Discount Investments and 10 Bryant: Better leasing, value still leans on the future
The Baker & McKenzie lease extension improves 10 Bryant's contract quality and signed rent base, but the valuation still depends on future NOI, 1W39 leasing and a supportive sale market.
The new step at 10 Bryant improves the story for Discount Investments, but it does not yet change the type of asset the holdco owns through the chain: this is still real-estate value waiting to become cash. The Baker & McKenzie lease update is a real improvement because it adds space, extends the tenancy to 2044 and lifts rent levels well above the existing lease. Still, the same agreement includes $17.8 million of tenant improvements, roughly 14.5 months of free rent, a full early termination right after 12 years of rent payments and a right to return part of the space by July 2029. It reduces leasing risk, but it does not remove the economic friction. The $735 million valuation is based on year-13 NOI of $70.4 million, a 7.0% discount rate, a 5.5% terminal cap rate, and especially on terminal value representing 73% of the appraisal. That means the value still rests more on a stabilized future asset than on cash available today. The next proof points are the leasing of 1W39, Amazon exercising its option or a replacement tenant, and evidence that future sale terms will not simply reprice the same layer of concessions and investment needs.
The New Lease Lowers Risk, But Not For Free
Property and Building signed an update in May 2026 to its existing lease with Baker & McKenzie, which currently leases about 106 thousand square feet on floors 14 to 20 under a lease that was due to expire at the end of January 2028. The new agreement adds floor 30 from December 1, 2026 and extends the existing space, so Baker will lease about 122 thousand square feet through April 15, 2044. Annual rent starts at about $17.4 million, rises to about $18.6 million after five years and to about $19.9 million after ten years.
The strong part of the deal is the tenant quality and price per square foot. Rent on the existing areas rises from effective rent of about $95 per square foot to initial rent of $140 per square foot, while the added floor starts at $165 per square foot. Those are good numbers for a tower that needs to prove that the 2025 and 2026 leases are not just filling space, but improving price and contract quality.
The economic cost is visible as well. The property company committed to $17.8 million of tenant improvements, and Baker is entitled to roughly 14.5 months of free rent. As a rough analytical translation, the free-rent period is worth a little more than $21 million based on initial annual rent of $17.4 million. Together with the tenant improvements, this is almost $39 million of concessions before considering the full termination right after 12 years from the start of rent payments and the right to return floor 14, about 8.5 thousand square feet, by the end of July 2029. The lease is good news, but it also shows who funds the move from partial occupancy toward a more stabilized asset: the property company.
The $735 Million Value Still Requires A Stabilized Tower
The Q1 appraisal values 10 Bryant at $735 million, versus $728 million in the books before the appraisal. On the surface, that is a small positive update. In practice, the valuation details matter more than the increase itself: the model is DCF-based, year-13 NOI is $70.4 million, the discount rate is 7.0%, and the terminal cap rate is 5.5%. Terminal value represents 73% of the appraised value.
That figure clarifies the gap between a good lease and accessible value. If roughly three quarters of the valuation comes from terminal value, most of the value does not come from the 2026 cash profile but from the assumption that the tower reaches a much stronger NOI layer and is then sold or priced as a stabilized asset. That is not unusual for an income property still moving through stabilization. But for a holdco whose cash test sits much closer in time, it is a pressure point. Until the tower shows higher occupancy, contracts that replace concessions with ongoing rent, or a tangible sale process, the valuation will remain more accounting value dependent on the future than cash value available to the parent.
| Layer | What Already Supports The Value | What Still Keeps It Future-Weighted |
|---|---|---|
| Baker & McKenzie | About 122 thousand square feet through April 2044, annual rent of about $17.4 million rising to $18.6 million and then $19.9 million | $17.8 million of tenant improvements, roughly 14.5 months of free rent, a termination right after 12 years of rent payments and a right to return about 8.5 thousand square feet |
| Tower occupancy | About 82% occupancy near publication based on signed contracts, reflecting about 88% of projected rents | Roughly 17% of office space in 1W39 and 1% of retail remain to be leased, alongside additional expected vacancies |
| Valuation model | $735 million value, $70.4 million year-13 NOI, 7.0% discount rate | 73% of value comes from terminal value, and the model assumes 1W39 is leased from October 1, 2027 |
1W39 Separates Visibility From Proof
The 82% occupancy figure looks better after the 2024 to 2026 leasing activity, but it still includes a meaningful open step: the 1W39 building. Amazon has an option to lease an additional roughly 145 thousand square feet in that building, valid through October 2026. The valuation appendix assumes 1W39 is leased from October 1, 2027. The next real test for 10 Bryant sits between those two points.
If Amazon exercises the option, or if a replacement lease is signed at similar quality and pricing, the valuation gets a stronger base. If the option is not exercised and leasing is delayed, the weakness will not be just a few occupancy points. It will hit the exact layer on which much of the future valuation rests: higher NOI and the ability to present a stabilized tower for sale. The near-term question is not whether Baker is a good lease. It is. The question is whether it is the beginning of closing the valuation gap or only an important improvement inside an asset that still needs another large lease before the value becomes less assumption-sensitive.
The Next Proof Is A Lease Or A Sale, Not Another Revaluation
In Q1, 10 Bryant was still classified as a discontinued operation and a disposal group held for sale. The discontinued operation posted a NIS 45 million loss for the period, including a NIS 36 million fair-value decrease and NIS 35 million of finance expenses. That does not contradict the contractual progress made in May, but it reminds investors that the tower is still in a transition year: the valuation is updated, contracts are improving, and the cash has not yet reached a place where it can change the picture at the parent-shareholder level.
The current read is positive but bounded. Baker & McKenzie improves the leasing quality of 10 Bryant and reduces vacancy risk in the tower, but the valuation remains highly sensitive to the next stabilization step and to the sale market. For Discount Investments, the implication is not that the lease has solved 10 Bryant. It has bought credibility for the next stage. That next stage needs to be the leasing of 1W39, lower reliance on tenant concessions, or a sale process that confirms market willingness to pay for the tower on assumptions close to the model. Without one of those proofs, 10 Bryant will remain a better asset on paper than a clear cash source for the holdco.
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