TURKEY GRI 2012 - SESSION NOTES

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TURKEY GRI 2012 - SESSION NOTES

  1. 1. REAL ESTATE INVESTORS & DEVELOPERS IN TURKEYTÜRKİYE’DE GAYRİMENKUL GELİŞTİRME VE YATIRIMI Turkey Türkiye GRI 2012İSTANBUL 10-11 OCAK ISTANBUL 10-11 JANUARY SESSION NOTES
  2. 2. Turkey GRI 2012 January 2012Session NotesNotes Prepared by School of Business – The American University in Cairo, IEEISabreya El ShouraMaryclaire AbowdKerem ArslanliMihailo Terzic
  3. 3. January 10, 2012  Talk Show: Investing in Turkey – safe haven in a dangerous world?  Private Equity Real Estate in Turkey – more opportunities, new trends?  Office Developments in New Central Business Districts  Affordable Housing – still emerging or have yields compressed too much already?  Shopping Mall Development – all done or what’s really new?  Healthcare Investment in Turkey – preferred choice of savvy investors?  Residential in Turkey – survive or thrive?  IPO’s in Real Estate – opportunities risks and challenges?  Egyptian Real Estate – have new opportunities arisen after the country’s rebirth?2 Turkey GRI 2012
  4. 4. January 11, 2012  Keynote: Turkey – mapping the future in a new world order  Hotel Development – innovative strategies required?  Turkish Real Estate – opportunities and outlook for 2012  Retail Real Estate Investments and Expansion – the toughest game of all?  Istanbul’s Changing Skyline – more landmark projects in the pipeline?  Logistics Investments and Developments – is the timing right for either?  Sustainability in Real Estate – is it economically viable?  Middle Eastern Investors – is Turkey becoming a new magnet?  Financing – bleak future or new opportunities?  Mixed-use Real Estate – how to make it successful?  Shopping Mall Management – can we still do it on an Excel sheet?  Foreign Investment – where to put your money and will you get it back?3 Turkey GRI 2012
  5. 5. Day one Turkey GRI 2012 January 10, 20124
  6. 6. Talk Show: Investing in Turkey – safe haven in a dangerous world?  Turkey is among the most promising markets, but it has challenges investors should be aware of before entering  Politically, Turkey has been stable and will likely stay stable amidst regional political strife  At the macro level, political bodies have made consistent efforts to improve and update regulation.  At the micro level, efforts for local regulations that promote transparency and clarify building regulations are in progress.  A strong Turkish Lira (TRY) is important for local brands, while international brands are still financed with USD or Euros  Predictability is a key concern for any investor in Turkey because regulations and laws often change with little or no advanced notice5 Turkey GRI 2012
  7. 7. Talk Show: Investing in Turkey – safe haven in a dangerous world? (con’t)  Regulatory changes are uncomfortable for investors, but anxiety can be eased through better communication.  Real estate market needs to support real estate lobbies and associations in order to improve communication with local municipalities and government.  Turkey’s demographics – young, educated, and mobile – are good for residential and retail development, because they are coupled with favorable consumer spending habits.  Liquidity is important for a safe haven, but always depends on the asset.  On average, there is a lack of liquidity in Turkey – even in the retail sector.  More assets must be developed in order to create a liquid market in Turkey.6 Turkey GRI 2012
  8. 8. Private Equity Real Estate in Turkey – more opportunities, new trends?  Private equity in Turkey began in 2000, but did not start to gain momentum until the second half of the decade.  The recent private equity boom has bred a new generation of private equity specialists in Turkey.  The clients and tickets are getting bigger each year and more opportunities are coming in despite fierce competition.  2012 is predicted to be the beginning of the private equity boom in Turkey.7 Turkey GRI 2012
  9. 9. Private Equity Real Estate in Turkey – more opportunities, new trends? (con’t)  There is timidity to enter Turkey as a global investor for several reasons:  Real estate language barriers with local banks and only one foreign bank  Feeling at a disadvantage due to limited land available; zoning and ownership problems; and a real lack of transparency  Pricing is expensive and the financing is not there  Difficulty competing with less-conservative, nimble local investors  Desiring more than the typically low amount of leverage in a deal, especially compared with Europe  Preference among European investors for a short-term payout, whereas in Turkey they must count on asset appreciation over the long term8 Turkey GRI 2012
  10. 10. Office Developments in New Central Business Districts  Development of CBD in Istanbul highly correlated with developments in transportation facilities and new road systems. The first and second bridges pull the location of CBD to the northern parts of city.  Maslak-Levent Districts now Kağıthane and Kartal is emerging as new CBDs of Istanbul.  Sub centers must be encouraged and planned to develop where Levent should stay as prime office CBD.  By definition CBD should be unique for each city.  Stable cash flow on 5 to 10 years of term with 5% vacancy rates must be guaranteed in that market. The supply of 750K to 800K square meters of space soon be realized and next 3 years of rental vacancy rates and demand curves is problematic to forecast.9 Turkey GRI 2012
