There is a great potential for a branded serviced apartment company to enter the market in Turkey and generate profits. I was keeping this blog as a satellite website to support other sites for indexing, crawling, etc.. up until now but I decide to start adding some actual business plans and industry reports regarding the serviced apartment industry in Istanbul and Turkey in general. So, here is some parts of a business plan for an Istanbul based potential serviced apartment chain that I wrote over 1.5 years ago. The situation is not much different and it should help give an insight to the Serviced Apartment Industry in Istanbul from an investment perspective.
The table of contents in the normal business plan goes like this;
I. Table of Contents
I. Table of Contents
II. Executive Summary
III. Business Opportunities/Description
Business Opportunities
Entry Strategy and Growth Timeline
IV. Business Model/Investments
Business Model
Revenue and Investment Model
Types of Investment Properties
Fund Overview
Fund Participation & Private Investments
V. Marketing and Management
Marketing Objectives
Marketing Approach
Competitors
Unique Selling Position
Management Organization
VI. Market
VII. Sample Portfolio Proposal
VIII. Conclusion
IX. Contact
And, I will be publishing some parts of the plan possibly in multiple posts. Let’s call the imaginary serviced apartment chain “Techart” and the investment fund “ABC” Here is some of the content from different parts of the plan.
Please note that some parts of the plan will be deleted for several reasons one being confidentiality. If the text does not make sense, it is probably because there are parts missing between the sentences.
II. Executive Summary
ABC Investment Fund (hereinafter referred as ABC) has identified a significant business model opportunity in Turkey and structured a business model designed to – invest in real estate market in Istanbul, create a serviced apartment brand with a first mover advantage for resale to global serviced apartment chains and ensure a safe investment model with multiple value drivers in place.
ABC’s business model is highly flexible, inflation secure and an opportunity driven model. The investors will have absolute comfort in the investment strategies implemented and the availability of multiple exit strategies.
ABC is a real estate investment fund operating in the Istanbul market since 20**.
Legal framework – The TECHART serviced apartment fund (hereinafter referred as TECHART) will be a seperate investment company and investors will have equity participation in the company.
Security – The objects acquired will be registered in the investment company.
ROI – Estimated return of X% per annum. See financial projections.
Management – The management will be provided by ABC Managment which will work on both renting the units on a consistent basis and build brand name recognition for the portfolio.
III. Business Opportunities/Description
Business Opportunity
ABC has identified a significant business model opportunity in Turkey and structured a business model designed to invest in a portfolio of both distressed and normal properties that can be developed to serve as serviced apartments and create a national brand to market and manage the properties. There is no significant competition in the market. The market is under-penetrated and presents an early-mover advantage to create a leading brand of serviced apartments.
ABC, through its connections, have access to multiple distressed properties with unique traits and also has a functioning marketing network. The investment model is designed to bring together individual and institutional investors to invest in real estate opportunities with lower than market prices, guaranteed contracts producing high yields and multiple exit opportunities with various value drivers in place.
Entry Strategy and Growth Timeline
ABC, through its connections in the market will acquire real estate in Istanbul and develop them to suit the needs prescribed by the investors and facilitate the premises. The initial strategy is to start with approximately 50 units and increase the total number of units to around 300 within 4 years.
Phase 1 (1 to 12 months)
- Identification of 3 objects with approximately 50 units. The entrance point is the Beyoglu area.
- Setting up the management and marketing team to start promotional activities and brand building.
- Develop and furnish properties and make them available for accomodation preferably within a maximum term of 6 months after acquisition.
- Cash Flow starts.
Phase 2 (12 to 24 months)
- Identification of additional objects in Nisantasi, Bakirkoy (airport area), Historic Peninsula and Kadikoy.
- Acquisition, development and management of additional objects.
Phase 3 (24 to 60 months)
- Identification of additional objects in Ankara and Izmir.
- Acquisition, development and management of objects in other cities.
- Portfolio size approximately 300 – 350 units.
- Possible exit through a sale to an institutional invesment fund or an IPO at the end of 60 months.
Once the initial operation stabilizes, ABC will seek opportunities in other major cities to establish a serviced apartment brand that is present nation-wide.
IV. Business Model/Investments
Business Model
TECHART is structured as an open-ended real estate holding fund. ABC has structured its business model to offer the ideal equilibrium between real estate investment opportunities, investment management, property management and investors.
Key factors are:
- Opportunistic buying opportunities.
- Keeping management and operations seperate from investment structure to ensure security of real estate investments.
- Easier entry for investors and additional exit options such as selling shares instead of selling properties, liquidating individual cash-flow generating objects or a portfolio sale.
- Risk Management
Legal Structure
ABC will adapt a similar legal model to the TECHART serviced apartment fund that it already uses in its *** Investment Fund. The fund will be formed as an “**” – joint stock company-
The investment and property management will be handled through a second company that will operate and be compansated on a performance fee basis.
Revenue and Investment Model
ABC will identify real estate investment opportunities and prepare portfolio proposals.
