EUROPE NEWS: Turkish consumption

The Canada Pension Plan Investment Board (CPPIB) demonstrated its resolve in December to invest in Turkey's potential for high consumer spending in retail centres across the country.

The investor, with C$117 billion (€71.4 billion; $93.9 billion) of assets, agreed to commit €250 million to the Multi Retail Turkey fund managed by Multi Corporation, the Netherlands-based pan Europe retail developer that is 75 percent owned by Morgan Stanley Real Estate Fund V International (MSREF V International).

The Multi Retail Turkey fund is a collection of 21 assets, some of which are completed shopping malls and others that are in various construction and planning stages.

By agreeing to the deal, CPPIB has become the first investor in the fund.

Glenn Aaronson, Multi chief executive, explained to PERE that Multi's investment in Turkey was “the textbook example of first mover advantage”, adding that the country represented the largest proportion of its European portfolio.

“In a way, Multi has been a victim of its own success because it now has around 30 percent of its portfolio in Turkey, something that Morgan Stanley did not envisage when it invested,” he added.

The creation of the fund was driven by Multi's need to diversify its exposure, while also having the chance to tap institutional investor demand for broad exposure to Turkey's real estate market. Aaronson says investors wanted a chance to gain some of the upside to development risk.

Further, Multi was actively looking for investors because MSREF V International had invested its equity and capital had to be found for future growth. Given that the usual real estate loan providers are restricted at the moment and accepting that there would be little interest from investors in an IPO, Multi chose to approach third-party institutions.

The idea for the vehicle was taken to potential investors in February 2008, attracting a lot of interest, he says. “We told investors we are looking at you, not only as investors in the Turkey fund, but also as investors in Multi. Today we may be developing in Turkey, but tomorrow we might be expanding in Ukraine. Rather than create a Multi fund which would be complicated given Morgan Stanley's interest, we thought a better first step would be to do it on a country basis where the investor had a desire to be.”

The Turkey fund was not without its problems. A combination of Turkey's internal political tensions and the credit crunch caused many investors to walk away. “The demand in February 2008 was mind blowing, but unfortunately the credit crunch and a difficult time for Turkey saw numbers dwindle.”

However, now the fund is seeded, CPPIB is soon to be joined by a second investor.

“We didn't start this business with a view to create a fund, but we do feel this is a very interesting step forward for us,” said Aaronson. “We feel it's something that makes us one step different from everyone else.”

Up until Morgan Stanley's investment, Multi was a “merchant developer”. The majority of its 145 projects were built for German open-ended funds, insurance companies or opportunistic funds on a forward-purchase basis. The company wants to maintain that strategy, but also allow 40 percent to 50 percent of its projects to be built and owned long term.

Multi is a 51 percent owner of the new fund. Once the 21 assets are completed, in approximately three years' time, the Multi Turkey Retail fund will become an independent entity. The fund has the first right of refusal to buy into additional projects. In the interim, the fund intends to hire an independent chief executive and consider options such as selling down assets or floating as a Turkish real estate investment trust.

The current investors will have a chance to exit completely, exit partially or remain fully invested in an IPO. If the company does choose this exit route, the Multi Retail Turkey fund could become Turkey's first large dividend-paying, geographically-dispersed quality property company.