  11. 11. Office Developments in New Central Business Districts (con’t)  There is not enough supply of A+ Office space in Istanbul compared to even medium sized European cities  Most important issue for Istanbul is quality of office space rather than ratio of CBDs to population.  As soon as 2014-2015, a new supply of office space will be in the market and the 15-20 year-old office spaces will not be able to compete with them .  Refurbishment will become a must and lower the yields significantly.  New businesses that are expected to fill these supply most likely international clients may not be in that big space demand.  This will bring the issue of quality of product rather than location.10 Turkey GRI 2012
  12. 12. Office Developments in New Central Business Districts (con’t)  Congestion problem of Levent and Maslak is rising.  Maslak should transform its old residential units into new office developments.  Industrial areas in Kağıthane , military-owned lands, and university owned parcels could be developed as new office spaces.  Levent Maslak CBD future? What should be done improve current conditions?  Levent is the classical prime location within 3 to 4 years 250k to 300k square meters of supply introduced to the market.  Yearly 100k is normal absorption rate for Levent and there will be no problems with supply side or demand side.  Office market in Levent highly correlated with macro economic conditions of country.11 Turkey GRI 2012
  13. 13. Office Developments in New Central Business Districts (con’t)  If the municipal and central government expecting to accommodate for 25 million inhabitants, these figures cannot be compiled in one single CBD district.  With new infrastructure from scratch made it easy for development and better suited for Istanbul needs. New sub centers should be encouraged.  In the future, Anatolian side will develop business sub-centers, through:  Development of subway system  Upgraded airport and marina facilities  E-5 and TEM connection road infrastructure.  Direction of historical development from Han to apartments and apartments to B B+ type office spaces will continue.12 Turkey GRI 2012
  14. 14. Affordable Housing – still emerging or have yields compressed too much already?  Brazil and Singapore have the best models in affordable housing.  TOKI built 500,000 units over 6 years, a great accomplishment taking into consideration the mass and the duration.  However, the main drawbacks were the inconvenience of the location and the basic design.  The example of TOKI is repeated in many other countries when development and construction are happening under pressure.  Government should set regulations and allow the private sector take the leadership position in developing affordable housing projects  There must be a distinction between the role of the developer and the contractor.13 Turkey GRI 2012
  15. 15. Affordable Housing – still emerging or have yields compressed too much already? (con’t)  Most of developers in the private sector do not see that the affordable housing projects are profitable.  Governments should work closely with the private sector in order to achieve successful model of private-public-partnership.  Maintaining a sustainable fund is difficult in affordable housing. Therefore, funding mechanisms must be explored.  Income bracket and family size must be considered in affordable housing models.  Mortgage is sometimes a burden for low income families that are at risk for default or do not have stable income. In some cases, rent could be a solution.14 Turkey GRI 2012
  16. 16. Affordable Housing – still emerging or have yields compressed too much already? (con’t)  There is no specific model to follow in urban upgrade.  Private sector alone cannot go for urban upgrade as it is neither profitable nor affordable.  Taking communities away of cities as a solution for urban upgrade is not successful.  The human factor is the most important in urban upgrade. Urban planning is not about land use, it is a wider approach involving infrastructure and human factor to build sustainable communities.  Transportation and infrastructure play a significant role in the success of affordable housing and urban upgrade.15 Turkey GRI 2012
  17. 17. Shopping Mall Development – all done or what’s really new?  Turkey is running out of opportunities to build new shopping centers. The solution is small projects  In the next five to ten years we will see extending existing shopping centers.  The first generation shopping centers need renovation and adoption to the market (in size and quality), also due to the fact that the incomes of the population have increased.  The opportunity is in secondary markets. But we have to be careful with respect to that: five projects in the same town are doomed to fail, regardless of the GDP (an example of it is Izmir).  The biggest threat is overdevelopment, opening too soon one shopping center after another16 Turkey GRI 2012
