ACQUISITION GROUPS & PROJECT FUNDING

WITH YOU THROUGHOUT THE PROCESS

The financing given by the banks to acquisition groups is provided in the form of individual loans (mortgages) to each of the group members, where the instructions to the bank to release funds for various payments necessary for the project are issued jointly by the group’s representatives, based on the construction progress.

The funds released from all the individual mortgages of the group’s members are then deposited into a bank account whose signature rights are vested only to the group’s representatives. The account, defined as “the project account,” is put on a lien, and money is transferred from this account to cover various project-related expenses with the bank’s consent.

Clients who choose not to open a mortgage loan file, or clients who were not approved for a mortgage loan, will need to make an advance payment of the full sum necessary for their units into the project account.

Our work with acquisition group managers includes a number of areas:

Assistance in receiving the bank’s financing;

Counseling regarding financing offers or other financing solutions;

Preparing the group members for the financing stage;

Pre-filtering buyers who may not be suitable for the financing structure of the acquisition group;

Continuous customer service for group members on financing topics, including a designated service representative specializing in acquisition groups as well as periodic explanatory circulars;

Collection of the various documents from all group members;

Filing documents and handling correspondences with the bank;

Coordination of meetings for signature purposes;

Assistance in reducing costs of life insurance policies for group members;

Individual advising for group members on supplementing private capital and avoiding penalties upon conclusion of the construction;

Mortgage advising upon conclusion of the construction process to all group members at a reduced cost.

Following are the most common questions we receive from our clients. Some relate to mortgages, while others request clarification as to the services we provide. In addition to the responses below, you can find important information in the “Articles” page, as well as throughout the site. Potential clients or people interested in our services are welcome to send in additional questions through the contact form , and we will respond and perhaps publish them for the benefit of our other viewers.

Why should I take a mortgage through the group if I can take one independently through the bank, with terms and interest rates that are better for me?

In order to ensure that every member of the group will succeed in meeting the financial undertaking of his relative part in the project, the group needs the bank’s financing. This financing will be provided by one bank alone, and cannot be divided among different banks. This is because the financing bank records a full mortgage on the entire plot of land, to ensure that all members meet their liabilities.

How is the bank selected?

Determining which bank will finance the project is a choice made by the acquisition group, taking into consideration a variety of parameters. Of course, the bank’s agreement to finance the group must be obtained as well.

What advantage does a counseling agency have with regard to acquisition groups? Why shouldn’t the group manager approach the bank directly to arrange the mortgage for all group members?

An experienced counseling agency has extensive knowledge and is familiar with the many procedures that the acquisition groups must undergo. In addition, a counseling agency will have many connections with various banks, and in many instances this can save tremendous headache and unnecessary aggravation. The acquisition group handles the construction, the plots, the apartment numbers, and more. In order to ensure that the mortgage aspect does not get lost among the myriad other responsibilities of the group managers, it is highly recommended to hand over the handling of the mortgages to the experts who have extensive experience in the field.

What payment options do I have when purchasing an apartment that is part of a group project?

Due to the characteristics of an acquisition group agreement and the mutual dependence among the group members, it is important to make sure that each member of the group has adequate financial resources for the completion of the construction. Therefore, every member is obligated to open a mortgage loan file, or alternatively, make an advance deposit of the full amount of all future costs into the project’s account – to ensure his payment of his part of the project costs.

I currently have the full necessary amount for the construction of the apartment, but as long as the construction had not been completed, I prefer not to risk all the money. Can’t I pay in installments according to the pace of construction? 

As previously explained, one option is to pay the full amount to the group in advance, while the other option is to take out a mortgage. However, a buyer can sign a mortgage plan even if he will not actually effectuate the mortgage transaction, but instead pay the necessary amounts along with the rate of construction. This is performed in the following manner:

You approach the bank to sign on a mortgage plan, and the mortgage is approved. In reality, however, you do not actually pay back the mortgage itself – only the interest – until the completion of the construction. Only once the construction has been concluded can you actually effectuate your mortgage. As the construction progresses, you will gradually be charged varying sums for the construction. However, all buyers will receive a quarterly message, with a two weeks’ notice, offering two options: a) to pay the sum currently necessary for the construction immediately and in cash, or b) to effectuate the mortgage. If you choose to pay the required sum for this quarter in advance, the effectuation of the mortgage will be pushed off for the next quarter, at which point you will once again be asked for an additional sum and given both options, and so on.

How does the actual mortgage payment take place? When does it begin?

