Investors in Israel have given up on a turnaround for 15 United States office buildings owned by Hertz Properties Group financed with Israeli bonds.
The bondholders voted almost unanimously to call about $168 million of bonds due for immediate repayment and to pursue legal action against the company, including potential insolvency proceedings in Israel and the United States, according to a filing with the Tel Aviv Stock Exchange.
Hertz Properties Group is an arm of the larger Los Angeles-based Hertz Investment Group, owner of a U.S. office portfolio of 56 buildings totaling about 16.2 million square feet.
The portfolio tied to the Israeli bonds includes 15 buildings totaling about 4.4 million square feet — one-fourth of Hertz Investment’s U.S. office holdings.
Hertz Investment’s other properties are not affected by the Israeli decision, Zev Hertz, chairman, CEO and president of the firm, told CoStar News in an email. He would not elaborate on what happens next for the company's properties.
A year ago, Israeli bondholders voted against calling the bonds due. The reversal of that decision reflects worsening performance in the properties.
Property troubles
Since last summer, Hertz Properties has lost one of its buildings through foreclosure that had also originally been financed with the bonds. The firm also has reported in Israeli filings that at least three of the properties have defaulted on loan payments. Another of its properties is in receivership. Sales contracts have fallen through on three others.
Major tenants at three of the properties have said they will not renew their leases set to expire in the coming 12 months.
In addition to the property troubles, Hertz Properties reported to Israeli bondholders last month that there were “irregularities” in its previous financial filings with the Tel Aviv Stock Exchange and they would have to be restated.
The discovery of the unreported disclosures and the properties' growing financial distress led to Hertz Properties last month hiring a chief restructuring officer, Amir Giryes, founder of Dallas-based Giryes Capital Group.
Giryes declined to comment on the results of the bondholder voting.
Rejected proposal
In calling the bonds immediately due for repayment, the bondholders rejected a debt restructuring agreement previously proposed by Hertz Properties.
That proposal called for bondholders to receive all net proceeds from the sale of the three-building Brookhollow office complex in Houston. Hertz previously reported that a contract that property last summer fell through.
The bondholders were also to receive all of the net proceeds from the monetization of Capital One Tower in Lake Charles, Louisiana, which would result from the demolition and sale of land. A buyer recently backed out of the purchase agreement on that property, too, Hertz reported.
Bondholders were also to receive some the proceeds of two other property sales: First Bank & Trust Tower in New Orleans; and 111 Capital Building in Jackson, Mississippi. Hertz reported that it has a letter of intent on 111 Capital from a buyer looking to convert the property into a data center.
In a letter to bondholders Giryes had argued that the bond debt restructuring made the most sense.
“Without investing most of the company's funds in its assets, there is a substantial fear that the lenders on most of its assets will work to take control of its assets through collection procedures,” Giryes argued in a copy of the letter posted with the Tel Aviv Stock Exchange and translated into English via Google.