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GENERAL GROWTH TEAMS WITH ECE TO BUILD, BUY TURKISH MALLS

By Sascha Brodsky

Turkey’s growing economy offers a lucrative opportunity to developers, observers say, reflecting on General Growth Properties’ new joint venture to build shopping centers there.

General Growth is forming CURA GGP Gayrimenkul Gelistrime, a partnership with German shopping center developer ECE Projektmanagement, to buy and develop retail properties in Turkey. At press time General Growth said it had not decided how much it would invest in the venture, its first in Europe.

“There’s a huge opportunity for us in Turkey because of its size and recent economic development,” said Alex Berman, head of General Growth’s international division. General Growth will provide experience in design and operations, and ECE will offer local knowledge, says Berman. ECE manages six centers in Turkey, having first set foot in the country in 2000.

The partnership broke ground last month on their first project, a 430,000 retail-entertainment center in Eskisehir, about 200 miles west of Istanbul. Eskisehir, population 700,000, is one of Turkey’s most prosperous cities. Espark, as the center will be called, is scheduled to open in fall 2007 with 150 shops and a cineplex.

As part of the deal, General Growth will buy 48 percent of ECE’s Turkiye Proje Yonetimi, the Turkey-based shopping center management arm through which ECE manages those six Turkish properties.

Turkey’s economy is clearly on the upswing. The country, the world’s 18th-largest economy, with $423 billion in gross domestic product in 2004, will see GDP growth of about 6.2 percent a year on average over the next three years, according to a report by Morgan Stanley. Though per capita income is only about $6,400, 5 percent of the population of 70 million, or 3.5 million people, boast average household income of $45,000 yearly.

The country is particularly attractive because development costs are much lower than in other parts of Europe, particularly western Europe, says Berman. General Growth is targeting Turkey’s burgeoning middle class. “It’s not sustainable to just concentrate on the top 1 percent of the population in terms of wealth,” he said.

To lure those shoppers, General Growth is planning a mix of both local and international brands. “We hope that the big international players will feel more comfortable coming into Turkey with an established name like General Growth,” he said.

Turkish retail real estate is a highly undervalued investment, says Yaromir Steiner, CEO of Columbus, Ohio-based Steiner + Associates, who is a native of Turkey and travels there frequently.

“There is a growing middle class, but the country is very under-retailed by American or European standards,” Steiner said. “It’s an incredible opportunity.”

The risks in investing in Turkey are minimal, says Steiner. Though Turkey sits on the fringe of the Middle East, upheaval in the region is unlikely to affect its economy, he says. Fluctuations in the Turkish lira have been a concern in the past, but the currency has recently stabilized, says Steiner.

General Growth formed two previous international joint ventures in 2004, both in Latin America. With Turkey under its belt, General Growth is looking for other ventures in Europe. “There are a number of areas where the shopping center market is not mature,” said Berman, “and there are opportunities for growth, such as Eastern Europe.”