Urban Renewal Pitfalls: When Organizers Serve Developers Instead of Residents

For apartment owners in buildings designated for urban renewal, the Evacuation-Construction (Pinui-Binui) process is supposed to be life-changing. However, the path there can take years, requiring residents to make one of the most critical decisions in the project: choosing the developer. At this stage, organizers and other figures often enter the picture, tasked with helping residents advance the project and connecting them with developers. Yet, where big money is involved, a fundamental question arises: to whom is that organizer truly loyal—the residents or the developer?

Not everyone who presents themselves as an "organizer" necessarily acts on behalf of the residents. The story of a resident in an older building in central Israel clearly illustrates the problem. The building where R. lives in central Kfar Saba was built in the 1970s and comprises seven stories without reinforced security rooms (mamad). According to her, for years the prospect of advancing an urban renewal project there was not economically viable. The change came following planning developments surrounding the Metro lines, which she says increased the potential for building rights in the area and enabled a significant teardown-and-rebuild project scaling about 15 to 20 stories.

She began examining how the project could be promoted, and at a certain point, through recommendations from acquaintances, she reached out to an individual who allegedly helps advance urban renewal projects. According to her, he is not a lawyer, appraiser, or professionally licensed in any field. "He locates buildings, helps residents with general guidelines on what needs to be done, and when he takes them to developers, he acts as a liaison between them and helps secure better returns," she describes. Then came the personal proposal: "If we do this, we will split it fifty-fifty."

According to her, that individual proposed that if she acts to promote the selection of his preferred developer in the building without conducting a competitive developer tender, they would split the compensation he receives—a three-room apartment in the project. "This is for taking me and telling the developer, 'R. will now do everything so that her building closes with you.' This means we do not meet with other developers, I am essentially cutting corners for them, and in return, he gets an apartment. He told me: 'Listen, if we do this, we will split it fifty-fifty.'"

"It simply snowballed from a few tips on how to successfully get a larger apartment, to the realization that I could get an extra 50% in a three-room apartment," she adds. According to her, the arrangement was supposed to be executed through two separate contracts: a contract between the organizer and the development company, and another contract between him and her. He even told her that the contract with her would be signed at a lawyer of her choosing. Initially, she did not fully grasp the implications of the proposal. "I was truly naive and said, 'Let's do it, cool,'" she recounts, but later she began to feel uncomfortable with how the arrangement was presented. "It seemed terribly strange to me that everything was so secretive; it felt too fishy."

Legal Pitfalls and Conflicts of Interest

At that stage, she began looking into the potential legal ramifications of the arrangement and decided not to proceed with him. "I decided there is no such thing as a single developer, that I am bringing in other developers so they can compete in a tender," she says, noting she is already in contact with other developers.

Adv. and Land Appraiser Naor Gelberg, owner of a law firm specializing in real estate and urban renewal, states that when an entity involved in decision-making receives a benefit tied to the selection of a developer, a series of legal issues can arise. "Here we have a conflict of interest, deception, and bad faith," he says, noting this is a common phenomenon in the field that can lead to significant consequences down the road.

"This is a legal breach," he emphasizes. "Suppose the residents discover this later, and it reaches the Inspector of Condominiums; she can invalidate the project, nullify the developer's selection, and this could reach the courts and delay the project for years."

According to Gelberg, the central issue is transparency. "If she discloses the offer to the residents and the residents approve, that is acceptable." Conversely, when the benefit is concealed from the residents, the situation becomes far more complex. "The residents ultimately discover everything," he adds, noting he has received dozens of inquiries on this matter over the past year.

He adds that the mere fact that a person receives compensation for organizing a project is not a problem in itself. The problem begins when an individual is presented to the residents as someone helping them, while actually harboring a clear financial interest. In such a situation, residents may make a decision without knowing the full scope of interests operating behind the scenes.

Understanding the Types of Organizers

Gelberg points out that in a document published by the Government Authority for Urban Renewal in August 2024, the authority distinguishes between several types of organizers: signature organizers, developer tender organizers, accompaniment organizers, and individuals operating "on behalf of a developer." The authority clarifies that an individual operating on behalf of a specific developer, without a binding agreement with the apartment owners, does not owe them a fiduciary duty, and the Organizers Law does not apply to them. In contrast, an organizer acting on behalf of property owners owes them a fiduciary duty, and the provisions of the Organizers Law apply.

For residents, this is one of the core lessons from the story: before discussing who the developer will be, it is wise to first understand whose side everyone is on. Does the organizer act on behalf of the apartment owners or a specific company? Who pays them? What exactly do they receive? And do all the residents know about it?

"There are quite a few projects where attempts are made to reach one of the leading residents or committee members to push a particular developer into selection. There is a vast amount of manipulation in this field," he says. "To some extent, the market turns a blind eye, but this is the practice. The organizer approaches a few residents, even causes them to waive a developer tender to lock down the project, and the moment they reach the required majority, it becomes impossible to remove them from the project."

No License Required

One of the questions raised by the case is who is actually permitted to serve as an organizer in an urban renewal project. "You don't need a license, you don't need a brokerage license, and you don't need any training in this field." According to him, this means residents must thoroughly understand the capacity in which the person before them is operating: Are they acting on their behalf? Are they receiving payment from the developer? And are they involved in selecting the developer? "Anyone can be an organizer. The question is in what capacity you are operating," he adds.

At the same time, he emphasizes that there are organizers who operate transparently for the benefit of the apartment owners. "I know several very, very good companies in the market that organize urban renewal complexes exclusively, operating solely for the residents. They ensure there is a developer tender, a lawyer tender, supervisor tenders—everything."

The Commission: Up to 3% of Developer Inventory Value

Behind this role lies significant financial weight. According to Gelberg, an organizer's standard fee can reach 1% to 3% of the value of the developer's inventory, though other models exist. For instance, if 25 apartments are demolished in a project and 100 are built, with the developer expected to sell 75 apartments, the organizer's fee can be derived from the value of those apartments sold by the developer.

Thus, for illustration, in a project where inventory value stands at ₪300 million, a 2% fee reflects ₪6 million, and a 3% fee reflects ₪9 million. In the case recounted by R., the compensation offered to the organizer was an apartment. Gelberg estimates that in an expensive area like Kfar Saba, the value of such an apartment can reach millions of shekels.

"There is a tremendous amount of money in urban renewal," he says. "That is why organizers, and sometimes residents once they meddle in it, are seemingly willing to sell out the interests of other residents for their personal gain. This happens a lot. In recent years, this has intensified. They grab a resident and tell them: 'Listen, we are the organizers, we will bring the developer, and you will make sure this developer is chosen, convince the rest of the residents, convince the committee, convince everyone to choose this developer, and we will take care of you.'"

Red Flags for Residents

So what should residents check before letting a particular individual lead the process? According to Gelberg, one of the warning signs that should raise questions is a scenario where a specific resident is the one bringing the developer, consistently pushing for their selection, and trying to prevent other residents from examining alternative offers.

"These are red flags that should light up right at the beginning," he explains. "One must understand that behind the scenes there might be some incentive they are receiving, some benefit that is currently hidden and opaque to the other residents."

"My sweeping recommendation is never to choose a developer without a developer tender," he says. "Furthermore, once there is a developer tender, they can improve their returns."

From his perspective, the correct way to start the process is the reverse: first, residents must choose a committee, then select a lawyer representing them, and only then launch an orderly developer tender process. "From there, the procedure is supposed to be conducted more moderately, transparently, with fewer interests and fewer fixers involved."