  18. 18. Shopping Mall Development – all done or what’s really new?  Turkey is still a young market and it is in the early stage of shopping center life. But as more shopping centers come to Turkey, we will soon see more specialization.  Level of differentiation is still one generation away because the product demand is not so high yet (Turks are modest consumers).  Culturally, the mall is a meeting and entertainment place, doing something out of the ordinary daily life. It is not just a place for shopping. Therefore shopping centers need to provide an entertainment place to meet these expectations.  Turkish people spend on average 2-3 hours at the mall, compared to less than 1 hour in Germany.  Internet shopping is booming in Turkey. It reached $12 billion, and 60% of buyers is below 30 years old. Recently, Amazon entered Turkey.17 Turkey GRI 2012
  19. 19. Healthcare Investment in Turkey – preferred choice of savvy investors?  Turkish people believe that healthcare is the job of the government (similar to viewpoints in China).  In Turkey there is a lot of PPPs at the moment. But the problem is that they do not have the records, the demographics.  Government is not very supportive of projects, but in order to succeed need government support.  Healthcare is a very political sector, but is not a settled system. You cannot predict how the government is going to step in, who it will take from and who it will give to.  On the positive side, there is not as much bureaucracy in healthcare as UK.18 Turkey GRI 2012
  20. 20. Healthcare Investment in Turkey – preferred choice of savvy investors? (con’t)  There is debate about what the yield might be (estimate 5-6%)  Investors have to manage it for 30 years, during which they must follow all the regulatory changes; so not many investors would deal with that. However, everybody consistently underestimates investment in this sector.  “Doc in the box” (doctor emergency clinics) concept culturally incompatible with Turkish values. People want to go to a permanent building when going to the hospital.  Investors have to be careful about the culture. The expectation related to the social approach to healthcare is not going to go away for a long time (similar as in Europe). It is highly probable that even if you apply that idea it will still be regulated.19 Turkey GRI 2012
  21. 21. Residential in Turkey – survive or thrive?  Residential market has had significant performance in recent 6-7 years  400,000 units of sales.  Specially-designed premium projects: 850 only in Istanbul and 1000 throughout turkey.  Distribution of these projects are 45/55 percent among European and Asian side of Istanbul.  Residential market is growing, due to urbanization, population growth, and rising wealth  Current housing areas have structural problems.  Branded housing projects are always in demand.  Pre-sale marketing makes the profits even bigger and competitiveness is raised.20 Turkey GRI 2012
  22. 22. Residential in Turkey – survive or thrive? (con’t)  What factors impact demand?  By 2025, population will rise by 17% to 85 million, coupled with a 30% rise in the rate of urbanization. At the same time, household number is decreasing.  Lower interest rates and large room for residential mortgage credits. Total mortgage credits to GDP ratio is less than 10%, around 75 million TRY.  Social status of Turkish households and family life increases demand for 1+1 studio flats.  City center housing supply is deteriorated and also not earthquake-safe. Thus, great potential for urban regeneration projects.  Gated communities are causing problems to the social fabric of the city but market demand is accelerating more on that kind of closed housing projects.  Gap between sale to rent price ratio is widening, and has accelerated in recent months.  Developers have initiated different payment options21 Turkey GRI 2012
  23. 23. IPO’s in Real Estate – opportunities risks and challenges?  In Turkey, general reluctance to go public because of the level of the transparency required and the application of the corporate governance.  Some companies go public to get sorts of tax exemption/ reduction rather than going public to raise capital needed.  Preparation for an IPO in Turkey is not sufficient, it should start at least 18 months prior to target date.  Preparation for an IPO should include: financial reports, no legal restrictions, and no mortgages on the company’s properties.  There is a difference between capital market and real markets. Small investors must get some yields to see a value for IPOs.  SMEs underestimate the process of going public, they just aim at having quick funds.  Title insurance in Turkey is not cost efficient and in most cases is not recoverable.22 Turkey GRI 2012
  24. 24. Egyptian Real Estate – have new opportunities arisen after the country’s rebirth?  Characteristics of Egyptian real estate sector following Arab Spring:  Egypt remains strong on the fundamentals: favorable demographics (80% of the population under the age of 40), high growth  Huge gap between supply and demand for all sectors, particularly residential. Egypt builds 300,000 residential units per year, even though there are approximately 600,000 marriages per year.  Egypt severely lacking office space: 0.04 square meters per person.  What is the near future prognosis for Egyptian real estate?  The first two quarters of 2012 will be a steady, slow growth year, with many projects slowed or stalled  Developers will observe the outcome of presidential elections (scheduled for June 2012). If stability returns in the third quarter, the fourth quarter will be the start of a booming market in 2013.23 Turkey GRI 2012
