h1

malls in Brazil & Turkey

Tuesday 19 February, 2008

I read this article in the Chicago Tribune General Growth to focus on expansion in Brazil
the other day.

General Growth Properties, Inc. (NYSE GGP) is the 2nd largest owner of malls in the U.S., but looking south to Latin America & east to Eurasia for growth. GGP has 16 properties in Brazil, 6 in Rio de Janiero, 2 in Sao Paulo, & single locations in Boca do Rio, Campina Grande, Feira de Santana, Itabuna, Minas Gerais, Porto Alegre, Salvador, & Santa Catarina. 6 are owned & managed, only 1 is simply owned, & 9 are managed centers together with its local partner Aliansce.

With a gross domestic product (GDP) of approximately US$700 billion, Brazil represents roughly half of the South American territory and economy, so I can certainly see Brazil as a growth region. I visited Sao Paulo & Rio in 2003 & was impressed with the degree of urbanization in those cities & saw many urban malls on my visit. It was eye-opening for me to realize Sao Paulo is more than double the population of Chicago. What also surprised me is the lack of history there-it seems like they mirror Americans in tearing down old buildings & simply replacing them quickly with new ones rather than preserving the past as they do in Europe.

GGP’s footprint in Turkey isn’t quite as big as it is in Brazil, but perhaps more dispersed, with 1 mall in the capital of Ankara, 2 in Istambul, & others in Antalya, Beylikduzu, Eskisehir, Maltepe. All except the 1 in Eskisehir, which is owned & managed, are managed centers. Their partners there ECE Turkiye and Cura/GGP. With annual real GDP growth rate in 2007 of 4.6%, Turkey is definitely a growth region as well. I visited Turkey when I lived in Europe 20 years ago, but only visited Cesme on a day trip when I was cruising the islands of Greece, so I can’t comment on real estate in bigger cities I wasn’t able to visit.

It looks like GGP’s strategy is to manage properties with local partners before taking ownership positions, which is a good way to enter the market with low risk & little cash outlay.  There are risks though in how the relationship develops with the partners & how deeply relationships are developed with tenants.  Depending on how those relationships develop, it can be less or more expensive to transition from management to  ownership positions over time, which ultimately determines the ROI on those investments.

an old building in Sao Paulo

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