Property Sellout in the Capital

The five-star Palace Hotel and Residences, now rising behind a preserved ornate arabesque facade close to the Old City of Jerusalem, is set to be the last word in luxury - but also to meet the most demanding religious requirements of ultra-Orthodox Jews. So, for example, there will be no mixed swimming there and instead it will boast two pools - one for men and one for women. And apart from meticulous observance of kashrut and the Sabbath, the Palace's main attraction for its target clientele will be its proximity to Judaism's most holy site, the Western Wall of the Temple Mount.

When the Palace was first built, in the 1930s, the entrepreneur had a completely different crowd in mind, and a different part of the Temple Mount. He was none other than the grand mufti of Jerusalem, Haj Amin al Husseini, whose goal was to draw rich Arabs from all over the Middle East, and whose other plans for enhancing the status of Jerusalem included the restoration of the Islamic shrines on the Haram al-Sharif - as the Muslims call the Temple Mount.

The builder of the new Palace may well be called the grand mufti of developers: none other than Paul Reichmann, the daring 76-year-old ultra-Orthodox Jewish Canadian international real estate mogul, who made a spectacular recovery from the $25 billion bankruptcy of the family-owned Olympia & York Developments Ltd. in 1992. After building up another vast fortune within a decade he announced his retirement in 2005, but soon grew bored and launched a new $4 billion venture last year.

Reichmann and his family, who are reported to be investing $170 million in the Palace project, are hardly alone in sensing the interlocking interests of overseas money and religion fueling Jerusalem's luxury real estate market. Though it has been fashionable for years among well-heeled Diaspora modern and ultra-Orthodox Jews to buy or build expensive residences in select Jerusalem neighborhoods, the market for luxury holiday homes in walking distance of the Old City is still booming, and a slew of new buildings for this purpose are being constructed close to the commercial center of Jerusalem, many of them on and around King David Street.

"What used to be a luxury home here and there has mushroomed into whole buildings exclusively just for holiday homes. David's Village times ten," says Hebrew University geography Prof. Shlomo Hasson, referring to the pioneering luxury project of the 1990s, designed by Israeli-Canadian architect Moshe Safdie, close to Jaffa Gate and the Old City wall, whose units often stand empty most of the year.

This friendly part-time invasion is injecting money and confidence into Jerusalem's poor economy, weighed down by the large local ultra-Orthodox and Arab populations, many of whom sustain their large families on government welfare. But critics say it is also creating havoc by heating up the local real estate market and making Jerusalem unaffordable for most Israelis. What's more, choice parts of the city are becoming gilded ghost ghettos, populated only for a few weeks at a time during Jewish holiday seasons.

Moreover, the overwhelmingly Orthodox and ultra-Orthodox profile of the buyers is problematic in a city with no shortage of social, political and ethnic tensions, says Hasson. Downtown Jerusalem has become a lively Friday night bar and restaurant venue, and he fears that that the new development may clash with this trend.

Emblematic of the clash in interests between the new market forces and the locals is a dispute between the Reichmanns and Pini Elharar, proprietor of Marrakesh, a kosher Moroccan restaurant. It is located in a small building on King David Street purchased by the developers, in addition to the old hotel, which in recent years served as a government ministry, as well as an adjacent plot, and another office building which has already been demolished. The entire interior of the Palace Hotel building has also been gutted, and the facade is being held up by heavy iron scaffolding. But though work is continuing on the other parts of the building, Elharar is refusing to vacate his protected ground-floor premises, which has housed his restaurant for 26 years and has recently ordered a new sign reflecting his determination to stay put.

Elharar claims the Reichmanns are not offering enough compensation. By law he does not have to move even though the building has been sold, and he isn't. "The whole Jewish world suddenly decided that King David Street is the place to be. I welcome them. But I have to be compensated. I spent a quarter of a century building up my client?le. It will cost me a fortune to relocate and recreate what I have built here," says Elharar.

Not only businessmen are worried about the impact of the part-time invasion. Avner Haramati, a 55-year-old occupational psychologist, who lives in the upscale Talbiye neighborhood with his wife, a daughter of American immigrants, says that 50 percent of homeowners there are foreigners and most of his building is occupied by absentee owners. Haramati, who has been organizing Israeli residents of the capital to fight the new trend, says that locals are in a rage with American Jewish buyers who are ''destroying the neighborhoods by building monstrous towers and aren't even living here! Jerusalem is being destroyed." Significantly, it's not only the principle that concerns him, but the people themselves. "There is a growing animosity against the Americans with their loud voices and manners. Jerusalem is not some bungalow colony in the Catskills.'' Haramati notes that although the value of his own Talbiye apartment has doubled, his grown children cannot afford rentals in the city.

But City Hall and some local merchants say that overall the infusion of cash, brought by the part-time inhabitants, is revitalizing the city and that the sophisticated new arrivals can only enrich the city financially and socially. And the trend has the blessings of David Kroyanker, an eminent Jerusalem architect, urban planner and author of more than a dozen books on the city's buildings and neighborhoods. Involved with plans to turn the Palace into an economically viable hotel for the past 25 years, Kroyanker was hired by the Reichmann team to develop a preservation plan at the site. He says the exclusive buildings for wealthy foreigners, even if empty, are "a lot better than dilapidated buildings," which have dominated prime Jerusalem real estate for years. "I am for anything which eliminates blight. Anyway, there is nothing we can do about it because it's a free market and there are no compulsory residency laws for foreign purchasers of real estate in Israel."

source: reuters.com