LONDON (Reuters) - Morgan Stanley (MS.N) backed shopping mall developer Multi Corporation is shifting its focus to the redevelopment of malls across Europe, and has plans for a multi-billion-euro Turkey-focused real estate investment trust.
Multi’s Chief Executive, Glenn Aaronson, said on Tuesday redeveloping existing malls in partnership with their owners was profitable, a more efficient use of capital and less risky than developing them from scratch.
He said this was because redevelopment projects had faster turnaround times than developments, used existing land, did not involve the same lengthy planning process and were less capital intensive for investors.
“We will focus more on rehabilitation, restructuring and regeneration of existing shopping (malls) than on the development of new shopping (malls),” he said at the Reuters Global Real Estate and Infrastructure Summit.
“Where we are starting to focus in that area, the investors and retailers are focusing in that direction more (as well) ... and your return on investment is much better,” he said, adding Multi would financially invest in its redevelopment projects.
For many years the company’s activities had been weighted at 15 to 20 percent redevelopment, with 80 to 85 percent being development. “I think that number is going to change to two-third redevelopment and one-third development.”
The return on investment was better than for development on a pound-for-pound basis. A 10 million pounds ($15.5 million) investment in redeveloping a mall could see its value rise by 30 million pounds, plus associated rent hikes, he said.
Opportunities for redevelopment were in core markets, including the Netherlands, Germany, Portugal, Spain, Turkey, and some of new Europe including the Czech Republic and Poland.
Aaronson also said Multi planned to launch a multi-billion pound real estate investment trust (REIT) in 3 to 5 years’ time. It would be quoted in Istanbul and comprise only retail properties.
“We’re going to forge on and be an investor and developer in Turkey and we’re going to end up floating a Turkish REIT, which will be the largest Turkish REIT in the market,” he said.
Aaronson said he saw ongoing economic restlessness in Spain, Ireland, and Portugal, but was looking to the bounce-back.
“You won’t see that kind of stress in Germany but you cannot see that kind of come back; the elasticity in one direction versus the elasticity from the other direction,” he said. Meanwhile, the UK and French markets had proved testing for Multi over the years, said Aaronson, adding the company had no plans to withdraw from those areas.
“I think we have also learnt from our lessons, that here are some places where it is very difficult to crack into the market,” he said.
To that end Multi had maintained its market research budget at up to 1 million pounds, which would largely be focused on its core markets.
“We will concentrate our efforts on core markets but keep our ears and eyes open in other markets,” he said, adding Ukraine was among those.
He saw Romania, Bulgaria and Georgia as rife with political risk and said Multi had no ambitions there.
Aaronson also said the real estate arm of the U.S. bank has no plans to exit its investment in Multi, contradicting a degree of speculation that it could sell its interest to offset awesome likely losses in some of its funds.
In April, Morgan Stanley told investors they could lose up to two-thirds of the equity in the $8.8 billion MSREF VI real estate fund due to bad investments.
The looming losses have hampered fund raising efforts for its new global property fund, MSREF VII, which closed last week after raising $4.7 billion, some 46 percent less than its previous such fund.
“I think they are happily invested in Multi but again any investor has to get his returns and it is tougher to get those returns with 60 percent leverage than it is with higher leverage,” Aaronson said, without offering detail on the equity MSREF was likely to inject to support its strategic overhaul.
“I don’t see where their exit is going to come any time soon.”
(Additional reporting by Daryl Loo and Jason Benham; Editing by Hans Peters)
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