During the construction period, the mortgage is not yet effectuated. First, only the mortgage’s interest rates – approximately 4.5% – are charged, while the actual mortgage is implemented only upon completion of the construction. This is performed in the following manner:

At the beginning of the construction process, a low interest rate is charged, in accordance with the amount of money that the group then demands to cover the costs of beginning the construction (building materials, workers’ wages, etc.). For every 100,000 ILS demanded for construction purposes, members will be charged 450 ILS each. However, as the construction progresses, the amount of money necessary for the construction costs increases, and with it – the interest rate charged. Only once the construction has concluded, the entire interest will have been repaid. Thus, a mortgage costing approximately 1,000,000 ILS will, during the initial phases of construction, involve a low charge of 400 ILS, for example, while in the last stages of construction the charge will be 4,500 ILS. Of course, these numbers are not accurate; they may be far lower, and change based on the rate of construction as well as other parameters.

If a group member was not approved for a mortgage due to his low income, can he add a guarantor to his mortgage application?

In acquisition groups, only an “arev tomech” (a co-signer who also pays a percentage of the mortgage himself) may be added. An arev tomech is a close relative (parent, sibling, child) who has sufficient income according to the bank’s stipulations. The arev tomech co-signs the loan and pays a certain percentage of it, as determined by the bank, every month via a standing order. For example, a client may ask for a mortgage plan with a monthly repayment of 3,500 ILS. If the client does not have sufficient income for this plan, the bank may decide that he must add an arev tomech, who will then pay approximately 25% – i.e. 875 ILS – via a monthly standing order.

Can any close relative serve as an arev tomech? And if the borrower’s income increases over time, is the arev tomech obliged to continue paying his percentage of the mortgage loan until its conclusion?

When approving an arev tomech for mortgage purposes, several factors are taken into consideration, including the income of both the borrower and the guarantor, the mortgage amount, and more. The bank’s terms of approving an arev tomech are very clear, but at the same time, there is no obligation for the bank to approve an arev tomech, since this is an exceedingly sensitive and delicate issue, in which many parameters are taken into account.

Since the mortgage is effectuated only upon conclusion of the construction, in a case in which the borrower’s income had significantly increased during this period of time, it is possible to refinance the mortgage previously approved by the bank, this time attempting to get it approved without the arev tomech. However, this cannot be done during the construction period; only upon its completion, and only in accordance with and in consideration of the borrower’s current financial and personal status.

Releasing the mortgage loan funds must be done concurrently with all members of the acquisition group.

Why is the price lower for an acquisition group?

The financing rate is determined based on the cost of the property for construction, not its value as a completed apartment.

Why must I pay handling fees on the mortgage if the interest rates are uniform for everyone and the terms arbitrarily set by the bank?

With regard to the fees paid to the bank providing the credit to the acquisition group, group members are charged handling fees for the bank’s approving and extending the credit, opening the loan files, preparing the legal documents (these documents are different and far more complex in comparison to a standard mortgage plan) and regular handling of the group.

Why is the interest rate in an acquisition group higher than the interest rate in a standard housing loan?

The difference is due both to a consideration of the bank’s risks as well as to guidelines set by the Bank of Israel. Let us not forget that the bank has profitability goals, and an acquisition group is certainly a reason to profit.

Who is responsible for the money in an acquisition group – the group, or the lending bank?

The group is responsible for managing the funds, opening a trust account into which all funds are deposited and then transferred to the relevant parties as necessary.

Our office specializes in financing urban renewal projects – Pinuy-Binuy and Tama-38 projects of all kinds.

Recent years have seen a tremendous rise in private entrepreneurship in Tama-38 projects, and over the last two years, also in Pinuy-Binuy projects, especially in a number of cities in which the mayors encourage such initiatives.

There are over 900(!) private entrepreneurs in this field, all of them hard-working and capable, and yet many initiatives stall as a result of cash flow and financing problems, whether due to a mutual lack of familiarity between the banking system and the entrepreneur, lack of private capital, or other reasons. We guide the entrepreneur from the initial stages of raising capital, to the urban building plan change and application for a building permit for the project, to the arrangement of full financing by the various institutional and banking entities, along with all sales law guarantees for both the purchasers and the residents.

All projects reaching our office undergo an extensive analysis. Often, we may encourage a change in the transaction structure, the marketing mix or even the plan itself in order to create a deal that is financeable.

Queries about this topic, along with preliminary material, can be emailed directly to: info@tobolsky.co.il

Many of our clients are interested about the financing options available to them as business owners. There are many organizations in Israel that provide credit to businesses – in all types of fundings, guarantees and credit facilities.
We will be happy to assist you in raising capital for your business needs.

For assistance please contact us in the box on the side of the screen.