John Kriz, managing director for real estate finance at Moody's ratings agency, recently told the press that institutional investors worldwide are looking for new targets in which to invest, particularly following the August sub-prime crisis in the United States. International investors are focusing their attentions on the commercial segment in Latin America, East Asia and Eastern Europe and are looking to invest in such high-growth markets as Turkey.
More than half of Turkey's 74m inhabitants are under 25 years of age, and as per capita income continues to increase, Turkey's malls are expected to become all the more packed. It is little coincidence that UK-based luxury boutique Harvey Nichols opened in Istanbul's Kanyon shopping mall in 2006 to tap the spending power of urban consumers. Istanbul offers a strong opportunity for investors with its business centres, quality office buildings, hotels and shopping malls. Demand for residential real estate shows no signs of letting up either as young families continue to proliferate.
There is no lack of recent examples to reflect foreign interest, with institutional investors and real estate developers pushing ahead with investment plans in Turkey. In September German capital investment company Union Investment Real Estate announced plans to invest 130m euros in a shopping centre in Kayseri, linking up with Multi Turkmall - the Turkish subsidiary of Multi Corporation, the Netherlands-based shopping developer and operator - for the mixed-use project.
In July, Emaar Turkiye, a joint venture between Dubai-based Emaar Properties and Turkish jewelry company Atasay Kuyumculuk, announced it had chosen real estate development and construction company Yapi Merkezi as the contractor for its Tuscan Valley Houses project, which involves the construction of 555 luxury villas in the Buyukcekmece district of Istanbul for an initial $700m. In addition to plans to construct a hospital for an estimated $20m at a still-to-be-decided location, Emaar Turkiye is evaluating potential real estate projects along Turkey's coast.
Meanwhile, the Bosphorus Estate Fund - a partnership between Merrill Lynch Global Principle Investors and Turkey's Krea Real Estate - has committed $1bn for investment in Turkey's real estate sector over the next three years, with residential real estate, shopping malls and hotel projects on the cards. In keeping with its investment aims, the fund bought the Neo Shopping Mall in Eskisehir for approximately $94m this year.
Other contenders have sought to grab local news headlines. In September, the founder of UK-based homebuilding company Redrow, Steve Morgan, announced plans for $1.5bn worth of development in Turkey. Morgan and UK-based international real estate investments group Salamanca are providing financing for local developer Yesil Insaat for the construction of a mixed-use urban development in Istanbul with 12,000 homes and 500,000 sq feet for offices and shops.
One of the biggest deals was the complete acquisition of Istanbul's Cevahir shopping mall by UK-based St Martins Property Group back in March 2007. In November 2006 St Martins acquired a 50% stake of the mall from Istanbul's Metropolitan Municipality for $421m, following which it acquired the remaining stake from Cevahir Holding, a construction heavyweight in Turkey.
Global volatility aside, and granted the resilience of the Turkish market, the trend is expected to continue. In March, Roger Barris, managing director and the European head of Merrill Lynch's Global Principal Investment group, estimated that foreigners would invest as much as $15bn in real estate over the next five years.
This is not to say that all Turkish real estate companies are in need of funding, the local market is short of players or big returns are guaranteed in the short-term. "Our main problem is not locating funding but rather demand for projects," says Teoman Metehan, CEO of local real estate development and construction company Teknik Yapi. "Foreign investors need to play big and think long-term in Turkey. Some foreign companies are looking for big profit margins of 30% to 40%, but this is not guaranteed." The number of foreign institutional and real estate investors eying Turkey though suggests that long-term investments and returns are precisely what many are looking for.