Julia Ohayon , calcalist.co.il

The field of financial accompaniment and financing of construction projects is changing its shape, after years of being completely controlled by the banks. Over the past decade, insurance companies and non-bank finance agencies have begun to gnaw at this market share, becoming a preferred option for many entrepreneurial companies.

This situation is not self-evident, certainly when one examines the reality in the middle of the last decade, then the Israeli debt market is completely controlled by the banking system. In August 2005, Bachar reform was approved, aimed at reducing the concentration of banks and increasing competition in the areas of investment and credit. This reform has had a major impact on the financing of many sectors of the economy, but the field of construction financing has been "forgotten behind" under the hegemony of the banks.

The reason for the delay in changing the face of the industry is that, according to the law, residential construction assistance in Israel requires the guarantor to provide guarantees under the law of the real estate, which may only be done by institutional bodies, i.e. banks and insurance companies.

A landmark that contributed to the change in the industry was the late 1990s, when the banks began to cooperate with insurance companies in construction projects. According to the model that was then formulated, the banks were the ones who provided the escort services and provided the credit for the project from their sources, while the guarantees for the home buyers provided the insurance companies. Over the years and following Bachar's reform, the major insurance companies began to borrow construction projects on their own and without bank involvement, in a process that gradually reduced the monopoly of banks in the field.

Another significant "jump" in the level of competition in the financing services for the sector occurred upon the entry of the Fundamental Fund, which although it only started in 2015 but has already become an active and significant factor in the industry, and is accompanied by over 200 construction projects.

The fund works through collaborations with the insurance companies that provide the guarantees of the Sales Law to purchasers and its financial sources, it mainly recruits from the leading institutional bodies in the economy. In this way, Fundamentals Fund overcame the guarantee barrier and paved the way for non-bank financing bodies. Last September, the fund raised approximately NIS 2 billion, proving the market's confidence in the non-bank finance industry and the need for foundations of this kind.

Rodent monopoly                               

Fundamentals Fund established by three; David Baruch, Chairman and Partner, who served as CEO of the Bank of Jerusalem and the Excellence Investment House, where he established banking credit systems and specialized in bank financing for the construction industry; Jacob Siso, a managing partner with 16 years of experience in residential construction in the banking system, formerly Deputy CEO of the Bank of Jerusalem, Area Manager and Regional Elad Israel Residence. He was also the first to establish cooperation between banks and insurance companies; The third side is Esty Friedman, a managing partner who established the first non-bank credit system in Israel, at Clal Insurance, and previously served in management positions at City Bank and the International Bank.

"Until 2014, before we entered the market, the main consumer credit in the residential real estate sector was not accessible to the funds of the institutional bodies in Israel, i.e. the provident funds, the pension funds, the insurance companies, with the big money actually being in these entities," says Siso. , Which only banks and insurance companies can issue, has essentially left the large provident and pension bodies out of the funding circle. We realized then that real estate is being disadvantaged vis-à-vis the other industries in the economy, and that the capital of the institutional bodies must also be made accessible to the actors operating in it. "

"In 2016, banks reached a capital limit and could not increase activity to finance the residential construction industry," Friedman adds. "On the other hand, households have deposited billions into provident funds and pension funds - amounts that have not reached the industry. We realized that if we cooperate with the insurance companies, in order to provide both credit and guarantees, we will make access to all non-banking entities. Thanks to our activities and those who came Following us, big money started to be poured into the construction industry. "

"This puts us in a position where we theoretically do not have a source limit, as institutions can inject unlimited capital in terms of the industry. We should be aware that the total long-term savings assets exceed the size of the bank credit portfolio for the business sector and are expected to continue growing rapidly in the future. "The Bank, on the other hand, is subject to restrictions, such as the prohibition on being exposed to a single branch in more than 20% of its risk assets, so that in situations of significant expansion in the financing needs of the industry, the bank may reach the industry limit. Create financing difficulties for activists in the industry. As noted, the sources from the institutional bodies are exempt from this limitation. "

Like the bank, only more

The construction projects that the Foundations Fund lends are located mainly in the center of the country. They are undertaken by small entrepreneurs as large in a variety of types of deals, including urban renewal, combination deals, initiation deals and cost per housing. In fact, it is the first, and only today, fund that can provide the entrepreneur with everything he receives from the banking system, including credit, guarantees, and financial assistance, plus the completion of up to 75% of the required equity.

"The innovation that we brought to the market is that at that level, loans can be obtained and equity repayments, at a higher rate than the bank gives," explains Friedman. "We also fund equity extraction for entrepreneurs who are imprisoned in projects that are accompanied by the banking system."

"We have introduced new standards of response speed," Siso adds. "Because unlike banks, we only specialize in financing construction projects. Within 48 hours, the developer receives a detailed proposal with the main conditions for the transaction. We provide a basic answer based on the representations and are examined as part of due diligence (Ink Diligence - YA). There is a high level of transparency across all stages of the process, including schedules. "Founders of the Foundations Fund: Jacob Siso (right), Esty Friedman and David Baruch. Immediate and continuous access to the pyramid's heads

In the right position

Another unique feature of Fundamentals Fund is the reduction of bureaucracy and process shortening. The Credit Committee, headed by Sovereign fund managers, makes decisions that do not go beyond what the prospectus has agreed with investors. According to Baruch, the fund succeeds where banks find it difficult to manage high professional standards and rigorous risk management, while shortening bureaucracy and increasing access and transparency for entrepreneurs.

This means immediate and continuous access to the leaders of the pyramid: "An entrepreneur who comes to the bank will never be able to contact the bank's management and credit committee members directly, thus often finding fog and lack of clarity about the bank's answers to changing needs throughout the life of the project. , Have over 30 years of experience with full authority to make decisions and always work to find a solution that serves both parties. "

In the coming years, foundations will be devoted to directing most of its resources to finance construction projects as part of urban renewal, in light of the government planning strategy that seeks to meet the housing goals set by the housing cabinet - the addition of 1.5 million new housing units by 2040.

"Fundamental Fund is gearing up for a change that is about to take place in the market, which includes increasing the share of urban renewal, especially in the evacuation-construction model," Baruch declares. "Urban renewal is a language that requires specialization, quite different from traditional building on vacant land. These are complex transactions, and only financial institutions with economic strength and experience can integrate and contribute to it, while at the same time enjoying its flourishing."