TBY talks to Anthony Khoi, CEO of Aerium Turkey, on investment strategies, successes during the crisis, and foreign investment in the country.

Anthony Khoi
Anthony Khoi is a graduate of the Harvard Business School and the leading European EM LYON Business School. He is also a French state-licensed architect and has completed the Real Estate Executive Program at the Harvard Graduate School of Design. Between 1988 and 1995, Khoi was Project Development Coordinator for Unibail-Rodamco, Director of Development Management for leading the French shopping center developer GRC, and Director of Development at the renowned French architectural firm JNEC. In 1995, he founded CENOR, and in 2003 he became a partner at Aerium. Since 2005, Khoi has been the President of Aerium Turkey.

Aerium entered the Turkish market in 2005. What was the strategy behind this decision?

Coming to Turkey in 2005 was part of a strategy we had to expand globally. We saw new markets opening up, and this was an important window of opportunity for us. First movers have a better chance of succeeding in a market, particularly in retail real estate, because you can secure the best locations for shopping centers and retailers such as hypermarkets, which is crucial for their success. I have seen this play out from experience over the years through our work in Hungary, the Czech Republic, Slovakia, and Romania—markets that were not exactly emerging but were new markets for French investors. Turkey was one of the countries we were looking at very strongly with regards to demographics, growth capacity, and its dynamic government. When we started to invest in Turkey, our strategy was to become a long-term investor. We never expected to come to this market, buy an asset, and exit like opportunistic investors do. We had a long-term vision to be part of the shopping center industry in Turkey and take advantage of the huge potential of the retail sector at that time. We were one of the first global funds to enter Turkey by investing in the Carrefour malls portfolio, as well as in CEFIC, the Turkish leader of property and leasing management activities, in a joint venture with Simon Property Group and Ivanhoe. We wanted to achieve the best value creation for our fund and for our investors. One of the major difficulties in emerging markets is a lack of experience and expertise. A key factor of our success in Turkey was vertically providing high standards and integrating all the different stages of management, from the bottom to the top. This integration and control of activities has been crucial, as has creating a high efficiency and, above all, creating value. You can't just be an investor; you have to be a global actor in a country and consider yourself as an active local actor. Like other major shopping center specialists such as Multi, Redevco, and Corio, you have to be close to the community, the customers, and the partners and directly control your marketing, leasing, and management teams—this is considered as a key factor for success. With a team of over 100 people, we are one of the leaders of the shopping center sector in Turkey with over $2 billion in assets under management and over $2 billion worth of projects under development.

How did Aerium's strategy enable it to continue its success through the recent crisis?

Following the fallout from the financial crisis and the debt crunch, our industry has undergone a structural transformation. These changes enabled Aerium to identify clear trends and opportunities in specific markets and sectors, on which we placed all our efforts and focus. This resulted in a very successful investment and development strategy during the last 10 years. In 2009, we invested over €200 million in the middle of the crisis period and extended or renovated our portfolio of shopping centers in Turkey and Europe, with a considerable impact on the performance and value-added of our assets. Our specialization in the office and retail investment and development sectors in Europe secured our leading position and enabled our group to identify and source high-quality assets for our investors. We position ourselves as a traditional investment manager, but also as an expert in the fields of retail and commercial real estate. In the market, we are recognized as a niche player. When most of our competitors were looking at downsizing and outsourcing to reduce costs, we positioned our group as a full-service Real Estate Investment Manager (REIM). We enjoy excellent relationships with international retailers and corporate tenants throughout Europe and Turkey. We are always available and ready to assist them in their future expansion. We are proud to have achieved, despite the financial and eurozone crises, one of the best track records of investment management efficiency for our equity partners and shareholders.

How would you characterize the environment for foreign investors in the local real estate market, and what can Turkey do to attract further investment?

Fitch Ratings upgraded Turkey to investment grade on November 5, 2012, a move long coveted by Ankara, citing underlying strengths and an easing in near-term risks for the economy. The transparency and business environment in Turkey have improved significantly thanks to the strong, prudent, and stable government. The Turkish government has enacted new regulations regarding reciprocity for owning real estate in Turkey by foreigners, which has definitely had a positive impact, especially on the residential market. However, there are still uncertainties, especially about urban planning, government taxes, and regulatory policies. Several retail and shopping center organizations and councils are collaborating with the authorities regarding new regulations for the improvement and sustainability of the shopping center sector. We trust that the Turkish government will consider the opinions of these prominent organizations in order to preserve and promote the growth and sustainability of investment in the country.

How would you characterize the outlook for the retail real estate sector in Turkey?

At the end of 2012, there were some 313 shopping centers in Turkey, representing over 8.1 million sqm, €75 billion in retail turnover, and 50,000 sales points. Total private consumption expenditure was over $600 billion in 2012. With a population of 75 million and an average age of 28.5 years, Turkey has the youngest and second largest population in Europe. Its 25 million strong labor force places it fourth in Europe. Each year, 450,000 graduates emerge from Turkey's 161 universities. The unemployment rate is stable and decreasing, and was under 9% in 2012. Turkey went through an unstable period between 1990 and 2001 due to international and domestic crises. The post-crisis period was shaped by fantastic stability and growth for all sectors of the economy, and particularly modern retail and shopping centers. Today, Turkey has the second highest gross leasable area (GLA) in the pipeline in Europe after Russia, representing over 3 million sqm over the next three years and focused mainly on Ankara and Istanbul. Turkey ranks 10th in global retail sector sales and stands seventh in Europe. Retail sales increased 15% in the first half of 2012 compared to 2011. The total size of the Turkish retail market is expected to reach $313 billon in 2012, while average annual growth is projected at 10% up until 2016. Over the next 10 years, my vision of Turkey is that we are moving from a strong development market to a high-potential investment market. Just as a plane has to reach the right altitude to fly, Turkey is now reaching the right moment to soar. We have to keep the industry at the top of its game and pilot our centers through turbulence over the next few years. Turkey will reach, regarding retail development, saturation in some cities in the next 10 years; some weak centers will close with the arrival of the stronger malls. The older first-generation malls will have to be refurbished or extended. Some will die and the new generation will take their place; others will keep their market share with smart management. Investors will have some great opportunities to get into the sector as regulations become more streamlined. The next 10 years will be a very promising and exciting time in Turkey for the retail and shopping center sectors. The market is moving from the development to the investment cycle, and from an emerging to mature situation. The quality and attractiveness of the assets and particularly their management will be key to distinguishing the centers from the competition. The door is now open for US, Middle Eastern, and European funds to come to Turkey and take a position in one of the world's most dynamic markets.