Israeli bondholders file class-action suit against Starwood

The struggles stem from a mall portfolio it refinanced on the Israeli bond market

April 30, 2019 05:50PM
Starwood Capital Group's Barry Sternlicht and Israeli Bond Market (Credit: iStock)

Starwood Capital Group’s Barry Sternlicht and Israeli Bond Market (Credit: iStock)

Starwood Capital Group is facing allegations that it misled investors about the risks of its Israeli bonds that backed struggling shopping centers in the U.S.

The lawsuit stems from the struggles facing Starwood’s mall portfolio, where vacancy rates have increased and net operating income dipped, according to Wall Street Journal. It also adds to the challenges facing investors who bought debt in the once booming Israeli-bond market as the market has now soured.

Two groups of bond investors, known as Oporto Securities Distribution, filed the class-action lawsuit on March 24, alleging Starwood failed to properly disclose risks involved in the debt, according to the Journal. The lawsuit claims the damages total 74 million shekels or $21 million.

The bonds, which are backed by seven malls and trade in Tel Aviv, have fallen almost 50 percent in price since they were first offered in March 2018.

The investors are also suing S&P Global Ratings’ Israeli subsidiary, where it alleges that a ratings report failed to state that Starwood might not be able to repay certain debtors, according to the Journal.

Miami Beach-based Starwood bought a portfolio of malls in California, Indiana, Ohio and Washington state from Westfield Group in 2013. It then refinanced the portfolio by raising 910 million shekels (about $250 million) on the Israeli bond market.

Starwood said in a statement that the allegations are without merit, according to the Journal.

A number of real estate firms such as Extell Development, Delshah Capital and GFI Real Estate Limited turned to the Israeli bond market, where financing was cheaper than in the U.S. In recent months, that market has taken a turn, and bonds issued by American companies in Israeli have seen values fall at unprecedented rates. [WSJ] — Keith Larsen

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Starwood buys more Palm Beach County apartments: $22M

The Waverly apartment complex in Palm Beach County and Starwood CEO Barry Sternlicht
In its third recent deal with Tampa’s Wilson Company, Starwood Capital Group just paid $22.15 million for an apartment complex in Palm Beach County.
The deal covers a 260-unit community called the Waverly at 1386 Summit Pines Boulevard in West Palm Beach. It’s an 11-acre complex made up of mid-rise buildings that were constructed in 2001 by the Wilson Company, according to Palm Beach County records.
Starwood paid about $85,192 per unit for the Waverly — a similar price to the two other communities it’s traded with the Wilson Company.
The investment giant is based in Greenwich, a wealthy enclave in Connecticut. Starwood recently closed a massive $5.4 billion multifamily deal for a major chunk of Equity Residential’s apartment portfolio — much of which was located in Florida.
Within the last three months, Starwood has purchased three apartment communities from the Wilson Company for upwards of $20 million a piece. One of those deals was for a senior housing complex right next to the Waverly.
The Wilson Company is a real estate firm that specializes in building affordable housing in its home market of Florida. Now that this most recent deal has closed, the company’s portfolio in South Florida has been completely emptied by Starwood.

Source: The Real Deal Miami