  25. 25. Egyptian Real Estate – have new opportunities arisen after the country’s rebirth? (con’t)  Impacts of geopolitical and economic uncertainty on the market:  Development has slowed and many projects have been put on hold until the political situation stabilizes.  GDP growth contracted from 5.7% in 2010 to 1.2% in 2011.  The market was heavily fractured prior to the uprising, as the barrier to entry was very low (the largest real estate group only represented 1 percent of the market). It is expected that the market will consolidate over 2012- 2013.  Most negatively impacted sectors: real estate, steel, and construction; tourism slightly less impacted in 2011, but will be worse in 201224 Turkey GRI 2012
  26. 26. Egyptian Real Estate – have new opportunities arisen after the country’s rebirth? (con’t)  Positive expectations for the Egyptian economy and real estate sector post-uprising:  Muslim Brotherhood expected to follow the Turkish model and adopt liberal business policies and practices.  Before, politics and business were intimately intertwined and government had no incentive to pass laws that promoted transparency in land sales. New political actors will bring better transparency, more fair chance, and a more favorable business environment.  A contracted market alongside administrative changes will standardize procedures and level the playing field for foreign investors.  Turkey is a great case study for Egypt, given commonalities in culture, aversion to credit, demographics, and market makeup.  Turkish developers should partner with Egyptian real estate players for projects within Egypt and the MENA region.25 Turkey GRI 2012
  27. 27. Day Two Turkey GRI 2012 January 11, 201226 Turkey GRI 2012
  28. 28. Hotel Development – innovative strategies required?  In Turkey brands are important, people choose according to them. Since 2009 brands are coming to other cities, not only resort cities.  Expansion in the brand fond is delusion of experience. What has been copy-pasted since 1970s does not work anymore.  The supply is not consistent. Investor is the biggest risk: if you want a prestigious hotel in the wrong place, you are not going to succeed.  However, it is a cultural issue in Turkey that people stay at their friends’ place when they are visiting a city, and that is not changing  Occupancy rate in Istanbul is 72% (it was 76% two years ago); for international hotels it is 75% – so Istanbul is trading well.27 Turkey GRI 2012
  29. 29. Keynote: Turkey – mapping the future in a new world order  Globally, since 2000, risk has shifted westward, while growth has shifted eastward.  How has Turkey changed economically over the past 10 years?  Turkey’s GDP growth was 4.3%, on average. Growth was volatile during this period and average growth is quite low compared to other emerging markets.  GDP per capita rose significantly, but at the expense of savings.  Biggest achievement: massive decline in budget deficit  Turkey achieved price stability and single-digit inflation  The cost of doing business decreased, while foreign direct investment increased  Turkey diversified its exports, moving from a food-only exporter to an exporter of machinery and low-to-medium technological goods  Measures were achieved by Turkey borrowing externally and from the private sector.28 Turkey GRI 2012
  30. 30. Keynote: Turkey – mapping the future in a new world order (con’t)  GDP growth requires investment in capital, an increasing labor force, and a rise in productivity.  Over past 10 years, Turkey has only seen consistent growth in its labor force, while investment has not risen significantly and Turkish productivity has been stable. Thus, Turkey has been unable to break the 4.2% average GDP growth rate it has sustained for the past four decades.  For GDP growth to continue, Turkey needs global savings (liquidity) to grow in order to keep borrowing.29 Turkey GRI 2012
  31. 31. Keynote: Turkey – mapping the future in a new world order (con’t)  What are the short-term positive expectations for Turkey’s economy?  Households love consuming and are not very indebted.  Mortgages are very low.  Middle class is emerging and the majority are still renting.  What are some worrying signs for Turkey beyond the next three years?  Turkey’s current account deficits is growing.  Current account deficits occur when imports exceed exports, savings exceed investments, private sector borrowing exceeds public sector borrowing, and consuming exceeds producing.  Countries that maintain constant current account deficits are on average poorer than counties that maintain surpluses  Trends in Turkey indicate that the country’s current account deficit is growing and that the country is thus growing richer at a slower pace30 Turkey GRI 2012
