Tel Aviv developers are expanding in the only direction still possible: upwards. Across Israel’s cultural and commercial capital, apartment towers are rising within its historic centre, along its Mediterranean shoreline and in the exclusive North district. Designed by local architects and global figures alike, towers are still relatively rare compared to the city’s Bauhaus buildings or boxy apartment blocks. But these glass-and-steel landmarks are proving prudent investments in one of the few developed economies relatively unscathed by the global economic crisis.
“The tower trend is still fairly new in Tel Aviv – we’re talking about barely 15 projects at the absolute uppermost end,” says Ella Shemer, whose real estate agency, MigdaliM, specialises in luxury towers. “Land in the city is so costly and the local bureaucracy so complex that it can take almost a decade to go from planning to fully sold.”
It was barely a decade ago that Tel Aviv’s first “marquee” tower project – the three 34-floor Alrov Towers – opened in the city’s wealthy northern quarter with 360 apartments. Built by the Alrov Group, the postmodern development set the standard for subsequent towers, such as Richard Meier’s 37-floor tower on Rothschild Boulevard and Philippe Starck’s Yoo Towers, which opened in 2007.
With their resort-like amenities, 24-hour security and high-profile residents, the Alrov Towers proved an attractive alternative to the suburban villas traditionally popular with Israel’s upper classes. Completed amid the violence and economic stagnation of the second intifada, the Towers – while costly for urban Israel – were priced well below comparable developments worldwide.
“The first apartments sold for about $6,000 per sq metre,” says Alfred Akirov, Alrov Group chairman. “During the height of the intifada, sales almost stopped but there was a real thirst for these kinds of apartments.”
Demand has yet to decrease. “Some apartments are reselling at more than $15,000 per sq metre,” says Shemer, whose company is listing Alrov Tower apartments ranging from a 450 sq metre unit at $8m to a 200 sq metre residence for $2.8m. This spring, former Israeli prime minister Ehud Barak sold his 350 sq metre home for roughly $7m, nearly triple its original $2.3m price in 2003.
These enviable returns reflect the buoyancy of the nation’s overall economy, which grew at nearly 5 per cent in 2010 and 2011 thanks in part to a strong technology sector. But Israel’s economy is decelerating and expected to grow by just 2.5 per cent in 2012. Still, with foreign direct investment nearing record highs and Israel’s 5.5 per cent unemployment rate a record low, its fiscal outlook remains positive.
Apartment prices rose by an average of 39 per cent between 2008 and 2010, according to Israel’s Central Bureau of Statistics, prompting protests last summer by middle-class home-seekers unable to buy in Tel Aviv. Like Israel’s economy, however, Tel Aviv’s housing prices have begun to contract – down 13 per cent last year, while the number of total sales halved in the last quarter of 2011.
Nonetheless, real estate remains relatively secure, even amid the ongoing tensions between Israel and Iran. “Israel had none of the sub-prime nonsense that so crippled America in recent years,” says Tomer Fridman, chief executive and co-chairman of Israel Sotheby’s International Real Estate. “All new developments here must be fully backed by bonds to ensure their completion,” he adds.
While early buyers in projects such as Yoo and Akirov were predominantly Israeli, today’s tower-seekers are increasingly international. Most are Jewish, mainly from France, England and South Africa, and they use the homes during vacation periods or as retirement properties. Russian buyers are also common: “Many aren’t Jewish,” Fridman says, “they simply see Israel as a desirable location like London or Monte Carlo.”
Unlike wealthy Israelis, who prefer city-centre buildings close to cultural amenities, Shemer says foreigners tend to demand beach access and Mediterranean views. With most of Tel Aviv’s shoreline dominated by hotels, beach front land is scarce – though new towers such as the 28-floor Sea One and 21-floor Herbert Samuel will open along the Mediterranean within two years. And while both Meier on Rothschild, and the nearby 37-storey 1 Rothschild Boulevard, are not directly on the sea, “you can see the sea from three sides of the building,” says Meier, whose development will be completed next year.
These towers are now among Tel Aviv’s most expensive new properties. Sotheby’s is listing a 2,110 sq ft, 22nd-floor Meier Tower apartment for $3.626m; Shemer is offering a 177 sq metre Sea One unit for $3.5m and a 520 sq metre at Herbert Samuel for $6.5m. “Seafront towers can command up to $20,000 a sq metre,” she says.
For buyers such as Miami-based Sybil Benazera, who bought a two-bedroom, 110 sq metre Meier on Rothschild apartment, the towers’ mix of service and sea views justify their prices. “We plan on living in Tel Aviv four months per year,” says Benazera, president of Corporate Realty Solutions. “We like the smart technologies available for security.”
Within the city itself, tower prices can exceed these heights. Sotheby’s is listing a $25m 10,000 sq ft penthouse at the Manhattan Tower, along with the nearby triplex W penthouse for $12.5m. Both are in the newly developed Park Tzameret neighbourhood.
Nonetheless, with many apartments bought years before completion, buyers can realise sizeable returns even before they move in. “My apartment is in the heart of Tel Aviv and has already increased in value by 15 to 20 per cent,” says David Saranga, an Israeli diplomat who bought a 110 sq metre home in the 12-floor Gindi Tel Aviv project, which opens in 2015. But is Tel Aviv promoting cash and commerce over culture and creativity?
“I worry that the city’s character will change because most young people cannot afford to live in expensive towers,” Saranga says. “But Tel Aviv is a small city with a high demand; the only way to build is up!”
● Hotel-like amenities and security
● Most towers are in prime residential locations
● Apartments remain scarce and prices continue to rise
● Nascent slowdown in Tel Aviv’s real estate market could result in a price deceleration
● Some projects may be over aggressively priced
● Impact of regional instability, from Gaza to Iran, cannot be ignored
What you can buy for …
$1m A ninth-floor 80 sq metre Alrov Towers apartment with a 12 sq metre terrace ($1.125m)