Q&A: Barbaros Karaahmet, Co-chair of Herrick Feinstein’s Turkish Practice Group
Cathy Cunningham Aug. 5, 2016, 9 a.m.
Barbaros Karaahmet is a Turkish-American lawyer and co-chair of Herrick Feinstein’s Turkish practice group. A third-generation attorney who splits his time between New York City and Istanbul, Karaahmet is responsible for assisting Turkish family businesses in identifying, acquiring, leasing and financing U.S. real estate assets. Most recently, he advised City’s Property Development New York, the commercial property arm of Turkey’s Gulaylar Group, in its purchase of the non-retail portion of 685 Fifth Avenue from General Growth Properties and Thor Equities. Karaahmet chatted with Commercial Observer about himself, which assets pique the interest of his Turkish investor clients and the advice he’d give to other foreign investors considering getting their feet wet in the New York City real estate market.
Karaahmet—who works on behalf of Turkey’s government—wouldn’t comment directly on the biggest elephant in the room (the recent coup attempt) and what it would mean for Turkish investment in the U.S. except to say, “The trend of Turkish people diversifying and directing their assets and investments into the United States has been strong for several years, and I expect it to continue.”
Observer: Tell us about your role at Herrick Feinstein
Karaahmet: I started at Herrick Feinstein 22 years ago. I was doing art litigation at the time because we were representing the government of Turkey in recovering stolen art. In 2001 I left the firm, set up my own shop and practiced law in New York for 10 years with seven other lawyers. Then in 2012, after my practice had reached a certain level, I transferred it back to Herrick Feinstein. I had kept in touch with Herrick for these 10 years, and I came back as the co-chair of the Turkish practice group. The firm had a history with Turkey going back to the 1980s, but it was primarily on the government side, and we wanted to convert it to the commercial side. So, I’ve been co-chair of the Turkish practice group since 2013.
Which projects are keeping you busy?
Right now we are working on seven different real estate projects for different investors. We’re looking at a couple of well-known hotels that are on the market and a couple of land deals for Turkish developers. One happens to be in Long Island City. That particular developer is savvy enough to hedge his bets and buy one piece of land in Manhattan and the second in Long Island City because they have different price points. We also represent the government of Turkey in the development of the consulate building. The government is knocking down the consulate building in front of the U.N. and building its largest real estate development project outside of Turkey.
Was the outcome of the Brexit vote a big surprise to your clients?
I think so because it’s such a big undertaking to be part of the EU, and I personally never thought about what it would take to leave. Turkey has been trying to get into the EU, and so to see a country leave is a strange paradox for us. But for our Turkish investor clients, London has definitely been the number one target for investments—in addition to New York.
Do you see your clients now withdrawing from London amid the post-Brexit uncertainty?
I don’t know that they are withdrawing their current assets, but I know the companies and/or individuals who were planning on investing in London are now looking at New York instead.
Why is New York especially attractive?
New York has always been attractive to Turkish and foreign investors because it is seen as the financial capital of the world, and there is a certainty with the markets here in that you only hear of New York going up in value. One of my Turkish clients said, “If New York goes down, we’re all going down, so why not invest here?” It also has very limited space in terms of the fact that you are on an island and so everyone wants to be on that island [of Manhattan].
Miami is also attractive to my clients, and there are a couple of reasons for this. We now have direct flights to Miami from Turkey, and the prices in the condo market are so attractive that investors look at their own country and say, “I can get an oceanfront property for 30 percent cheaper [in Miami] than Turkey, and the U.S. is a safe economy.” Investing in the Miami condo market is a no-brainer as far as most Turks are concerned. There are some commercial investments too, but the personal use investment in Miami is much higher.
With regard to New York, is it solely Manhattan that’s attractive in terms of real estate investments?
Turkish investors can be split into two groups. There are the investors who know Manhattan and have an affinity for it but also understand the other boroughs—these investors will look at a Brooklyn property or investment opportunity because they understand how it’s perceived in the local market. The second group is the Turks who are trying to invest in the U.S. for the first time, and their first stop is New York. Those investors are not interested in Brooklyn because it doesn’t have the same name recognition as Manhattan.
Are any particular asset classes especially appealing?
Multifamily is hard for someone sitting in Turkey to manage with all of the tenants, so my clients like retail projects; retail condos are easy to rent out and easy assets to exit. Also office properties, as even though there are tenancies they don’t require day-to-day management and have long-term tenancy potential. Office condos also provide the opportunity for conversion into hotels further down the road.
We have another group of clients, Turkish developers whose clients are telling them that if they build something in New York, they would then purchase here.
Does the combination of the weaker British Pound and lower property prices make London a more attractive buy right now?
I don’t think it makes too much of a difference. My clients are not looking for an immediate exit, and they’re not flippers. They like to keep a property and develop it or add some value. The fact that it’s cheaper is maybe more of a concern to them, actually.
You’re advising City’s Property Development New York, the commercial property arm of Turkey’s Gulaylar Group, in its purchase of the non-retail portion of 685 Fifth Avenue.
[The investor] is a family that I have been representing for the last 18 years actually; it’s a Turkish real estate and jewelry, gold family, and it’s my second noteworthy transaction in New York with them. The first was International Gem Tower. We purchased the retail section of IGT and built the largest jewelry exchange in New York. We just signed a contract with the sellers for 685 Fifth Avenue and are purchasing the office portion. The interesting thing is it’s the first time a Turkish family was able to buy such an iconic property on Fifth Avenue. The transaction has not closed yet, but the closing will take place later this year.
Are there any impediments to Turkish investors deploying capital in New York City CRE?
As far as the Turkish investor is concerned, there are no impediments, only advantages. If it is a good property, you can even get local financing, which is very limited in Turkey, so it’s very refreshing for them. Our team can introduce them to local banks and help them secure financing so that makes [the transaction] more advantageous for them.
How do Turkish investors source the opportunities from overseas?
Maybe 20 percent of investors are in New York and decided to have a foothold in the market. But most of them are based in Turkey and trying to get their feet wet, so they do their sourcing through lawyers or brokers. Our clients tend to look at an opportunity, and if they like it, they come to the U.S. where we do the due diligence for them and present the pros and cons.
How can more investment be encouraged?
The good thing about the U.S. market overall is that you have great access to property information, much more than Turkey. Here you have databases, you have the history, the track records of the sellers, you can really find out the history of a property. But I always recommend coming here [to the U.S.]. When you buy a property, you have to understand the market in order to appreciate whether it’s a good opportunity or not. The only way to know the local market is to rub shoulders with the banks that finance these properties and see their point of view and then talk to the developers. You need to sense the pulse of the market, and you can’t do that from overseas. You have to understand what Americans are buying if that is your target market.
What advice would you give to foreign investors considering investing in U.S. CRE?
I believe it’s a great time to come to the U.S. I think within the next year, starting now, there will be many opportunities in New York, and many properties will change hands. You always make money in New York, and so the question is, When do you get into the market? Not to be biased, but I have been here for 22 years, and I am a big believer in New York real estate. I think now is the time for international investors to come in and snatch up all cash deals.
The trend I see is that the lending facilities available for investors are getting tight-handed, which naturally affects the deal volume. If you are in the market to sell, you will take less if it is an all-cash deal knowing that you will close. So this is a perfect opening for foreign investors to come in. And as the investors would say, “You make money in real estate when you buy, not when you sell.’ So investing in a secure and liquid market like New York at a good time is a win-win for foreign investors.