Real Estate East & West Meet in MIT/CRE Travel Course
Part II: Istanbul and London
After four days in the United Arab Emirates, the intrepid MSRED students packed their bags and flew to Istanbul for the next leg of the journey before continuing on to London....
***** Travelogue *****
Day 5 – January 16, 2008 – Istanbul
Today the student who prepared the cultural tour of Istanbul handed out maps and suggestions for places to go while visiting here. These included the Grand Bazaar, Blue Mosque, Hagia Sophia, and walking street near Taksim Square…
Day 6 – January 17, 2008 – Istanbul
The Istanbul Technical University prepared a wonderful overview of the Turkish real estate markets. A representative of one of the local real estate companies gave an overview of each market – retail, residential, office, and logistics. The overall tone was that there was a great demand in retail and residential. One of the principals with Pamir and Soyuer talked about the office market. The absorption rate in the office market is quite high, but the profits in the residential market are even higher so there has not been a lot of development of office space. Turkey's population has grown at a tremendous rate, almost too quickly to meet the demand. This has led to the creation of illegal housing. Illegal residential units account for 50% to 60% of the housing stock.
We visited the Kanyon Mall when we left ITU. Kanyon is a mixed use development with housing, retail, and office uses. The development has won a number of awards.
We left Kanyon and met up with Ertan Dal, of Taurus Turkey, in Taksim Square. He provided a "live demonstration" that was great. We walked from Taksim Square towards the Galata Tower. Along the way, Ertan's colleague, Gerd Zerhusen, offered historical information about the various sites along the way AND we visited three of Taurus's recent acquisitions. One was a residential project in the heart of Taksim that was over a 100 years old, the second project faces the Galata Tower and has great views of the city, and the third project is a 15-unit residential development. At the end of our "live demonstration" we were treated to Turkish food and entertainment.
Day 7 – January 18, 2008 – Istanbul
We went to the Istanbul Central Business District and visited the Cevahir Mall. Cevahir is the largest mall in the region. It was recently sold. Jones Lang LaSalle was an advisor in the sale of the property and is now a part of the mall management team. Pradera is the asset manager for the project, essentially the owner's representative. The mall has some interesting features, most notably an amusement park that has a roller coaster, bumper cars, and video games. We received a presentation on Pradera and the mall. Mall improvements are planned. These improvements will eliminate some of the dead spaces in the mall and will allow the owners to better leverage Cevahir's central, high-traffic location.
We left Cevahir and walked a few doors down to Soyak's offices. Soyak is the largest residential developer in Turkey. They gave us an overview of the market, talked about Soyak and the strength of its brand, and provided a tour of three of its projects. It was very impressive. Soyak is currently building about 2,000 units. Their goal is build 5,000 units per year. We visited one completed projects that was built in several phases and two projects that are under construction. We visited the sales office of the last project that and saw a sample unit and got a feel for the sales process. Buyers have a week to pay in full!
Soyak was kind enough to include a stop by our alum's project. Can Aydinoglu is a graduate from the Class of 2004. His company is building a mixed-used project called Buyaka. It will have retail and residential units and will be completed by 2010. The project is under construction and when completed will have an estimated value of $110 million. During our site visit, Can provided an overview of his company and the project. We visited the construction site and saw what has been completed to date.
Soyak took the group to Borsa where we had a fine Turkish dinner! Another fine day in Istanbul.
Day 9 – January 20, 2008 – London
The student who was responsible for the cultural tour of London provided the group with tube maps, some ideas about where to go and the group "hit the streets". Folks went to Soho, Trafalgar Square, the British Museum, the Tate Collection, Westminster, Big Ben, the London Eye ferris wheel, London Bridge, and elsewhere. This group does not tire!!!
Day 10 – January 21, 2008 – London
On the first day we got a market overview from King Sturge, one of the local agents. Angus McIntosh and his colleagues reviewed the European markets and the City and West End sub markets. This meeting was complimented by a visit to IPD (International Property Data). IPD is the leader and standard bearer for property information in Europe. It is the aggregated property data that IPD provides that is used to benchmark performance.
We also met with Sir Stuart Lipton. I think that the students and I were expecting Sir Stuart to tell us a about his new company, Chelsfield. Instead, we moved from classroom style seating to a circle and he asked us whether real estate was going to provide the vision for the future. Were we going to create buildings or places? Initially taken aback, people became engaged in the conversation.
We ended our first day on a rather somber note visiting the Wachovia offices. With the crash of the debt markets, the team has been pretty much decimated as folks try to determine how to adjust to the changing market conditions.
Day 11 – January 22, 2008 – London
Equity day. We met with M3 Capital Partners, AIG, and Brockton Capital and visited Canary Wharf for a presentation and walk about. While the debt markets are suffering from a lack of liquidity, deals are still being done.
M3 Capital Partners is hiring and interviewed a number of the members of our group while they were in town. They provided an overview of their activities. They have provided corporate capital for a number of real estate firms, e.g., Prologis.
AIG is present in some of the markets we visited during the class. Kevin Reid, head of the Europe and Middle East markets, chatted informally with the group, sharing his thoughts about the industry and the market. The day we met, AIG was closing on an office deal in Dubai. While not confident about the market, Kevin saw an opportunity to re-position the property and capitalize on the investment in an appreciating market. He felt confident that the office market was strong based on the difficulty he had finding an office for AIG. In fact, this is consistent with Rasis's assessment of the office market as well.
We visited Canary Wharf during the afternoon. It is an impressive project with a roller coaster history. The day before, Sir Stuart had asked the group about "vision" and "placemaking" in real estate. Genius or goat? History is usually the judge, but large-scale, mixed used developments have the ability to create place but they require a lot of money, a long time horizon, great focus and flexibility, and something like guts, confidence, and/or drive. The Reichmanns, the owners of Olympia and York, the initial developer of Canary Wharf, had all of these. In some ways, Canary Wharf sort of brought us full circle. Is Sheik Maktoum in Dubai visionary?
We ended the day with Brockton Capital, a company founded by two MIT/CRE alums – Jason Blank and David Marks. They want to stay close to the asset and with this in mind have invested in properties where there is the ability to add value through the creation of space; they have also invested in businesses with a significant real estate component such as local English pubs. They treated us to a good pub dinner!
Day 12 – January 23, 2008 – London
Our last day was largely spent with developers. Stanhope gave us a presentation that looked at the London market and offered a paradigm for evaluating the other markets that we visited. Stanhope has a diverse portfolio that includes arts projects, office buildings, mixed-use developments, and retail.
The Hines meeting was quite diverse with lunch, a tour, a presentation, and opportunities for a lot of questions. Real Estate people like to "kick the dirt" and visit the buildings so part of the Hines presentation included a visit to one of their recent acquisitions that they are redeveloping. Hnes also compared the Dubai and London markets. We got more information about Dubai in London than we did in Dubai! The next day, over half of the students interviewed with Michael Topham, the EVP who oversees Hines' European and Middle Eastern offices.
We ended the day with Jones Lang LaSalle where we received an overview of the European space markets as well as an assessment of the occupant market. The presentation was quite comprehensive. Nigel Roberts talked about Europe's current and projected real estate performance; George Roberts covered the London market; Dr. Lee Elliot discussed "accommodating challenges" for space users; and Alexandra Bryant and Nicola Birkett discussed European retail markets with a particular focus on Turkey. The afternoon was coordinated by International Director, Rosemary Feenan. It was a spectacular end to the course.