Investment Steps and Checklist
- Search and locate unique objects with reasonable asking prices
- Legal, structural and financial due diligence
- Best Use analysis
- Projections and Minimum Investment Requirements
- Min 9% yield with guaranteed contracts
- High Capital Gain potential
- Prime city center locations
- Immediate cash flow, usually less than 6 months
- Negotiations and Closing
- Development and Furnishing
- Marketing and Operations
The focus will be on acquiring unique buildings in terms of location, size and type. The investment opportunities can be grouped in two categories;
- *** Properties
**** Need to delete this part due to some investor commitments.
- Distressed Properties
Available for purchase at lower than normal market prices, ABC has access to a network of developers and brokers to locate and bid in distressed properties.
Types of Investment Properties
While there are several different types of furnished apartments, Techart is prepared to create multiple brands to meet expectations of travelers at several levels.
- Residential
- Student
- Roommate/flat sharing
- Budget –
- Business travelers
- Commercial
- Instant Offices
- Serviced Offices
We primarily plan to specialize in two different segments of the industry where there is less competition;
Local and foreign business travelers seeking accomodation from several weeks up to 12 months.
- Advantages: Higher rental prices, stable demand
- Disadvantages: High Competition, increasing supply
- Worst Case Scenario: Focus marketing efforts more on local business travelers and offer competitive pricing to classify as corporate housing.
Students seeking accommodation for 1 to 6 months (usually up to a semester)
- Advantages: Low development costs, stable demand, less marketing and operational costs
- Disadvantages: Low income
- Worst Case Scenario: Change in marketing strategy to include non-students and low-income foreigners as tenants
Possible classifications:
- Techart Premium – 100 euro to 300 euro per day with 3 days to 3 month leases
- Techart Budget – 30 to 100 euro per day with 1 week to 3 months leases
- Techart Student?? – 8 to 20 euro per day with 6 month leases
Fund Participation & Private Investments
ABC’s model makes it possible to both invest in the holding company and also provides a partnership deal with private investors who are interested in investing in single objects rather than the general fund.
The TECHART Apartments fund is an open-ended real estate fund employing a holding strategy. Every investor can participate in the fund by acquiring shares. One of the major advantages that come with investing in the general fund is the diversification of risk. TECHART fund acquires and holds various types of properties in several different locations. In case of an unexpected decrease in demand for a certain type of property or for a certain location, the diversification of the portfolio helps with distributing the risk among numerous objects, thereby, protecting the investors.
However, if an investor is only interested in a single or a small portfolio of objects, ABC’s model allows for the investor to invest only in the selected objects through an SPV (special purpose vehicle) company. Considering the properties meet the necessary investment standards and are likely to produce the expected returns, ABC invests up to 50% of the required capital for acquiring and developing the properties in partnership with investors. The properties are then branded and managed by ABC on behalf of the owners and this helps with generating a high return (yield) out of the investments while taking all the hassles out of owning investment properties abroad and producing a turn-key management solution.
Combining multiple serviced apartments under the same management also helps with decreasing the marketing and operational costs of the investment, thereby, help with increasing the net return on the investment both for the investor and ABC.
See Appendixure 1 for a sample of private investment undertaken in *****
Marketing Objectives
For TECHART
- Value Driver: Establish a strong brand in the market for resale.
- Become the leading brand in serviced apartment industry in Turkey.
- Utilize acquired market knowledge and marketing network to ensure high occupancy rates right from the start.
- Use “art meets technology in living spaces” as a promotional tool.
- Convey our message to the largest segment of the marketplace in the most efficient and economical fashion.
For ABC through TECHART
*******
Marketing Approach
Techart brand will be promoted by expanding on the “art meets technology in living” spaces concept. Art exhibitions, offering of art pieces for sale in living places and sponsored art events will be used to build the TECHART brand name synonymous with art and technology.
Competitors
Most of the competitors in the market suffer from low capitalization and have limited number of units under management. Of those, who have easy access to capital, they choose to remain in the high-end part of the industry which results in focusing on only a small part of the market that are high-income travelers seeking upscale accommodation options.
Some competitors have portfolios that are made up of smaller properties with generally 5 to 8 units in different locations owned by multiple landlords. Targeting a limited type of travellers generally result in property managers to choose a part of the portfolio to focus on and increase the occupancy rates while other landlords suffer from low occupancy rates.
While there are no brands in the market with an established reputation for providing accommodation at multiple key locations and an expected level of services in all premises, there are several companies offering serviced apartments in limited quantities;
Competitor data is deleted **************
Unique Selling Position
Art meets Hi-Tech in Most Convenient Locations of the City– Meeting all your accommodation expectations
Every property in the portfolio is acquired and designed to uphold the three principles:
Hygiene, Safety and Hi-Tech Communication Equipments
*** deleted
Although a lot of the data is deleted, this should be enough to give an idea to some of you who are familiar with the industry. Should you want to get in touch for additional information or just to discuss your investment plans, feel free to visit apartments.com.tr or oypo.com and drop an e-mail.