  32. 32. Keynote: Turkey – mapping the future in a new world order (con’t)  How can Turkey become competitive? Is the government taking the right steps to ensure this happens?  Turkey needs education to improve so that it can develop high-cost, high value-added products instead of importing them  Once Turkey is producing the high-cost goods, Turkish people will likely start saving  Government must do more to address massive hard (trains, electricity, roads) and soft (education, healthcare) infrastructure gaps.  Government must also spend more on research and development and let the markets choose where the funding goes to ensure returns on the investments  Turkey also must do more to have transparent, independent institutions to make sure that the government continues to pass important regulatory economic policy31 Turkey GRI 2012
  33. 33. Turkish Real Estate – opportunities and outlook for 2012  Current challenges:  There are currently no deals in the capital market and this leads to problem of finding the real numbers. First deals will benchmark the market for coming deals.  Gap between buyers and sellers triggers the tension and affects market badly. There is no transaction in the market for CAP rate.  International investments are not jumping to the Turkish market.  Most shopping centers take 3-4 years to complete and a good number of them never actually open. Many landlords are losing money from bad management and this give some of them to leave the market  Given current economic crisis, European lenders are leaving the scene. Compared to last year, lending for land financing in 2012 will be very difficult.32 Turkey GRI 2012
  34. 34. Turkish Real Estate – opportunities and outlook for 2012 (con’t)  2012 opportunities:  Renovation and restoration projects in residential and retail sectors are popular for bank financing.  Mismanagement will decrease as bad managers are pushed out of the market.  Retail market has been suffering in Europe recently, while Turkey moves toward a more institutionalized in retail market.  Turkey is a solid market for sales and investments.  No matter how small, cities have room for retail, but are very limited in funding. It will be difficult to get the deals in 6 months, but situation should improve within 2 years.33 Turkey GRI 2012
  35. 35. Retail Real Estate Investments and Expansion – the toughest game of all?  Problems for retail real estate in Turkey:  Finding suitable location in main commercial streets and centers  Turnover rate in shop sales representatives  Choosing between street and shopping mall stores  Istanbul urban planning not conducive for retail  Crowded commercial areas Baghdad Street and Istiklal are more lucrative for real estate owners than for the retailers, themselves  Current retailers face challenges expanding: finding the right space, logistics, occupancy permits, and pricing  Streets designed for residential use and increased urbanization exacerbates smooth allocation for retail areas34 Turkey GRI 2012
  36. 36. Retail Real Estate Investments and Expansion – the toughest game of all? (con’t)  Opportunities for growth:  Opening a larger quantity of retail shops (to defend against aggressive competition, some retailers open several shops in adjacent shopping malls)  Organic growth by executing more sales  Growth by increasing the frequency of repeat customers  Building an online avenue for selling products (online shopping increasingly popular, particularly in food sector)  What is needed for growth:  Mechanisms for establishing reasonable minimum rent percentage from revenues to the owner  Segmentation of shopping centers35 Turkey GRI 2012
  37. 37. Istanbul’s Changing Skyline – more landmark projects in the pipeline?  Main problems with Istanbul’s CBD:  Terrible traffic jams and slow flows between buildings. Little to no focus has been put on integration between buildings and low rises  High rises are mushrooming due to a lack of city planning for the increase in density of population growth  Infrastructure is severely lacking to support the population density growth.  Municipality is depending on the private sector to fund and carry out infrastructure projects, but as yet developers have not coordinated effectively on such projects.  ‘Veil of secrecy’ amongst developers and little coordination between developers and municipalities. Thus, developers buy land and build whatever they see fit without future planning or foresight.36 Turkey GRI 2012
  38. 38. Istanbul’s Changing Skyline – more landmark projects in the pipeline? (con’t)  How can developers design structures that are not just aesthetically pleasing, but also attract investors?  Local municipalities must develop a master plan for Istanbul to make sure the facades match and create a cohesive identity for Istanbul.  The master plan must also consider building use and potential occupants in order to prevent unoriginal, copycat structures that have difficulty finding tenants and are an eyesore for the skyline  Occupiers are likely to be the catalyst of the next wave of development, so developers must join forces with big occupational clients to create the foundations of a proper investment market  Developers must plan buildings by first considering the bottom ten meters and the infrastructure needs, as these factors are the most important for daily life and pleasure  The Istanbul of the future must create a harmonious marriage between the ancient skyline in the old city with a modern and dynamic skyline in the business districts37 Turkey GRI 2012
