Turkey's struggles create a buyer's market

Doğuş Holding A.S. is looking to sell the Grand Hyatt in Istanbul. Photo credit: Hyatt Hotels & Resorts (Grand Hyatt Istanbul)

Istanbul-based Doğuş Holding A.S. is reportedly looking for buyers for its Southern European portfolio of luxury hotels.

In April, the conglomerate applied to restructure around $5.8 billion in debt, relating to losses in the business and the impact of falling currency. Although the group sold assets worth €313 million, it has remained under pressure. 

The company may well be looking for buyers for Villa Dubrovnik, Madrid’s Hotel Villa Magna, Rome’s Aldrovandi Villa Borghese Hotel, the Capri Palace and the Grand Hyatt in Istanbul. It is likely the hotels will be sold to individual investors rather than as a portfolio. 

The company is one of many in the country where the depreciation of the Turkish lira has hit businesses, opening up opportunities for overseas investors.

Turkey’s Challenges

The lira has fallen by almost 50 percent against the U.S. dollar in the past year, hampered by a large current account deficit, combined with high levels of debt in the private sector and extensive foreign funding in the banking system. According to Reuters, the country's central back on Oct. 25 left its benchmark interest rate unchanged following a previous 6.25 percentage point increase that helped the currency bounce back slightly from some of its losses. 

The IMF is predicting Turkey’s gross domestic output will add 3.5 percent and only 0.4 percent in 2019, down from its April forecasts of 4.2 percent and 4 percent.

The fund said in its latest World Economic Outlook that the challenges Turkey is facing “will require a comprehensive policy package comprising monetary, fiscal, quasi-fiscal and financial-sector policies.”

Last month, Turkish finance minister Berat Albayrak revealed an economic plan to be implemented over the next three years based on “balancing, discipline and change,” that included cutting public spending by $10 billion to bring down the budget deficit and to try and curtail public spending. 

The fall in the lira has given the country’s tourism sector a boost, with travelers looking for a bargain. The number of foreigners visiting Turkey rose 15.6 percent year-over-year to 5.38 million in August. Visitors came mainly from Russia (up 16.9 percent to 910,000; Germany (up 12.1 percent to 655,000) and the UK (up 6.75 percent to 363,000).  

Insiders are reportedly hoping the increase will be sustained once the currency has recovered. The country is positioning itself as a hub between East and West with the opening of Istanbul New Airport this year, which will replace Ataturk Airport. The capacity of INA will be expanded to cater to up to 200 million persons once all four phases are finished and will have a total of six runways and three terminals. 

The country’s government is working to bring investors into the country to help it meet its target of 50 million tourist arrivals and revenues of $50 billion by 2023. It is offering incentives such as reduced utility prices and tax rates, while pursuing policies aimed at eliminating any bureaucratic barriers that may hinder growth in the tourism sector.

The release of U.S. pastor Andrew Brunson last week saw the currency rally, with hopes that Donald Trump will pull back tariffs on steel and aluminum designed to punish the regime, but the economy still faces a number of challenges. 

For Doğuş Holding, the need to sell remains pressing. The group’s coveted selection of trophy assets is likely to attract bargain hunters.  

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.