Tel Aviv... it's more than just beaches


A few years ago, I more or less spontaneously uprooted myself and planted one foot in Tel Aviv to enjoy the food, the beach and the Mediterranean lifestyle. But what I’ve come to realise is I also dropped myself into the hottest spot for listed real estate in Europe.
Massive investment volumes: With around EUR 770 billion of investment assets, the volume of capital in Israel would rank sixth in Europe. Not bad for a country with a population the size of Austria.
Gigantic stock exchange: The total equity market capitalisation of the Tel Aviv Stock Exchange (TASE) is more than EUR 300 billion. That’s bigger than all of Central Europe combined… plus Austria and Athens thrown in for good measure. And it is about half as large as the BME in Spain. Oh, and more capital was raised by more companies so far this year on the Tel Aviv stock exchange than on the BME… and add the SIX and the Deutsche Boerse too, and it was still larger.
Huge listed real estate sector: With 90 listed real estate companies with around EUR 70 billion total equity market cap, little Israel has the fourth-largest listed real estate sector when ranked in Europe, after only Germany, the UK and Sweden. And we know that Germany is a skewed number, given the small number of very large companies that make up the totals there. And of these 90 companies listed on the TASE, close to 20 of them have mainly or only property outside of Israel (in the USA and/or in Europe), so many that the TASE created a new real estate sub-index for international property companies. Given the prominence of real estate sector entrepreneurs in the European property sector, I guess it should be no surprise that Israeli institutional investors also have a giant appetite for real estate abroad. In fact, the listed real estate sector in Israel makes up about 20% of the total market cap of the stock exchange. How do you think that compares to Europe?
My timing also was, apparently, impeccable. In the last few years, the TASE has penned new agreements with multiple international stock exchanges, including the LSE, that enable automatic dual-listing. It was kind of a mini-trend a few years ago for UK-listed property companies to dual-list on the JSE in South Africa. However, the TASE is five times larger in terms of the size of potential investment capital waiting in Israel than there is in South Africa. My hunch is that when European property companies realise that an LSE listing is also a ticket to an automatic dual-listing into the large, dynamic and real estate-hungry Israeli investment market through the TASE, there will be a line of European issuers forming around the corner of Ahad Ha’am Street.
Corporate Governance: Another surprise. Let’s just take ‘related party transactions’, which is a subject in the news these days in the listed property sector. In Israel, it has been a requirement for a few years to have the independent directors and audit committee review and approve an RPT. This is ‘optional’ in Germany, the UK, Sweden and France. The Israeli standard also goes even beyond that, with a majority of minority shareholders having to approve any material RPT. You won’t find that in too many European countries.
FIFA and Eurovision can’t be wrong. And while Israel was promoted by the rating agencies to a ‘developed’ economy many years ago and is considered ‘Europe’ in terms of football and singing, and is in the S&P’s family of European stock indices, it is also interesting to note some other interesting investment factoids. National debt to GDP is around 70%, lower than the EU average of 88% and right next to Germany’s 69% level. Population growth is higher than in any other EU country, which is kind of the starting point for real estate fundamentals. With central bank reserves at 46% of GDP, a shallower contraction in GDP during the Covid downturn, and a vibrant tech sector launching an all-time record of 75 IPOs last year (vying with Sweden for the second-most active tech IPO market after New York), it seems like there is a bit more than sun, sand and hummus to find in my new favourite European city.
On a more depressing but equally important note, whereas continental Europeans used to sometimes shy away from doing business in Israel due to its proximity to hostile neighbours, we’ve all come to recently realise that continental Europe is no different from Israel in this respect too.
Mark Abramson is an investment advisor to private equity, family offices and listed companies in the real estate sector in Europe.
Mark Abramson