  39. 39. Logistics Investments and Developments – is the timing right for either?  Market conditions: İstanbul-Kocaeli metropolitan region has 4.8 million square meters of logistics facilities, the largest among other real estate developments around Istanbul. 1.4 million square meters of new projects on the pipeline and near future the supply of 6 million square meters of logistics area.  The land prices are the biggest problem for logistics development around Istanbul metropolitan area. As the city expands on the east-west axis, it is almost 200 km to travel to find land prices for $200.  Rental prices sometimes direct firms to rent a building without proper permits.  In order to be close to the markets and city centers reasonably priced logistics areas should be developed with cooperation between private and public sectors.38 Turkey GRI 2012
  40. 40. Logistics Investments and Developments – is the timing right for either?  Potential places for development:  İzmit and Silivri tried but not successfully developed. Gebze could be new logistics but still considered as far away from city. Pressure from other types of real estate investment blocks the development of logistics  Build-to-suit systems are in high demand from the market and prices are rising significantly  Turkey’s budget deficit is feeding the logistics market, which has a positive correlations in the short run  In the short-to-medium term (6 months to 2-3 years) there will be a sustained demand in quality logistics space. If the land prices are formulated into multistory (2 or 3 story) logistics buildings in order to balance land price to rents will be much better solution39 Turkey GRI 2012
  41. 41. Sustainability in Real Estate – is it economically viable?  3 Es approach to sustainability: Ethical, Economical, Ecological  Sustainable cities apply a systematic approach to saving the environment, adopting recycling measures, renewable energy, and focusing on city carbon footprint  Must also consider qualitative measures, such as quality of life, life balance, ability to use bicycles • Banks tend to finance green buildings, rather than gray ones • Value of sustainable buildings and offices may decrease significantly if floors are being rented or sold to different tenants, due to the difficulty in standardizing tenant building use according to sustainable/green measures40 Turkey GRI 2012
  42. 42. Sustainability in Real Estate – is it economically viable?  In Turkey:  Turkish laws currently do not reinforce adoption of sustainable approaches  PPP (Public-private-partnership) has not matured in Turkey in terms of sustainability and green buildings, due to lack of profitability for both municipalities and private sector  Very small percentage of Turkish companies apply green concepts  Majority of certified buildings in Turkey are Gold LEED members, as Turkish market more amenable to American systems and American metrics  Majority of big hotel chains currently working to create awareness for sustainable energy and waste management  However, movement in Ankara to improve sustainability regulations, raise awareness, incentivize green schemes, and adopt and enforce sanctions41 Turkey GRI 2012
  43. 43. Middle Eastern Investors – is Turkey becoming a new magnet?  Middle Eastern investors do find Turkey an attractive market. However, foreign investors cannot match the return for money in Turkey that they get in the UK or Switzerland.  The biggest issues Middle Eastern investors have with the Turkish market are the high price of entry, the inability to plan an exit strategy, and the challenges to gain scale. Local know-how and nimble funds have thus far kept ME money out of the residential asset classes.  Middle Eastern investors can be generally split into two groups: politically motivated investors and family groups. Political investors are generally not interested in pure trade, but are looking to showcase the value of their money in other respects.  Many family officers have expressed more interest in coming and visiting Turkey following the Arab Spring, but the visits have not yet translated into increased market involvement.42 Turkey GRI 2012
  44. 44. Middle Eastern Investors – is Turkey becoming a new magnet? (con’t)  The monolith of the GCC investor has gone through significant changes in the past few years that has significantly decreased the amount of speculative money coming out of the region. Three main changes:  Many GCC economies have been weakened by economic instability and large government players are unable to finance projects at the same rate or cost.  There has been a movement to consolidate government bodies and sovereign funds under the leadership of Wall Street specialists.  In the wake of the Arab Spring, government bodies have been less eager to provoke more scrutiny from local bodies about where money is spent and whether there will be enough funds for future generations.43 Turkey GRI 2012
  45. 45. Financing – bleak future or new opportunities?  Acquisitions done in Turkey are all done on non-recourse basis.  Turkish banks take the market risk, they only rely on the market, therefore the risk is not shared (international banks would not do that).  Bank should get complete hold of the project, otherwise everybody, including investor, is losing. There are difficult projects, but the banks do not throw them away, they continue living with them (distressed assets).  When financing a project in a small city, zoning becomes important. In Manisa they are rezoning the city, making the commercial space bigger – so it may not be favorable to the small commercial places.  If you want to come invest in Turkish real estate market, it might also be good to make club deals with other Turkish banks because they already know the environment.44 Turkey GRI 2012
