Urban Renewal for Overseas Owners: Maximizing Value with Peace of Mind
Independent Appraisal for Israeli Urban Renewal Projects
In an urban renewal project, the developer has a professional team working to assess the project's feasibility and structure the proposed transaction.
Apartment owners should have an independent professional who examines the value of their existing properties and the economic terms being offered to them.
We provide independent appraisal services for apartment owners in Pinui-Binui, demolition and reconstruction, and other urban renewal projects in Israel.
Our role is to provide the owners and their legal representatives with an independent professional assessment of the real estate and the economic aspects relevant to the proposed transaction.
The Right Time to Appoint an Appraiser Is Before the Agreement Is Signed
An owners' appraiser can be valuable before a developer is selected, not only when the final agreement is already on the table.
When several developers are competing for a project, the owners may receive different proposals, with differences in:
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Apartment size
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Additional area
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Floor
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Orientation
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Balcony
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Parking
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Storage
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Rent during the construction period
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Other benefits and conditions
These differences should be examined before the owners commit to a particular proposal.
The Government Authority for Urban Renewal recommends that owners consider proposals from different developers and examine the economic viability of the proposed transaction. It also specifically addresses the role of an urban-renewal appraiser during negotiations and before signing the agreement.
The earlier the appraiser is involved, the more useful the valuation can be in the negotiation process.
Why Appoint an Owners' Appraiser During the Developer Selection Process?
Choosing a developer is not simply a question of who offers the largest new apartment.
The owners are negotiating an entire economic package.
An independent appraiser can help the owners and their representatives compare proposals on a consistent basis and identify differences that may not be obvious from the headline offer.
Comparing Competing Developer Proposals
When several developers submit proposals, the appraiser can examine the economic characteristics of the different offers and help establish a professional basis for comparison.
Negotiating the Owners' Consideration
An independent valuation can provide the owners' representatives with professional information when negotiating the proposed consideration with the developer.
Understanding the Existing Apartments
Existing apartments may differ substantially in size, floor, orientation, views, parking, storage and other characteristics.
These differences can be relevant when determining the appropriate consideration for individual owners.
Identifying Economic Issues Before Signing
If important economic assumptions are unclear, they can be examined while negotiations are still taking place.
Once an agreement has been signed, the owners' ability to negotiate its economic terms may be significantly more limited.
What Does the Owners' Appraiser Examine?
Depending on the project and stage of the assignment, the appraisal may examine:
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Existing apartment characteristics
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Existing market value
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Apartment size and layout
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Renovation level
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Floor and orientation
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Views and exposure
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Parking and storage
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Existing and proposed planning rights
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Proposed replacement apartment
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Additional floor area
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Balcony
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Parking and storage in the new project
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Market rental value
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Relevant comparable transactions
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Current market conditions
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The proposed economic consideration
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Relevant project and planning information
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The applicable valuation date
The exact scope is determined according to the project and the questions that need to be answered.
Evaluating the Proposed Consideration
An urban renewal agreement may offer each owner a combination of property and financial benefits.
For example:
Replacement Apartment
The proposed new apartment may differ from the existing apartment in size, floor, orientation, view and other characteristics.
Additional Rights
Additional floor area, balcony, parking, storage or other rights may form part of the proposed consideration.
Temporary Housing
Owners may be entitled to rental accommodation while their existing building is demolished and the new building is constructed.
Other Benefits
The agreement may include additional benefits or arrangements that have economic significance.
The owners' appraiser can analyse the relevant components from a real-estate valuation perspective and provide information for the owners and their legal representatives during negotiations.
Market Rent During the Construction Period
When owners are required to vacate their apartments, the developer generally undertakes to finance alternative accommodation during the relevant construction period, subject to the terms of the agreement.
An important part of the economic analysis is establishing the appropriate market rental value of the existing apartments at the relevant stage of the project.
The Government Authority for Urban Renewal recommends that rent during the interim period be based on the market rent for comparable apartments in the area around the time of evacuation, and that the agreement establish the payment mechanism and appropriate provisions for changes in rent during the relevant period.
As part of the appraisal assignment, we can assess the relevant market rental value and provide the professional basis needed for the owners and their lawyers to address the rental component of the transaction.
Making Sure the Rental Payments Are Secured
Determining the appropriate rent is only one part of the issue.
The agreement should also address how the rental payments will be secured throughout the period in which the owners are out of their homes.
Government guidance identifies a bank guarantee for rental payments as one of the protections that should be addressed in an urban renewal transaction.
The appraiser's role is to establish the relevant property and rental values and identify valuation-related issues.
The owners' lawyer should ensure that the agreement contains the appropriate contractual protections and guarantees and that they are provided at the required stage.
What If the Developer Does Not Agree to Pay for the Owners' Appraiser?
In an urban renewal transaction, the owners should understand who is paying the professional costs associated with protecting their interests.
The common structure is for the developer to bear agreed transaction-related professional costs on behalf of the apartment owners, rather than the owners paying those costs directly.
If a developer refuses to include the owners' appraiser's fee in the project costs, this should not automatically be interpreted as proof that the project is economically unviable.
However, it can be an important warning sign that deserves professional examination.
If the developer is unwilling to fund a relatively limited professional cost that is normally associated with representing the owners' interests, the owners may reasonably want to understand the project's economic structure more carefully.
In such circumstances, an independent appraisal or economic feasibility review can help determine whether the project has sufficient economic capacity to support the proposed consideration and the other project costs.
A project that is economically sensitive deserves careful examination before the owners commit to the transaction.
