Turkey: upwardly mobile and streets ahead

Ankara Atakule

Turkey might not be the safest or most stable place in the world after recent events, but that doesn’t stop the country topping the global house price growth charts.

Knight Frank’s Global House Price Index for second quarter 2016 shows house prices in Turkey grew by 14 percent in 12 months through June 30, a fall from the 19 percent annual number in the previous quarter but still enough to keep the country — seen as a bridge between Asia and Europe but whose loyalties and place in the world are being tested by a number of political and socioeconomic pressures — on the top of the global table.

On an inflation-adjusted basis, though, Turkey’s 7 percent plus inflation rate would see it slip to 13th place in the index, and New Zealand would take top place.

Established in 2006, the Knight Frank Global House Price Index allows investors and developers to monitor and compare the performance of mainstream residential markets around the world. The index is compiled on a quarterly basis using official government statistics or central bank data. The top 10 in the index, which covers 55 countries, is given below.

Knight Frank Global House Price Index, Q2 2016
Change between Q2 2015 and Q2 2016

  1. Turkey, 13.9%
  2. New Zealand, 11.2%
  3. Canada, 10.0%
  4. Chile, 9.4%
  5. Sweden*, 8.9%
  6. Malta**, 8.8%
  7. Austria, 8.1%
  8. Iceland, 8.1%
  9. Mexico, 8.0%
  10. Germany, 7.9%

* provisional
** asking prices
Source: Knight Frank

Although Turkey is not flavor-of-the-month among world governing bodies and leading economies, due largely to the Islamist-leaning policies of its hardline and erratic president, Recep Tayyip Erdoğan, and his over-the-top reaction to the recent attempted coup, it remains a country with a high GDP growth rate, a rapidly growing population, a high level of urbanization, a burgeoning middle class and all the demands of upwardly mobile and increasingly prosperous people — including a natural wish for better residential housing. Lower economic growth in recent years has seen a fall back in the volume of new residential construction, resulting in the price rises seen in the Knight Frank index.

One cautionary note: anecdotal evidence suggests a significant element of the residential housing in Istanbul, with a population of 14 million Turkey’s largest city and which uniquely in the world straddles two continents, has been built illegally and does not meet modern earthquake standards. Like other high-risk earthquake locations around the world, Istanbul is waiting nervously for the “Big One.”


RichardFlemingThe views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Richard Fleming is editor of Institutional Real Estate Europe.

Positioning your message, positioning your fund

Real estate investment managers can learn a lesson from the use of music in television commercials when developing a strategy to bring a new fund to market.

For example, it is not uncommon to watch television or listen to the radio (for those of us who still do that) and hear an old song that accompanies the merchandise being marketed. The purpose of choosing these “oldies” is to connect us with a time we consider nostalgic and bring us back to our respective youthful times. It’s a tried and true method of creating a mood in the 30 to 60 seconds of airtime that have been purchased.

However, so often when listening to the music soundtracks and the products offered at the moment, the messages can often be classified as mixed at best and completely off the wall at the worst.

Two companies whose musical choices create the biggest question marks are Royal Caribbean Cruise Lines, which chose “Lust for Life” by Iggy Pop for an entire campaign a few years ago, and automobile manufacturer Kia, which recently chose “Dueling Banjos” by Eric Weissberg for its Kia Soul line.

As a reminder, the Iggy Pop punk classic refers to drug use, liquor and many physical acts that some may consider inappropriate, especially when promoting a family cruise vacation. And “Dueling Banjos” gained huge popularity as the main theme for the very dark 1970s canoe and camping trip movie Deliverance. (Nothing more needs to be said about this particular contribution to the wonders of cinema.)

One might ask, how does this happen? Who is control of matching this music to what may be considered wholesome family fare? My guess is the creative teams at these company’s advertising agencies were only children sitting in the backseats of their parent’s cars, remembering these songs but having absolutely no recollection of what they’re connected to.

This is something to think about when positioning your fund strategy when attempting to connect with your audience. One question to ask is, “Who in our organization has a true understanding of our product line? And who understands how to bring this message forward? Is this person or team able to succinctly describe that message to marketing and public relations professionals, whether internal or external?” In truth, it’s not an easy task at all.