  46. 46. Mixed-use Real Estate – how to make it successful?  Mixed-use projects incorporate retail and office spaces with large residential units.  Where mixed-use (residential-commercial) planning and zoning issues must be considered beforehand.  Considering the needs of current city and support the urban fabric with harmony in a discreet way is always brings success in broader perspective. Human scale must be considered and studied well by architects.  Mixed-use is for fast-growing cities and may not be suitable to every city to develop.  Synergy of different types created success in Turkey and Istanbul with harmonious combinations of hotel, college, retail, and residential units.45 Turkey GRI 2012
  47. 47. Mixed-use Real Estate – how to make it successful? (con’t)  Important considerations before choosing mixed-use project in Turkey:  Design of mix use projects,  Financing different parts,  Social and urban fabric,  Enough time for design issues,  Care about the neighborhood, must be taken into consideration with investors and architects.  Why is it recommended to use Turkish architects?  They can deal with local problems in short time periods, which is preferable to even the most skilled, but unfamiliar architects.  Mixed-use projects that have 50/50 international and local architects which brings different dynamics to design and planning issues.46 Turkey GRI 2012
  48. 48. Shopping Mall Management – can we still do it on an Excel sheet?  Challenges for shopping mall management in Turkey:  Majority of shopping malls are family-owned  Lack of qualified shopping mall management  2008-09 financial crisis resulted in more market competition, which needed qualified management to deal with the situation  More than 60% of shopping centers are managed in-house, while only 30% are run by management companies  The turnover in shopping mall managers has reached 80% over the past two years  80% of retailers have no written business or marketing plans, and even those who do often lack the ability to implement plans47 Turkey GRI 2012
  49. 49. Shopping Mall Management – can we still do it on an Excel sheet? (con’t)  Ways to improve the situation in Turkey:  There must be differentiation between facility management and shopping mall management.  Companies in Turkey (both retailers and shopping mall managers) should dedicate a considerable amount of money for human development, in order to develop well-trained shopping mall managers and create a standardized shopping mall management profession  Efforts to increase the small number of shopping mall management companies and to break down the cultural reluctance in dealing with such companies by improving management companies’ reputations for privacy and confidentiality.  Spreadsheet should always remain to show the facts; nevertheless, it should also reflect all aspects of business – not just the record of revenues and expenses.48 Turkey GRI 2012
  50. 50. Foreign Investment – where to put your money and will you get it back?  Assumptions foreign direct investors should make about Turkey:  It is a developing market  It is not a liquid market  It is not a distressed market, but a long-term market  Locals are active in the market, will take more risks, and are therefore big competition  It is vital to have a local partner49 Turkey GRI 2012
  51. 51. Foreign Investment – where to put your money and will you get it back?  Success in Turkey requires:  The right local partner  The right project or asset  A good structure that allows for the flexibility to sit on an asset until it stabilizes  An effective on-the-ground representatives to keep up with the changes, restrictions, and regulations that can change on a moment’s notice  Clearly defined roles and responsibilities to ensure that all lines of communication are effective and efficient from the beginning50 Turkey GRI 2012
  52. 52. Foreign Investment – where to put your money and will you get it back?  Are there buyers out there? Who are these buyers?  Active buyers in the Turkish real estate sector are European pension funds, Middle Eastern investors, and some Turkish investors.  What are the main problems with attracting foreign direct investment?  Liquidity is a major consideration, because investors will never invest if they do not foresee an exit scenario.  Foreign investors also want reliable statistics, but these do not exist. This is a significant barrier to understanding the market.  There is a problem with copycat projects that lose value after completion because there is not demand for identical projects in the same area.  Locals do not consider internal equity and do not face any of the tax concerns that foreign investors must take into consideration51 Turkey GRI 2012
  53. 53. HALKGYO general sponsor knowledge partner AE A M E R I C A N E U R O P E A N I N V E S T M E N T B A N K E R Sacademic & industry partners media partners

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