Following the growing interest in the residential real estate market and the new wave of listings observed among companies in the field, a report prepared by the analysis department of Ruby Capital, which specializes in real estate financing and investments, shows that private real estate companies (non-publicly traded, and most of them small and medium-sized) are currently responsible for the vast majority of housing units being built in Israel.
According to the report, as of the end of September 2024, the number of apartments under active construction stands at approximately 178,100 housing units. Of these, about 42,000 units (about 23%) are being built by real estate development companies listed on the stock exchange, while the remaining activity (about 70%) is done by private companies. This indicates that medium and small players form the backbone of the industry.
The report also examined annual equity requirements, pointing out that between October 2023 and September 2024, the construction of about 60,000 new housing units began (equivalent to 11 million square meters). With an average construction cost of about NIS 10,000 per square meter, the total cost is estimated at NIS 110 billion ($30b).
Based on an average equity requirement rate of about 15%, the equity required in the market is therefore estimated to be around NIS 16.5 billion ($4.6b). When considering the share of mid-market companies, we can estimate that the equity required from them during this period amounts to over NIS 10 billion.
Omer Alpern, a partner at Ruby Capital, stated, "Medium-sized real estate companies are, for the most part, high-quality companies with experience, operating in the market for many years. However, the high interest rate environment creates a barrier to advancing projects, limiting the ability to meet the high demand for housing in Israel. Sitting on the fence, giving up on tenders, and being passive in advancing urban renewal constitutes a missed opportunity for growth for medium-sized companies.
“In order to provide the required equity for their activities, we are seeing several trends in the market, including institutional bodies offering long-term partnerships with companies, companies offering equity completion services, and investment funds,” Alpern said.
"Ruby Capital, through the Sapir funds managed by the company, which combine investments from institutional bodies and leading investors, offers large and medium-sized real estate developers financial partnerships in projects in exchange for customized and creative profit-sharing mechanisms,” he said. “The fund's investment model provides significant value to developers, including efficient use of the company's resources without diluting ownership share, achieving goals, risk diversification, and a partnership with value in knowledge, experience, and shared risk-bearing.
“The activities of the Sapir funds are also suitable for companies in the urban renewal sector, where we have gained extensive experience in recent years,” the Ruby Capital partner said. “The Sapir funds enable quality companies in growth stages to realize multiple projects simultaneously while maintaining the correct balance within the company, without the need to sell parts of ownership or company operations."
The activities of the Sapir funds are currently managed by Ido Roimi, who recently served as head of the initiation department at the Reality Fund.