After much soul searching, one country seemed to be mentioned more often than others—and no, it wasn’t Russia. It was Turkey.
Not only did the country warrant a discussion on Monday, as part of a panel on southeast Europe, it also commanded a session of its very own the following day. Typically, the second day of a conference is sparsely attended (particularly if the sessions begin at ten in the morning), but the topic at hand was so popular that the conference room at the Intercontinental Le Grand Hotel was near capacity.
The panel session “Turkey, opportunities or wishful thinking?” saw four Turkish experts—two from Turkish REITs and two residential property developers—explain the potential of their country’s real estate market. There was discussion of Turkey’s promising fundamentals: a relatively young population of 70 million people and a GDP growth rate of 5.1 percent. Next there was the Turks’ love affair with shopping malls and their desire to buy their own homes. In one case, the panelists discussed one development where hundreds of apartments were pre-sold over the Internet in just one weekend.
However, many wondered if it was all wishful thinking as the session title invited them to conclude, especially as it became clear that there were no pension funds or institutional investors in Turkey. This is a good thing, potential foreign investors were told, since they face no competition. But Bill Benjamin, a managing director with Apollo Real Estate Advisors, pointed out that buying property is only half the story—the other half is finding an exit. There was more troubling news that construction costs had tripled and land prices were going the same way. And conference attendees found that gathering information about yields and rental growth was like pulling teeth.
With that, the slightly disconcerting message at the GRI became apparent: stay at home.
Russia is difficult. Germany is still good but crowded. And yields in Central and Eastern Europe have approached levels in Western Europe. Therefore, if it is difficult to find attractive yields anywhere in Europe, one conclusion is hard to avoid: instead of hurting their brains in a foreign land, investors should work harder in the markets that they understand the best—namely their own.
Perhaps that is the dark secret of Europe’s private equity real estate market: Next time, don’t bother to book that flight; just take a taxi instead.