Bank Leumi (TASE: LUMI) recently sold the building at 31 Lillienblum Street for NIS 66 million plus VAT.

The area in the heart of Tel Aviv’s financial district is characterized by mixed-use buildings comprising shops and commercial premises, offices, apartments, restaurants and cafes, clubs and bars, and public buildings. Lillienblum connects Allenby Street in the east with Herzl Street and Pines Street in the west and is one-way.

The building that Leumi sold was built in the 1950s as offices for Zim Shipping Co. and was purchased by various companies over the years until Bank Leumi became its owner in partnership with a private company.

The building itself includes a partial basement as well as four office floors including the ground floor and a roof area. Including the basement, the building has a total area of ​​1,640 square meters, with an elevator, a stone facade and no balconies.

It is possible to convert the office building into apartments or commercial space. Since the locations are defined as a metropolitan area close to the light rail, owners also have the right to add between 2,400 and 6,000 square meters to be used primarily as office space. If the building is merged with neighboring buildings, up to 7,400 square meters can be added.

But fulfilling all the conditions of the rights is a complicated matter involving the uncertainties of the decisions of the committees on the amount of constructions that can be added and which will in any case be exclusively offices, postponements and prolonged decision-making, fees of improvement and agreement of neighboring lots, so it is probably not worth asking for these rights.

However, as part of the TAMA 38 seismic reinforcement program, an additional storey and a possible part of another storey could also be approved.

Taking all this into account, the property is probably only worth NIS 50 million, which means the price paid for the Leumi building is well above the market price. There are several reasons why this could be. First, there is a large premium on complete buildings in central Tel Aviv, which can then be withdrawn while building permits are applied for, reducing the cost of financing the project.

In addition, if the developers manage to buy the neighboring buildings then the property development potential will increase and there is no tenant to oppose the additions of TAMA 38, or even renovations such as the addition of balconies, which would increase the value of real estate. .

The author is a real estate appraiser

Posted by Globes, Israel business news – en.globes.co.il – on June 7, 2021

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