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Talking Turkey

Increased construction, a growing economy and the impending closing of two funds focused on investments in Turkey point to a possible increased investor appetite within the market. However, it still has a long way to go before being the next Brazil.


In the next couple of months, two commingled vehicles focused on real estate opportunities within Turkey are expected to close. It is understood that not only is The Bilgili Group – reported on by PERE this week – slated  to close its Turkish real estate fund sometime this summer, but Amstar has reached more than 90 percent of its target for its Turkey-focused real estate vehicle, which is expected to see a final close later this quarter. 

In addition, research from CBRE noted that construction is Turkey’s fastest growing sector, with demand for Class A residential units and office space outstripping supply. Session notes taken from the Global Real Estate Institute’s Turkey Summit held in Istanbul earlier this year revealed that panellists are predicting that 2012 will “be the beginning of the private equity boom in Turkey”.

So does this mean that the country is going to be the next hot emerging market for private equity real estate? For many, the area does indeed show a great deal of promise. However, if it is, only a very small number of GPs and LPs think so thus far. The region still has a number of hurdles to get over before becoming the next Brazil. 

True, there are a lot of opportunities in the country that a few fund managers and investors have become wise to (which we’ll get into later). However, the region is still facing challenges in enticing investors. After all, when LPs invest outside of their own backyards, most of them don’t feel confident in doing so unless they’re aligned with a strong and trusted local partner. And a large number of foreign investors—particularly Western investors—are unaware of the ins and outs of the Turkish real estate landscape. 

One of the forerunners of investing in emerging markets is Equity International. Given that the Chicago-based emerging market specialist was one of the first firms in Brazil, China and Colombia, one would assume that it would be keen on a market like Turkey. However, that doesn’t seem to be the case. Although Equity International declined to comment, sources have said that the firm has yet to identify attractive opportunities in the region. 

There’s also a perception of additional risk within the region that goes beyond job growth and vacancy rates—most fund PPMs don’t have separate sections warning about terrorism (as one Turkish real estate fund memorandum that PERE had obtained did). In fact, the perception of heightened risk and unfamiliarity with the region may be the primarily reasons why Western investors are so skittish about Turkey. And although reports from within the region point to political stability, the fact that the country borders Syria and Iran doesn’t set investors’ minds at ease. 

However, there are many positives to be found within the country, the biggest being its demographics. Roughly 40 percent of Turkey’s population is under the age of 25, educated and mobile. In particular, this makes student housing a growing asset class in the country.

Not only that, but the nation’s economy also is growing. In addition to becoming a major manufacturing hub, it’s slowly and steadily being a centre for tourism. One source with boots on the ground in the region pointed out that there are several cranes in Istanbul, as the city is seeing increased construction activity. 

For now, however, Turkey remains a small niche focus for investors—it’s nowhere near being what Brazil or China was to the private equity real estate sector a couple years back. And it could remain that way for a while, if LPs remain apprehensive about the region. Still, the region has promise and, if investors continue to diversify their portfolios and begin to feel comfortable aligning themselves with trusted local partners, Turkey could be the next big centre where real estate investment opportunities arise.

The imminent capital closings for funds focused on the country evidences that some investors already are ready to feast on Turkey. Perhaps others will join them.