TURKEY GRI 2012 - SESSION NOTES

Turkey GRI 2012TürkiyeİSTANBUL 10-11 OCAK

ISTANBUL 10-11 JANUARY

TÜRKİYE’DE GAYRİMENKUL GELİŞTİRME VE YATIRIMI

REAL ESTATE INVESTORS & DEVELOPERS IN TURKEY

SESSION NOTES

Session Notes

Notes Prepared by School of Business – The American University in Cairo, IEEI

Sabreya El Shoura

Maryclaire Abowd

Kerem Arslanli

Mihailo Terzic

Turkey GRI 2012 January 2012

January 10, 2012

Turkey GRI 2012 2

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?

January 11, 2012

Turkey GRI 2012 3

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?

Day one

Turkey GRI 2012

January 10, 2012

4

Talk Show: Investing in Turkey – safe haven in

a dangerous world?

Turkey GRI 2012 5

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 notice

Talk Show: Investing in Turkey – safe haven in

a dangerous world? (con’t)

Turkey GRI 2012 6

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.

Private Equity Real Estate in Turkey – more

opportunities, new trends?

Turkey GRI 2012 7

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.

Private Equity Real Estate in Turkey – more

opportunities, new trends? (con’t)

Turkey GRI 2012 8

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 term

Office Developments in New Central Business

Districts

Turkey GRI 2012 9

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.


Districts (con’t)

Turkey GRI 2012 10

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.


Districts (con’t)

Turkey GRI 2012 11

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.


Districts (con’t)

Turkey GRI 2012 12

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.

Affordable Housing – still emerging or have

yields compressed too much already?

Turkey GRI 2012 13

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.


yields compressed too much already? (con’t)

Turkey GRI 2012 14

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.


yields compressed too much already? (con’t)

Turkey GRI 2012 15

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.

Shopping Mall Development – all done or

what’s really new?

Turkey GRI 2012 16

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 another

Shopping Mall Development – all done or

what’s really new?

Turkey GRI 2012 17

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.

Healthcare Investment in Turkey – preferred

choice of savvy investors?

Turkey GRI 2012 18

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.

Healthcare Investment in Turkey – preferred

choice of savvy investors? (con’t)

Turkey GRI 2012 19

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.

Residential in Turkey – survive or thrive?

Turkey GRI 2012 20

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.

Residential in Turkey – survive or thrive? (con’t)

Turkey GRI 2012 21

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 options

IPO’s in Real Estate – opportunities risks and

challenges?

Turkey GRI 2012 22

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.

Egyptian Real Estate – have new opportunities

arisen after the country’s rebirth?

Turkey GRI 2012 23

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.


arisen after the country’s rebirth? (con’t)

Turkey GRI 2012 24

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 2012


arisen after the country’s rebirth? (con’t)

Turkey GRI 2012 25

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.

Day Two

Turkey GRI 2012

January 11, 2012

Turkey GRI 2012 26

Hotel Development – innovative strategies

required?

Turkey GRI 2012 27

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.

Keynote: Turkey – mapping the future in a new

world order

Turkey GRI 2012 28

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.


world order (con’t)

Turkey GRI 2012 29

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.



Turkey GRI 2012 30

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 pace



Turkey GRI 2012 31

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 policy

Turkish Real Estate – opportunities and

outlook for 2012

Turkey GRI 2012 32

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.

Turkish Real Estate – opportunities and

outlook for 2012 (con’t)

Turkey GRI 2012 33

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.

Retail Real Estate Investments and Expansion

– the toughest game of all?

Turkey GRI 2012 34

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 areas

Retail Real Estate Investments and Expansion

– the toughest game of all? (con’t)

Turkey GRI 2012 35

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 centers

Istanbul’s Changing Skyline – more landmark

projects in the pipeline?

Turkey GRI 2012 36

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.

Istanbul’s Changing Skyline – more landmark

projects in the pipeline? (con’t)

Turkey GRI 2012 37

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 districts

Logistics Investments and Developments – is

the timing right for either?

Turkey GRI 2012 38

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.

Logistics Investments and Developments – is

the timing right for either?

Turkey GRI 2012 39

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 solution

Sustainability in Real Estate – is it

economically viable?

Turkey GRI 2012 40

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 measures

Sustainability in Real Estate – is it

economically viable?

Turkey GRI 2012 41

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 sanctions

Middle Eastern Investors – is Turkey becoming

a new magnet?

Turkey GRI 2012 42

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.

Middle Eastern Investors – is Turkey becoming

a new magnet? (con’t)

Turkey GRI 2012 43

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.

Financing – bleak future or new opportunities?

Turkey GRI 2012 44

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.

Mixed-use Real Estate – how to make it

successful?

Turkey GRI 2012 45

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.

Mixed-use Real Estate – how to make it

successful? (con’t)

Turkey GRI 2012 46

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.

Shopping Mall Management – can we still do it

on an Excel sheet?

Turkey GRI 2012 47

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 plans

Shopping Mall Management – can we still do it

on an Excel sheet? (con’t)

Turkey GRI 2012 48

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.

Foreign Investment – where to put your money

and will you get it back?

Turkey GRI 2012 49

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 partner



Turkey GRI 2012 50

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 beginning



Turkey GRI 2012 51

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 consideration

knowledge partner

academic & industry partners media partners

A M E R I C A N

AE I N V E S T M E N T B A N K E R S

E U R O P E A N

HALKGYO

general sponsor

Documents

TURKEY GRI 2012 - SESSION NOTES