Adv. Omer Gadish, Partner and Head of our Real Estate and Urban Renewal Department, participated in the Dun’s 100 forum for senior legal professionals in the real estate sector, alongside leading law firms in the field.

The forum’s participants discussed key issues shaping the industry, including the impact of the war on the real estate market, the labour crisis in the construction sector, financial risks, the income-producing assets market, and more.

Adv. Gadish addressed, among other topics, the tightening of bank financing and underwriting policies, stating:
*”The current policy is a necessity given the state of the real estate market. In an environment of rising interest rates and increasing economic risk, where many developers have faced cash flow difficulties due to a lack of sales, it is only natural for banks to tighten their underwriting conditions and, in some cases, refuse to finance transactions. Even before the war, in response to rising interest rates and increased credit risk in the banking system for the construction and real estate sectors, the Bank of Israel issued directives requiring banks to allocate more capital for high-leverage land financing and to implement stricter oversight of credit issuance.

Banks have become significantly more selective in providing credit for land acquisitions or project financing. This selectivity is evident in the demand for higher equity contributions—rising from previous levels of 0%-10% of the asset value to 20%-30% today. Additionally, where banks previously required developers to pay interest of Prime +1%-1.5% for senior debt financing at a loan-to-value ratio of 50%-70%, they now demand Prime +2%-3%. Buyer loans have reached double-digit interest rates. Furthermore, banks have also tightened financial covenant requirements related to the percentage of presold units. In existing projects, banks are requesting stronger financial guarantees or the involvement of financially robust partners.

Given the crisis in the real estate market, a different banking approach would be irresponsible—demand has declined due to both high interest rates and the war. As I described earlier, the stagnation in the construction sector will lead to significant project delays, potentially eroding all expected profits due to the cost of bank financing.”*

For full coverage: Calcalist >>