intel, AIG, Vishay, Motorola, and IBM came from Israeli employees who brought their foreign companies with them. Usually starting with a small group (engineering or marketing) and gradually developing these relationships into large investments. Some of these investments go back decades. I call these the “foreign explorer investment generation”. An often told story of the most prominent investment in Israel is Dov Frohman and Intel. Frohman, an electrical engineer, studied and worked for Intel in the US. He started a small Intel design center in Haifa in 1973. Eventually the design center was expanded with a manufacturing plant near Jerusalem. Then a larger manufacturing plant in Kiryat Gat was built. Intel is making steady increases to their investments in Israel. Today it is the largest foreign investor in Israel.

Small Investors in Israel

Small investors, usually in Real Estate and securities are common to the point of becoming crucial in legal and financial policy. Accurate statistics are not always available, yet in some markets, housing ownership by foreigners is noticeable. In Jerusalem where housing availability is a problem, foreign ownership is a concern. There are estimates of up to 20% of the apartments in the city are owned by foreigners and they are mostly empty a large part of the year. At first this situation was blamed on Orthodox Jews who wanted to invest in Jerusalem and have a place to stay. This theory does not seem to account for many of the owners. Although Jewish, their religious practice or affiliation is not as initially assumed. What seems to be the case is simply investing in Real Estate which seems to hold value, away from their “home countries” (US, UK, Europe), and some desire to support Israel.

Equity investment (stocks, options, partnerships) is a more complex situation. Many of the investments in Israel, especially in stocks, are actually not made directly in Israel. Many Israeli companies “dual list” their stocks both in Israel and in a foreign stock exchange. Therefore, an American investor can simply buy a stock on the NY stock exchange or NASDAQ. A stock listing on two exchanges has the same value, so no issues with exchange rates and fewer issues with government regulations and taxation across borders arise. It is not clear what is the value of foreign investment indirectly this way, but it seems to be helpful to stabilize and grow the Israeli economy.

Medium Investors in Israel

Tel Aviv (on right) and Jerusalem land values in the last 10 years rose 513% and 407% respectively
Tel Aviv (on right) and Jerusalem land values in the last 10 years rose 513% and 407% respectively

Larger investments in the form of residential buildings, commercial and industrial buildings, significant shares of companies (especially start-ups) are more common today. Investment starting at a million dollars up to a few million dollars are usually made by high net worth individuals or groups of investors. In most cases they come from people who are familiar with the Israeli market. In the last few years, as the American and European economies (and investment opportunities) have weaken, more and more investments in Real Estate, businesses and securities come from the middle size investors. Especially in Real Estate and the securities area there is interest in the hot Tel Aviv construction market. Both on their own, financing a project as a whole and with collaboration with Israeli builders, foreign investors have made the market grow steadily. There is also a strong interest from small and medium size investors looking to diversify their portfolio. Investing in large Real Estate project as a small investor is a relatively low risk today. This takes into account the Israeli Real Estate market growth of about 5% to 8% the last three years. Calcalist, the Israeli economic daily (similar to the Wall Street Journal or the Financial Times) reported on land values going up 513% in Tel Aviv and 407% in Jerusalem in the last ten years (2003 to 2013). With this kind of return, investment in Israel are attractive to many western high net worth individuals.

Large Investors in Israel

Much like the case with Intel, Vishay and IBM, there are many investors who choose to share in Israel’s economic success. Recently companies like Google and Apple have made the news. In the more distant past, Warren Buffet’s Berkshire Hathaway bought controlling share in Iscar, one of Israel’s bigger industrial companies. The large local dairy and milk products Tnuva is also foreign owned and just recently was slated for new foreign ownership again. Teva-Naot, the world famous shoe company, started in Kibbutz Naot Mordechai [kibbutz / wikipedia] was also a large investment by Shamrock Holding [see newsletter]. All these deals, announced on a weekly basis, show the opportunity in the Israeli economy. To foreign investors, the most helpful first step is to become familiar with the Israeli economy, the lifestyle and overall Israeli way of work. There are unique aspects which are certainly surprising. For the most part, experienced investors and companies with global business understanding, are quickly at home here. There are certain “culture shock” differences, and these we will write about as stories are developed. We are big enthusiasts of foreign investors in Israel. Especially JerryTLV and AmiTLV, two fans of just about everything American here (from McDonald’s coffee to Intel stock).

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