Investing in Turkey or Russia?

[ONUR OCAKLI]

Greetings to Everyone,

I am a corporate and real estate lawyer practicing in Turkey, Russia and the Netherlands. One of my clients, a construction company which is experienced in mainly residential projects in Turkey, will construct two seaside resorts. One of them is on western coast of Turkey, near Bodrum, and the other one will be in the southwest Russia. Some of their residential projects are also ongoing, and are mainly located in Antalya - a touristic city in southern Turkey. They conduct a research to analyze whether it is reasonable to seek in the US potential buyers for their residences, and perhaps corporate or individual investors for their ongoing and future hotel projects.

I post this message here in an attempt to help them on this research. I believe your opinions especially on the question whether a US investor would be interested in such an investment opportunity in Turkey or Russia will be invaluable.

Thank you.

[John C.]

My sense now is that Turkey is always an interesting place but very saturated in the nicer beach areas and a bit more country risk now with Erdogan's war on the PKK, the Syrian situation, migrants running across the country, etc. Turkish lira has crashed but I'd imagine any new start up development is in serious risk of being put on hold if the developers are local, so that's also a potential issue. Lord knows there are tons and tons of already-built developments in the areas you mention, many on sale, so would have to be something really special to attract investors, and even then you're better off approaching Europeans.

RE Russia, it is a good time to buy given the strengthening USD and how far the Ruble has crashed (mostly due to oil & commodity prices + the political issues around sanctions and Ukraine). But it's not for the faint of heart given how convoluted the property title & searche process can be and all the risks with local corruption. You need to have local partners to help you out and would not want to go in blind now esp with the sanctions situation. But there's certainly money to be made.

Most importantly, you can't get reasonable leverage in either country (i.e. less than 10-15% rates, in Russia mortgages are over 15% now) and returns are still quite good in many areas in the US so why go abroad unless you really know the region and can make outsized returns? 

FYI I'm currently working with distressed properties in Ukraine, and returns are strong (30+% IRRs on residential) but no mortgages to speak of and it seems like it's much easier to sell the idea to European investors (who have very low rental returns in general, and lower price appreciation in most areas outside the big cities like London, Paris, etc.) than to US investors (who can either buy their own property with very low mortgage rates and/ or invest via a multiple of ways (private lending, fix 'n flips, Crowdfunding sites, etc.). If you take a look at the leveraged US real estate plays it's not uncommon to see 15-20% IRRs on the equity, and there are plenty of short-term construction/rehab loans at 9-10% too.