Zirve Eki - ISTANBUL REstate

for the last 13 years. This is my second head where we were founded, and
you guys have been so kind to have mentioned it before, serves on the
consulting, serves as a nationally consulting firm in hotels. Having learned
this and understood how and start with, and we also find out how Turkish
investors work. And then Turkish investors or developers rather have a
completely different approach to hotel investments than in more established
markets, if I may say that. So if I look it from the point of view of Union
Investment, then the challenge which we have had here is to find a product
which meets our investment criteria which I think not so different from
others such as having a sustainable return, such as having a good product
and such as having sensible pricing. And Ömer and Tavit find it out the land
prices here in Istanbul especially have been somewhat in a relation to their
own product which had made it difficult for us comparing it with the cash
flow which is behind those operations to come up with a yield which make
sense. But having said this, there are also opportunities and we have heard
that in the panels before between them with Haluk Kaya for example and
Michael Widmann where they talked about franchising ones for the
international hotels. And I certainly believe this franchising ones when you
have a good brand, when you have an established local investor who also
has some expertise with other properties in the field is a way for us to
actually pursue interesting investments.
Jakob Forstnig: So you are naming the land price again as a challenge.
This is when I look at some transactions that have happened over the last
years in Turkey also... Yeah, seeing that price per room ranges for four to
five the property between 130 thousand and 450 thousand. This is a wide
range. It seems that every transaction does not only follow common
commercial process. There are a lot of specifics maybe from governmental
regulations, maybe from land prices. Is this something that you think will
change because you said this is becoming more institutional now? Because
when you look at the market today and try to see what is available as an
institutional product for you, you might tell me one or two, but is the lack
of product the main reason you cannot pursue any investments here?
Theodor Kubak: I think Tavil wants to say something but before that
let me just put something. I think depends very much in the product. Just
we are right now pursuing a transaction in London where the average price
per room is 250 thousand pound approximately. But we bought last year
a hotel in Hamburg where the price was just under a 100 thousand. So,
Euros obviously. So therefore the same is probably true for Istanbul. If you
buy it will be different story on a two star property compared to a five star
property. You always need to look property location, location, location and
then on the product itself. But Istanbul is on our mind, if I may phrase it this
way.
Jakob Forstnig: Bettina, having seen these different, you know, prices
per room which suggest that there is a great discrepancy between the
actual price and the cash flow of these assets. How do you, when you have
financed a few hotels here in Istanbul and Turkey, how do you manage this
discrepancy, so to speak. Can you adjust your criteria so it still works? For
you, what are you looking for to make these projects work for you?
Bettina Graef: I guess in a general perspective what we are looking for
is a 10% yield on that, meaning the cash flow should approximately per
year yield 10% of the debt outstanding. Now even investor decides to invest
into a project that, in our terms or points of view, may be overpriced and
may have a large price per room. Then at the end of the day, you know,
it determines the debt level that we will give. I mean in certain markets we
go up to a 70% loan to value financing, however then, you know, if we
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Gayrimenkul Zirvesi 10
16-17 Haziran 2010
don't see the value where the investor sees that, it may only come up to a
50% loan to value financing. But traditionally for us in Turkey the loan to
value ratios that we have financed are a little lower than internationally but
that also has something to do with the fact that we mainly deal with local
investors, that our conglomerates that look to hold these assets for long
term sustainable basis, and that are also willing to amortize over a longer
period of time and hold the asset for long period of times. So once we have
that commitment, we can make the deal work at the end of the day.
Theodor Kubak: You said loan to value, just one question. Are you
giving on loan to value or loan on the development cost? Who actually
determines the value?
Bettina Graef: Well, development cost is something that we prefer not
looking at because we don't do preferably no construction financing. So we
are doing take out financing. We have done construction financing, but in
an ideal case scenario we do take out financing where the value is determined
by an appraiser at the end of the day. But as I said we have a team of seven
hotel experts sitting in Germany that know the markets very well and we
have clearly our own understandings of value.
Jakob Forstnig: So again it can be stated you are able to finance hotels
independent of the price because you adjust your financing to the cash flow
that the hotels generate, again meaning that the criteria from the investors
are different because they are also happy with 30-40-50% loan to value.
Bettina Graef: If they are different, I mean at the end of the day we also
have the experience where for the projects we finance at least. We were
able to match our expectations with investor's expectations.
Ömer ‹svan: Now one of the reasons that Bettina has been alone in the
market almost for a while. Now lately we are now seeing a little bit more
activity from Turkish banks. One of the reasons is that the Turkish banking
sector actually forgot to do banking for 25 years. The Turkish banking sector
was very busy lending to government basically doing nothing else on high
yield paper, repurchase orders, repos and overnights and it was an extremely
lucrative period at the high inflationary period of double digit or I mean triple
digit inflation. And they actually did not do banking. And it is only since the
single digit inflations started to set in that the banks started to realize 'oh,
there is another sector called banking that we need to get into'. And initially
to hedge their risks they have started with consumer financing with credit
cards, cars, you know, white goods and consumer goods credits and things
like that so spread over, you know, small ticket items, spread over big public.
It is only known that we see some form of expertise appearing in Turkish
banks to be able evaluate a project, evaluate a business and actually lend
on the merits and lend on the strengths or weaknesses of a particular venture
that needs to be financed. That is brand new. You would agree with me
that banks did not do banking. So that is why it is only international banks
who were able to assess and do project financing. They could lend and there
was only fear of facts just one or two that actually understood the territory
and they said 'okay this territory is something that where we can take the
country risk and we can take the sectoral risk at the same time'. So don't
forget that is all very brand new and the beginning of our life to generate
long term funds and to generate expertise, to be able to evaluate a project
or an asset even.
Jakob Forstnig: Now staying with the criteria for investors. We don't
want to add anything to the bureaucracy, legal, let's say, challenges and the
land cost challenges. Do you want to add anything or are these the two
main you would name as for foreign capital or foreign investors?
Tavit Köletavito¤lu: One thing is very very important. Theodor said