Direct Finance Acquires Sigma City: How Mezzanine Expansion Opens Developer Credit for Mid-Market Builders

The Deal That Changed Developer Access: Direct Finance's NIS 63 Million Sigma City Acquisition

Direct Finance Real Estate and Mortgages has signed an agreement to acquire 85% of Sigma City Real Estate Finance for NIS 34 million, with a total commitment of NIS 63 million including an owner's loan of NIS 29 million. The transaction, announced in September 2026, marks a pivotal consolidation in Israel's non-bank residential real estate financing market. For the first time, a publicly traded non-bank platform is absorbing Israel's most focused mezzanine lender for residential construction.

This acquisition does not simply expand Direct Finance's portfolio. It signals a structural shift: small-to-mid developers now have a direct line to capital that was previously gated behind equity dilution or prohibitively expensive bank credit lines.

What Sigma City Does: Mezzanine Finance for Residential Projects

Sigma City specializes in mezzanine finance for residential real estate projects. The company provides credit for residential real estate projects in Israel, including mezzanine finance for urban renewal projects and finance for projects after the receipt of a building permit, mainly to small and mid-size developers.

Sigma City is a privately-held company that was founded in 2015. At the moment of acquisition, its loan portfolio, including accumulated interest, amounted to NIS 153 million at the end of June 2026. While this portfolio size is modest compared to the largest Israeli banks, Sigma City's focus on underserved developers gives it strategic value far beyond the raw capital base.

The Equity Problem That Mezzanine Solves: Why This Timing Matters

To understand why this acquisition reshapes developer financing, you need to understand the bind small builders face. Credit to residential construction developers jumped 40% in 2025 to 69 billion shekels, up from 49 billion shekels in 2024, while bank financing for land purchases rose just 6%.

That 40% surge in developer credit looks like support—until you read the fine print. The increase reflects a market in which developers are struggling to sell apartments at the pace they expected, and the added credit has helped builders absorb rising construction costs and continue offering financing deals to buyers, including deferred payment plans. Banks are throwing credit at developers not out of confidence, but to keep them afloat long enough to move inventory.

For small developers, the cost of this bank credit is brutal. A NIS 30 million construction line at 7.5% interest costs NIS 2.25 million annually. But mezzanine financing enters the capital stack at a different position, with different mathematics.

How Mezzanine Financing Reshapes the Capital Stack

Mezzanine debt sits between senior bank debt and the developer's equity. Mezzanine financing is subordinated capital that fills the gap between senior debt and the owner's equity, adding leverage without giving up ownership. In 2026 it prices at roughly 11 to 15% current pay plus 1 to 3% PIK (paid-in-kind interest, which accrues rather than pays in cash), totaling 13 to 18% all-in, sizing the capital stack from roughly 65% senior debt to 80 to 85% combined loan-to-cost.

To a developer, this is a game-changer. On a NIS 100 million project with 65% senior bank debt (NIS 65 million at 7.5%), a traditional developer had two choices: (1) raise NIS 35 million equity, which means giving away 25-40% ownership to investors; or (2) skip the project entirely. Mezzanine changes this equation. With 10-15% mezzanine debt (NIS 10-15 million), the developer only needs NIS 20-25 million equity—a 40-50% ownership stake instead of a 35-40% surrender.

The comparison table below shows the capital stack before and after mezzanine access:

Why Direct Finance Acquiring Sigma City Is Not Just a Funding Story

Direct Finance, headed by Eran Golan, is expanding its non-bank credit business into real estate project finance. Direct Finance's share price has risen by 30% in the past six months, giving the company a market cap of NIS 2 billion. The company is not a fragile startup looking for a turnaround. It is a public company with scale.

This matters because mezzanine lending requires patient capital and institutional discipline. A fund that closes in five years cannot service a project that takes seven years to stabilize. Public equity backing gives Sigma City (now Direct Finance's residential subsidiary) the capacity to hold mezzanine positions through market cycles—exactly what Israeli mid-market developers need.

As covered in our analysis of developer credit surge at 40%, banks have already extended risky capital to builders; what developers now need is *subordinated* capital that doesn't compete with senior debt and doesn't demand founder equity handovers.

