600 million shekels for Ashkelon: how urban renewal is being promoted

Tenants in an old building in Ashkelon are interested in a 'pinui-binui' project. There are no protected spaces (MAMAD) in the apartments, building maintenance is burdensome, and there is a planning possibility to build a completely new complex in its place. A developer who showed interest has already been found, but after checking the data, he concluded that the project is not profitable.

A 'pinui-binui' project is financed mainly from the sale of the additional apartments that the developer is allowed to build. Through the proceeds from their sale, he must cover, among other things, the demolition of existing buildings, the construction of new apartments, the payment of rent to tenants during the construction period, planning and development costs, and financing expenses until the project is completed. When the value of the new apartments is not high enough, or when it is not possible to add enough housing units, the expected income does not cover the costs and the required developer profit. The low value of building rights is among the main reasons why many complexes do not reach economic viability. In such a situation, the project may remain on paper even if there is a clear need to renew the buildings.

To deal with this difficulty, the government approved in July 2023 a budget of 600 million shekels to subsidize 'pinui-binui' projects in Ashkelon that are not profitable under market conditions. The budget is also intended to assist in the renewal of old neighborhoods and to provide a response to the shortage of protected spaces in buildings in the city, which is exposed to rocket fire. The grants are allocated through tenders of the Government Authority for Urban Renewal, which are planned to be published until 2031.

Bridging the economic gap

In practice, the state does not finance the entire project, but completes the amount missing to create economic viability. A developer promoting a suitable complex submits a proposal within the framework of a tender. First, his experience, financial robustness, the rate of apartment owners who have contracted with him, and the planning status of the complex are checked. Then, the Authority examines the project's economics based on the proposed planning and determines the amount of financing required for its realization. If the project costs are higher than the expected income from it, a gap is created that does not allow the developer to promote it under market conditions alone. The grant is intended to cover the gap found in the Authority's examination, and thus create economic viability for the project's realization.

The financing agreement documents explicitly state that the assistance is provided for the purpose of creating economic viability, and that it can be used only for the renewal of residential buildings in the winning complex. Not every developer operating in Ashkelon is eligible to receive a grant. The budget is distributed through tenders, and each project is checked separately. Assistance is provided only to complexes that meet the tender conditions and that are found to have no economic viability without the grant.

The track has already led to the actual allocation of funds. In 2024, two companies won a grant of about 80 million shekels for the promotion of 'pinui-binui' in the 'Olei HaGardom' complex in Ashkelon. The win was granted after an examination of the complex within the framework of a government tender, and it illustrates how the budget is translated into actual assistance. However, the grant does not guarantee that the bulldozers will immediately hit the ground. The developer is still responsible for completing the engagements with the apartment owners, promoting planning and licensing, obtaining a building permit, and carrying out the work. He is also required to arrange financial accompaniment and provide the apartment owners with the required guarantees.

From the perspective of the apartment owners, the budget creates a real opportunity for renewal where market forces alone are not enough. But even when a project is expected to receive a grant, one must examine the 'pinui-binui' agreement, the considerations, the securities, the schedules, and the conditions under which it will be possible to cancel the transaction if the project does not progress. The government budget can enable the execution of projects that would not have been profitable for the developer without assistance. When the grant bridges the gap between the project costs and the expected income from it, it is possible to turn a plan that would not have been implemented into a feasible project.

Article in cooperation with the Israeli legal site 'PsakDin'. Adv. Ori Alul deals with TAMA 38 and 'pinui-binui', Chairman of the Urban Renewal Committee at the Bar Association - Southern District. The editorial team of the 'PsakDin' site took part in the preparation of the article. Ynet is a partner of the 'PsakDin' site.