There are certainly examples of funds that got hammered by the global financial crisis, and quite possibly properties from these funds might end up in your brochure a few years from now because the marketing team didn’t do their proper research when developing the creative collateral materials for the new strategy.

Innocent enough, yet this is where keeping your eyes and ears on the marketing message can get completely lost. You rarely get a second chance to capture a potential customer’s buy-in, and not being completely clear about your message can do immeasurable damage to your brand.

A company needs to be on point in all aspects of its message and the medium it is using to get this message across. Without it, you might find yourself at the end of a very bad camping trip, or worse.


Jonathan_Schein-NEWThe views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Jonathan Schein is senior vice president and managing director of global business development at Institutional Real Estate, Inc.

Up and up

Investors would be wise to seek stable assets that create value during the second half of 2016, according to Partners Group second half 2016 Private Markets Navigator report. Of course, if everyone agrees, then the competition for those investments gets intense and prices rise. Christoph Rubeli, co-CEO of Partners Group, comments:

“While global economic growth remains modest but solid, we expect to see increased volatility in capital markets going forward. In this environment, we are focused on finding more robust assets that can hold their value throughout economic cycles on the one hand, and that offer the potential to create value on the other.”

Growing demand for infrastructure assets is leading to increasing prices in the market for core investments, which is prompting Partners to seek out greenfield investments and brownfield value-add opportunities. And while the larger outlook for private infrastructure investments has remained mostly unchanged during the past six months, Partners Group notes there has been a “squeeze on expected equity returns,” due to increased competition for investments — in particular, large assets in markets with stable regulatory systems. The report notes:

“These include water utilities, energy infrastructure assets — electricity and gas transmission or distribution lines for instance — and availability-based social infrastructure. We have also observed very high valuations in high profile transport-related assets in developed markets.”

Partners Group warns investors that the relationship between investment prices and risk is becoming increasingly misaligned in some markets.

“These very high valuations illustrate our ongoing concerns of a fundamental disconnect between asset valuations and the inherent risks in certain infrastructure businesses.”


DrewWebsiteThe views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Drew Campbell is senior editor of Institutional Investing in Infrastructure.

Guess which esteemed Big Apple address is suffering corporate defections

Park Avenue, New York

A series of upcoming departures by some of Park Avenue’s largest office occupants has real estate observers wondering if New York City’s premiere business address is losing its luster. Citigroup and Major League Baseball are moving, and the giant investment firm BlackRock is weighing an exit in the coming years, according to a report in Crain’s New York Business. Those moves and several others could leave more than 2 million square feet vacant, almost 10 percent of Park Avenue’s office market, as defined by its expanse between East 45th to East 59th streets. Mary Ann Tighe, CEO of CBRE’s New York office told Crain’s:

“We’ve always looked at Park Avenue as the No. 1 location for office space in all of Manhattan. But what you’re seeing is a migration to newer product. The age of these buildings is catching up to them.”

If you want to know more, click here for the full article.


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Mike Consol is editor of Real Assets Adviser.

Cautious sentiment prevails in Asia Pacific

Conditions in the commercial property sector remain challenging across Asia Pacific, according to the Second Quarter 2016 RICS Global Commercial Property Monitor. India and Japan are the only two markets in Asia Pacific in which both the occupier and investment index readings are in positive territory, according to the Royal Institution of Chartered Surveyors.

The commercial property market in Australia remains relatively subdued. While occupier demand is broadly stable, availability continues to rise, depressing rental expectations, reports RICS.

The Singapore commercial property market is headed for further decline, with chartered surveyors predicting rents contracting in the next 12 months. Sluggish GDP growth and weak performance in the services sector continues to weigh on occupier demand. In response, landlords are increasing incentive packages to lure tenants, though this is expected to have little effect on demand. Investor demand in Singapore fell for the fourth consecutive quarter despite improvements in credit conditions compared with first quarter 2016. Only the office sector witnessed a rise in interest from potential buyers, though overall expectations remain gloom-ridden.

Having shown tentative signs of stabilizing in the first quarter, both the Investment and Occupier Sentiment Indices turned negative once more in China. The availability of leasable space rose at the sharpest quarterly pace since 2009, while occupier demand fell, albeit slightly, across all sectors. Excess supply continues to dampen the outlook for rents and capital values, with respondents expecting both to fall significantly across secondary locations. However, prime market segments are likely to prove more resilient.