How This Reshapes Credit Access for Small and Mid-Size Developers

The balance of the shares, 15%, will remain in the hands of Sigma City's managers Ori Dayan and Nathan Tubiana, who will continue in their roles after the completion of the deal. This operational continuity signals that Direct Finance is not gutting Sigma City but scaling its platform. The acquisition preserves the team that built the relationships with small developers.

For a developer with NIS 40 million in project equity and NIS 60 million in senior bank debt, access to NIS 20 million mezzanine financing suddenly becomes possible. The cost is 13-18% annually, but the payoff is decisive: the developer keeps 72-75% ownership instead of surrendering 35-40% to a new equity partner.

Many readers ask whether this makes mezzanine debt appealing when interest rates are elevated. The answer is yes—but only if the project's unlevered return (profit before any financing cost) exceeds 10-12%. For well-located urban renewal projects or prime-location residential developments, that hurdle is achievable.

The Market Context: Rising Bank Credit Costs Force a Reckoning

Rising bank credit costs drove a significant shift toward capital raising on the Tel Aviv Stock Exchange, with extensive debt and equity issuances by real estate companies, while regulatory tightening limited developer financing campaigns. More than 23 real estate companies issued debt or capital at an inclusive volume exceeding ILS 4 billion in 2025.

The Direct Finance acquisition complements this trend without competing with it. Large developers can tap the capital markets. Small developers now have direct mezzanine access through Sigma City. Mid-market developers—the ones most squeezed by the 40% credit surge to construction firms—are the strategic beneficiaries.

Timeline for Access: How Long Does It Take to Close a Mezzanine Deal?

Completion is subject to conditions, among them receipt of a revised control permit from the Capital Markets Insurance and Savings Authority and approval by Sigma City's financing banks. The acquisition itself required regulatory approval—a sign that institutional oversight of non-bank residential lending is now material.

For developers seeking mezzanine capital, this regulatory layer slows deployment but validates the market. A mezzanine facility typically requires 6-12 weeks to structure and close—faster than equity fundraising (4-6 months) but slower than a bank construction line (2-3 weeks).

Frequently Asked Questions

1. Does mezzanine financing cost more than bank debt? Yes, but the comparison is misleading. Mezzanine prices at 13 to 18% all-in, and it wins when the deal's unlevered return beats the mezzanine cost. A developer who borrows 13% mezzanine on a project earning 12% unlevered return loses money. But a project earning 15% unlevered return generates 2% incremental developer IRR just from the mezzanine layer—exactly what equity partners demand, without the ownership dilution.

2. Will Direct Finance's acquisition increase prices for small developers? Consolidation typically reduces costs by allowing the platform to distribute fixed overhead across a larger asset base. Sigma City's NIS 153 million portfolio grows, economies of scale improve, and pricing pressure on smaller developers likely decreases—not increases—over 18-24 months.

3. How does mezzanine financing interact with bank construction lines? They sit in strict subordination. Senior banks lend first and have first claim on cash flow and collateral. Mezzanine lenders have second position but often can cure senior loan defaults before the bank forecloses. This is formalized in intercreditor agreements that confirm subordination, give mezzanine lenders cure rights, and establish standstill provisions.

4. Is this deal relevant if I'm buying an apartment off-plan as a buyer, not a developer? Yes, indirectly. Broader mezzanine access to developers reduces their dependence on deferred-payment 20/80 financing deals. Credit conditions are easing—the Bank of Israel cut its benchmark rate to 3.5% in July 2026. As developers have alternative financing, fewer will push aggressive buyer financing schemes, and apartment prices may stabilize.

What Happens Next: Consolidation and Scale

The Direct Finance acquisition of Sigma City represents a threshold moment for Israeli residential real estate financing. The market is transitioning from bank-dominated capital structures to layered, non-bank sources—mezzanine, bonds, and equity in sequence. Sigma City, now backed by a public company, can scale its platform and compete for deals that were previously out of reach.

For readers tracking real estate credit conditions, this deal signals that institutional capital is not retreating from Israeli residential construction—it is restructuring. The 40% surge in developer bank credit was a warning. Mezzanine expansion is the answer. As covered in related reporting on bank rate cuts and olim investment timing, lower interest rates and alternative credit sources are reshaping who wins and who waits in this cycle.

Small developers with solid projects now have viable mezzanine options they did not have six months ago. That is the real story of the Direct Finance–Sigma City deal.