Economic Feasibility and the Risk of a Financially Sensitive Project
Urban renewal projects depend on the relationship between development rights, expected revenues and the many costs required to deliver the project.
The Government Authority for Urban Renewal recommends examining both the developer's financial strength and the economic feasibility of the proposed consideration.
Under the principles reflected in Standard 21, an economic feasibility appraisal examines the expected project revenues against the costs required to develop and realise the project and considers whether sufficient profit remains to support economic feasibility.
This is particularly important when the project involves unusually high costs, limited development rights, significant financing requirements or other factors that may make the economics sensitive to changes in assumptions.
An independent professional review can help the owners understand whether the proposed transaction appears to have sufficient economic basis before they commit to it.
The Owners Do Not Pay the Appraiser Directly
The owners' appraisal is intended to be part of the professional representation of the apartment owners.
Where the developer agrees to cover the appraiser's fee as part of the transaction costs, the owners do not pay the appraiser directly.
The exact payment arrangement and scope of services should be established in writing before the assignment begins.
Our proposal can be submitted to the owners' representatives and, where appropriate, to the developer as part of the project's professional costs.
Our Role During the Project
Our involvement can begin at the developer selection and tender stage and continue as the project develops.
Depending on the assignment, our work may include:
Developer Selection
Reviewing and comparing the valuation-related aspects of competing proposals.
Negotiation
Providing professional valuation information to assist the owners' representatives during negotiations.
Agreement Review
Examining the economic components of the proposed transaction from a valuation perspective.
Existing Property Valuation
Establishing the relevant market values of the existing apartments.
Replacement Apartment Analysis
Assessing the proposed replacement apartments and their relevant characteristics.
Rental Valuation
Assessing the market rental value relevant to the temporary housing period.
Ongoing Professional Support
Providing valuation input when material changes to the project or proposed consideration occur.
For Owners' Representatives & Lawyers
We work directly with the owners' representatives and the lawyers representing the apartment owners.
Our role is independent from the developer.
We can provide a proposal for the appraisal assignment at the early stage of the project, including when several developers are being considered.
This allows the appraiser to participate while the owners still have meaningful negotiating leverage.
For Developers
Developers may also contact us when they are looking for an independent appraiser to act on behalf of the apartment owners as part of the transaction.
The owners' appraiser remains independent and represents the valuation interests of the owners.
We can provide a project-specific fee proposal based on:
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Number of existing apartments
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Project location
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Project stage
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Number of developer proposals
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Required scope of appraisal
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Required rental analysis
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Expected level of negotiation and ongoing support
Already Have an Appraisal?
If an appraisal, economic feasibility report, or Standard 21 appraisal has already been prepared for the project, it can provide valuable background information for our work.
We can review existing professional material and, where appropriate, provide an independent assessment from the apartment owners’ perspective.
Reviewing Existing Rent Assessments
If a rent estimate was prepared in the past, we can review whether the rental value remains appropriate based on current market conditions.
This may be relevant when the original estimate was prepared some time ago or when the project has progressed and the expected evacuation date has changed.
A Project Appraisal Is Not the Same as an Owners’ Appraisal
A project appraisal or economic feasibility report may address the overall financial viability of the project. An owners’ appraisal focuses on the value and terms offered to the apartment owners.
Where appropriate, we can review the existing professional material and identify what additional valuation analysis may be required to properly assess the owners’ position.
What We Need to Prepare a Proposal
To prepare a project-specific proposal, we generally need:
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Project address
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Number of existing apartments
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Current project stage
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Planning status, if known
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Existing appraisal or feasibility report, if available
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Developer proposals, if already received
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Proposed agreement or term sheet, if available
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Expected scope of the owners' representation
We can then provide a proposal for the appropriate appraisal services.
Frequently Asked Questions
When should the owners appoint an appraiser?
Ideally, the appraiser should be involved while developer proposals are still being considered and negotiated, rather than waiting until the final agreement is ready for signature.
Why is it important to involve the appraiser during the tender stage?
Because this is when the owners can compare different developer proposals and negotiate the economic terms before committing to one transaction.
Who pays the owners' appraiser?
Where agreed as part of the transaction costs, the developer pays the appraiser's fee on behalf of the apartment owners. The owners do not pay the appraiser directly.
The exact arrangement should be documented in writing.
Does the appraiser determine whether the owners should sign?
No. The appraiser provides professional valuation and economic analysis. The decision whether to sign an agreement belongs to the owners, based on the advice of their legal and other professional advisers.
Does the appraiser determine the legal rights of the owners?
No. Legal rights and contractual protections should be addressed by the lawyer representing the owners.
Can you assess the rent that should be paid during construction?
Yes. We can assess the market rental value of the relevant existing apartments for the applicable period and purpose.
Does the appraiser provide the rental guarantee?
No. The appraiser assesses the relevant rental value. The contractual mechanism and guarantees securing the rental payments should be addressed in the agreement by the owners' legal representatives.
What if the developer says there is no budget for an owners' appraiser?
This should be treated as a point requiring further examination rather than as proof by itself that the project is unprofitable.
An independent professional review can help determine whether the project's economics are sufficiently robust and whether the proposed transaction should be examined more closely before the owners commit.
Can you submit a proposal for the entire project?
Yes. We can prepare a project-specific proposal based on the number of apartments, project stage, required scope and expected level of professional involvement.
Request a Proposal for Your Urban Renewal Project
If you are an owners' representative, lawyer, organiser or developer working on an urban renewal project, we can prepare a proposal for an independent owners' appraisal.
The earlier the appraiser becomes involved, the more useful the professional analysis can be during developer selection and negotiations.