In Hong Kong, slow economic growth weighs on the outlook for rents and capital values. Retail volume has continuously dropped for several quarters and rent will likely remain flat for the next year. While prime office values and rents are anticipated to hold steady, secondary units are likely to post modest declines on an annual basis.


AndreafinalwebThe views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Andrea Waitrovich is editor of IREN and web content editor of Institutional Real Estate, Inc.

The world’s best and worst places to live

The Melbourne skyline looking across the Yarra River

If you live in Melbourne, Australia, congratulations! For the fifth consecutive year, your city ranks No. 1 on The Economist Intelligence Unit’s Global Livability Ranking, which scores 140 cities across the globe on livability.

Livability scores are based on weightings for the lifestyle challenges of Stability (25 percent), Healthcare (20 percent), Culture & Environment (25 percent), Education (10 percent) and Infrastructure (20 percent). With Stability, threats of terrorism and social unrest were key to the decline in livability rankings for 29 of the 140 cities surveyed, a drop of 20 percent during the past 12 months.

Cities in Australia and Canada grabbed six of the 10 top spots for livability. Here are lists of the top 10 most and least livable cities, according to the report:

Top 10 most livable cities
1. Melbourne, Australia
2. Vienna, Austria
3. Vancouver, Canada
4. Toronto, Canada
5. Calgary, Canada (tie)
5. Adelaide, Australia (tie)
7. Perth, Australia
8. Auckland, New Zealand
9. Helsinki, Finland
10. Hamburg, Germany

Top 10 least livable cities
1. Damascus, Syria
2. Tripoli, Libya
3. Lagos, Nigeria
4. Dhaka, Bangladesh
5. Port Moresby, Papua New Guinea
6. Algiers, Algeria (tie)
6. Karachi, Pakistan (tie)
8. Harare, Zimbabwe
9. Douala, Cameroon
10. Kiev, Ukraine

The report also looks at the cities with the biggest five-year livability score gains (Dubai, Warsaw and Honolulu) and declines (Detroit, Moscow, Paris and Athens).


Jennifer-Molloy91x119The views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Jennifer Molloy is senior editor of Institutional Real Estate Asia Pacific.

Star power

Every year, Institutional Real Estate, Inc. teams up with Property Funds Research to survey real estate investment managers from around the globe for a Global Investment Managers report. We survey them on their assets under management, how many vehicles they have, where they invest globally and so forth.

This year’s survey showed a number of managers enjoyed double-digit growth in AUM during the past year. The industry’s top two largest investment managers, Brookfield Asset Management, with $149.8 billion in AUM as of year-end 2015, and The Blackstone Group, with $147.6 billion in AUM, recorded growth of 19 percent and 22 percent, respectively, based on figures reported in the prior year’s survey. The two behemoths continue to outpace others in the industry, as there is a growing and sizable gap between them and the other largest investment management firms.

This year’s report captures data on 194 real estate investment managers around the globe. As a group, they control nearly $2.8 trillion of real estate assets. Also indicative of the jump in AUM, the top 10 largest managers, as a group, experienced a 12 percent increase from the previous year; the top 100 managers recorded a 14 percent increase.

Similar to years past, the data shows a strong concentration of assets held by the industry’s largest firms. The Big Two — Brookfield and Blackstone — account for 10.6 percent of the collective AUM reported by the 194 firms in the survey. The top 10 firms represent 33 percent of aggregate AUM, while the top 20 investment managers account for 53 percent.

For more trends and a more in-depth look into the report, click here. There is also a version that tracks assets in euros, available here.


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Denise DeChaine is special projects editor and video production specialist with Institutional Real Estate, Inc.

Brexit: you get what you wish for…

They said it wouldn’t be long before the impact of Brexit made itself felt. The 52 percent of the British population that voted for Brexit, for the United Kingdom to leave the European Union, may have had a warm glow on the morning of June 24, but the dire warnings issued in the run-up to the referendum — by politicians, economists, world bodies and world leaders who did not want that outcome — are starting to be realized.

In response to an expected reduction in economic growth, the Bank of England on Aug. 4 cut the bank base rate to a new low of 0.25 percent and introduced a further round of quantitative easing. The inflation rate is now expected to rise rapidly from the CPI number of 0.5 percent for the year to June 2016 as the higher cost of imported goods, itself a reflection of the reset and sharply lower exchange rate between the pound and other major currencies, pushes through. Suggestions are that it could go as high as 4 percent. Holders of index-linked government bonds won’t mind that.

