What Does This Mean for Apartment Owners? When an Urban Renewal Project "Changes Hands"
Recently, there has been a growing wave of urban renewal projects "changing hands." Large, financially resilient companies are replacing smaller developers who have struggled to advance their projects. What does this mean for residents, and how can they protect their rights?
Recently, a wave of projects that are "changing hands" in the urban renewal sector has been expanding. As part of this trend, large companies with financial resilience are stepping into the shoes of smaller developers who have chosen to sell the project or bring in a partner after struggling to continue promoting it.
However, behind these transactions lie significant implications for apartment owners, whose project's future may change as a result of the move. What makes these projects an opportunity for large companies? How is the developer replacement actually carried out, does it require the consent of the apartment owners, and are the benefits promised to the residents preserved?
The Purchasing Developer: "When You Enter a Project, the Path to Execution Is Shorter"
"In the last three years, we have seen a significant increase in the number of inquiries from developers looking to sell or bring in a partner who will take part in an urban renewal project and provide it with financial and operational backing," says Tomer Reifman, CEO and owner of Yaaz Initiatives. "There are companies that realized the project was too big for them, but they still believe in its potential. In such cases, we can enter as partners, strengthen the project's financial and managerial capabilities, and allow it to move forward."
Itamar Ben Shalom, co-CEO of Ben Shalom Initiatives and Construction, adds: "We are definitely seeing more and more inquiries from developers who want to bring in a partner or transfer a project. A large part of these projects were formulated a few years ago under completely different economic assumptions, which included lower interest rates, different execution costs, and a stronger sales market. When reality changed, not every developer managed to continue carrying the project to the finish line. From our perspective, this is not a negative phenomenon but a natural process of the market maturing. Ultimately, projects reach the hands of companies that have both execution capability, financial resilience, and experience in managing complex projects."
Reifman explains that many small developers have several alternatives: they can continue to inject money, but this is not always the right choice. "Sometimes they took on a project that became too big for them, and at a certain stage, the bank no longer allows continued financing. In other cases, the challenge is not only financial but also operational; you need to know how to manage marketing, execution, contractors, and personnel. At this stage, they realize they need a stronger body that can take the project forward."
Ben Shalom notes that when they examine entering such a project, they look not only at the Excel sheet but also at the planning, the execution method, the marketing, and the ability to manage a complex site in the heart of the city, while maintaining the daily routine of the residents.
The Selling Developer: "Not Every Replacement Is Done Willingly"
Advocate Efraim Levi, managing partner and head of the real estate department at the Koresh & Co. office, explains that not all transactions of changing hands stem from the project falling into difficulties, but sometimes from a convergence of interests between the seller and the buyer. According to him, there are developers who managed to promote a project on a large scale, but when they reach the realization stage, they understand that the continued management of the project and the risks involved are too much for them. In such cases, they choose to add a partner or perform an exit by selling all rights in the project.
Advocate Shai Partosh notes that recently they have been dealing with dozens of projects that have changed hands. He identifies two main scenarios: voluntary replacement, where the existing developer transfers his rights and obligations to the new developer (often requiring resident consent), or replacing a developer against his will due to a project being stuck. In the latter case, the replacement is done by a judge's decision or by activating an arbitration mechanism. Implementation can occur via the sale of shares in the company promoting the project (keeping existing agreements in place) or by canceling the engagement with the old developer and signing a new agreement with the residents.
Residents: Are the Promised Benefits Preserved?
The question arises whether apartment owners are harmed or actually benefit when a project changes hands. Advocate Shai Partosh explains that according to the law, any change that harms the rights of the apartment owners requires an addition to the agreement and a signature from both sides. If the new developer asks to reduce the benefits promised to the residents, it is a change of the agreement that cannot be carried out without the consent of the apartment owners.
In most evacuation-construction agreements, it is customary to include a clause limiting the developer from selling more than 49% of the shares or rights in the project without the consent of the apartment owners. However, if such a clause is missing, it is possible for the project to pass to another developer without requiring resident consent. In cases where the developer is replaced against his will, Advocate Partosh notes that it is necessary to demand that the old developer sign an indemnity letter to protect the apartment owners from possible lawsuits.
Ben Shalom summarizes: "In most cases, replacing a developer does not start the project anew. Usually, the new developer enters the shoes of the previous developer, takes upon himself all the obligations signed with the apartment owners, and continues to promote the project from the place where it stopped. Ultimately, for the apartment owners, replacing a developer is usually not a negative event, but on the contrary, in many cases, it is what allows a project that has been stuck for years to return to the track and finally reach execution."