Despite low levels of U.K. unemployment and continuing GDP growth, the feel-good factor has disappeared. Yes, the British people wanted Brexit, but they didn’t necessarily want what will come with it. The 48 percent of people who did not vote for Brexit will be saying, “Knew it, told you.” It will be up to the Brexit negotiators to carve out a divorce deal with the European Union that works for everybody. (Actually, I don’t see Brexit as a divorce, more as a decision by a disaffected club member to no longer want to be a member of the club. A reverse blackball.)

For property investors, the first ramifications are there to see. The obvious immediate impact has been in the U.K. commercial property market, where capital values and investor activity were showing signs of strain even ahead of the referendum. The CBRE U.K. Monthly Index for July 2016, published on Aug. 8, provided the first post-Brexit evidence of decline, with a 3.3 percent drop in capital values recorded for the month, pulling year-on-year growth down to 0.4 percent. According to CBRE, that fall was “widely expected.” Encouragingly, rental values across the U.K. commercial property market in July remained steady.

Miles Gibson, head of U.K. research at CBRE, says:

“Capital value growth was always expected to falter at some point during 2016, as global economic uncertainty cast doubt on the likelihood of the strong growth seen in previous years persisting for much longer. The Brexit vote has now crystallized that expectation, though it is not the only driver of it. It is reassuring to see that rental values have held firm in the face of this heightened uncertainty, a positive sign that the UK occupier market remains strong, sustained by record levels of employment and low borrowing costs.”

Gibson adds that “it will be some time until we understand the full impact of the Brexit decision, but the Bank of England’s base rate cut and more quantitative easing are likely to be supplemented by a similarly supportive fiscal stance in the autumn.”

That’s a reference to the fact that the U.K. finance minister is expected to announce some relaxation of austerity in his autumn statement along with taxation changes, probably toward the end of November. Things such as a cut in the VAT rate, maybe in income tax rates, more action on corporate tax rates; all designed to counter a downward cycle. Yes, works for me.

Source: CBRE

Source: CBRE

As an aside, have you noticed how quickly the term “Brexit” has entered the popular lexicon, as a noun and as a verb? And not just in English.


RichardFlemingThe views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Richard Fleming is senior editor of Institutional Real Estate Europe.

A very hot apartment market

The Intersection

The October issue of Institutional Real Estate Americas will take a look at development risk and where we are in the cycle. Those risks can include anything from construction cost overruns to difficulties leasing or selling the completed building. One of those risks: Fire.

Last month, The Intersection, a 105-unit apartment building under construction at 3800 San Pablo Ave. in Emeryville, Calif., caught fire in the middle of the night and burned down to its concrete parking garage, leaving nothing but twisted scaffolding behind. Months of labor and materials went up in smoke, putting the development behind schedule. According to the San Francisco Business Times, the $40 million construction project by Holliday Development is being set back six to nine months, shifting its opening from the beginning of 2017 to end of the year.

While catching fire is a bit on-the-nose, metaphorically, the San Francisco Bay Area residential market has been blazing hot, and apartment developers have been working hard to take advantage of the strong rental market. The Intersection is one of several projects under construction or planned in the Emeryville neighborhood bordering Oakland.


LorettawebfinalThe views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Loretta Clodfelter is senior editor of Institutional Real Estate Americas.

Infrastructure debt outperforms

Infrastructure debt ranks better than many non-financial corporate debt offerings, according to Moody’s fourth annual report on the historical credit performance of all rated infrastructure debt (1983–2015).

The report updates Moody’s previous study on infrastructure default and recovery rates published in March 2015; its key findings with the expanded data set are generally consistent with the previous study, confirming infrastructure debt’s comparatively solid performance.

Moody’s infrastructure ratings are assessed on expected loss and on that measure are predominantly investment-grade — 92 percent of total infrastructure ratings held an investment-grade rating compared to 41 percent for NFC ratings as of Dec. 31, 2015.

For more, see “Infrastructure debt gets high marks second year running.”


DrewWebsiteThe views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Drew Campbell is senior editor of Institutional Investing in Infrastructure.