DUBAI OR NOT DUBAI: THAT IS ISTANBUL'S QUESTION

C O N F I D E N T I A L SECTION 01 OF 03 ISTANBUL 001916

SIPDIS

DEPARTMENT FOR EUR/SE

E.O. 12958: DECL: 11/07/2015
TAGS: ECON EINV TU
SUBJECT: DUBAI OR NOT DUBAI: THAT IS ISTANBUL'S QUESTION

REF: ISTANBUL 1716

Classified By: Consul General Deborah K. Jones for reasons 1.4 (b) and
(d).

This message was coordinated with Embassy Ankara.


1. (SBU) Summary: Istanbul Municipality and Dubai Holding
inked an agreement October 7 heralding Dubai International
Properties' (DIP) intent to invest USD 5 billion in Turkey in
the coming years. Istanbul will chip in USD 1 billion in
property for a 20 percent share of the joint venture. A USD
500 million mixed-use Dubai Towers project in Istanbul's tony
Levent district, due for completion in 2008, will kick off
the partnership's real estate developments. The agreement
has provoked widespread criticism, from concern about the
potential "Dubai-ization" of Istanbul to the lack of
transparency surrounding the deal. Istanbul is also debating
the impact the project would have on its traffic, skyline
and rules governing use and development of municipal
property. Despite hints that Dubai interlocutors are
somewhat irked by largely critical public debate about the
project, a related TV and newspaper ad campaign suggests DIP
is moving full speed ahead. End summary.


2. (SBU) Unveiling the Project: In the wake of a September
visit by Prime Minister Erdogan to the United Arab Emirates,
the Prime Minister and Dubai's Crown Prince, General Sheikh
Mohammed bin Rashid Al Maktoum, presided over the October 7
signing of an agreement between Istanbul Mayor Kadir Topbas
and Dubai Holding Executive Chairman Mohammed Al Gergawi,
creating a joint venture between Dubai International
Properties (DIP) and the city. DIP will invest USD 5 billion
in the coming years; the city will chip in USD 1 billion in
choice property for development. (Note: DIP is a subsidiary
of Dubai Holding. End note.) PM Erdogan was ebullient in
underlining the importance of this first major foreign
investment following the October 3 launch of Turkey's EU
accession negotiations, implying a stream of such investments
would follow. (Note: Wide coverage of the announcement
featured the Crown Prince in flowing robes and PM Erdogan,
side by side, before breaking their fast together at an iftar
hosted by the Prime Minister. The two performed prayers
together at the Sultan Ahmet Mosque. End note.)


3. (SBU) "Dubai-ization" of Istanbul: The initial
announcement was long on photo opportunities and short on
project details. October 8 press reports focused on three
prime pieces of municipally-owned Istanbul real estate as
potential sites for DIP's investment and, in the absence of
specifics, speculation was rife. Coming on top of a
controversial tender for operation of Galataport (reftel),
the announcement raised alarms that the project would move
forward without proper tenders and without regard to zoning
and existing transportation infrastructure concerns.


4. (SBU) More Details, Please: Topbas and Al Gergawi met
the press October 24 to spell out the details, explaining
that Dubai Holding and the Istanbul Municipality will
establish a Real Estate Investment Partnership (REIP) with a
breakdown of 80 and 20 percent share. Forty-nine percent of
the new company will be sold publicly through the Istanbul
Stock Exchange, meeting Turkey's requirement that 48 percent
of such REIP's must be publicly traded. The company's
initial undertaking will be development of the Dubai Towers
Istanbul complex in Istanbul's Levent district, a high-rent
district north of the city center. One of the complex's two
towers is designed to be Istanbul's tallest building at more
than 300 meters. The complex is to include a five-star
hotel, convention centers, theaters, offices and apartments.
Construction is slated to begin in 2006 and conclude in 2008.



5. (SBU) Fear of Arab capital or fear of traffic?: Public
reaction has been largely negative. Initially some observers
expected criticism of the project to be more nationalist than
economic in nature, and to focus on possible political
implications of a large influx of Arab capital into Turkey.
As several prominent columnists darkly commented to CG, "with
Arab capital comes Arab culture." The Chairman of one real
estate company in Istanbul accused the Prime Minister of
using the October 3 EU decision to "camouflage" the
announcement of this deal. As the debate unfolded, however,
critics focused on more practical concerns. The Chamber of
City Planners told us October 27 the project completely
disregards already serious transportation infrastructure
problems. They assert that the new complex would bring
approximately 40,000 additional commuters each day to this
area in Levent, and that there has been no discussion of how
to accommodate this additional circulation. Moreover, they
claim there is no room for further road or by-pass
construction.

6. (SBU) Public Space being Sacrificed: Istanbul's Chamber
of Architects has been more vociferous in its criticism,
arguing that the area is currently zoned for public service
usage and should stay that way. (Note: The space currently
serves as a parking lot for municipal buses. End note.)
Already there is only one square meter of open space per
person in the area, and no open area to which people can
evacuate in the case of an earthquake or other natural
disaster. On top of this, they argue this type of
transaction does not require attracting new sources of
financing: Chamber leaders stressed real estate development
can be done easily without external financing because it is
easy to sell units in such projects. Echoing a sentiment
voiced by ANAP MP Emin Sirin, they noted that if such a
project were proposed in more economically depressed areas of
Istanbul, such as Kartal, where investment were truly needed,
they'd be less likely to oppose it. One Chamber member
stated that the project's placement in prestigious Levent is
a symbolic "power play."


7. (SBU) Court cases in the offing?: In an October 31
meeting with poloff, Chamber leaders said that they are
considering filing suit against the project, but have not yet
done so. Because zoning requires the space to be used for
public services, Chamber leaders explained, the City Council
must amend the city plan to accommodate the new project
proposal before the Municipality issues the requisite
permission. In advance of such permission, a court case is
premature. They speculated the City Council is "waiting for
the right moment" to make the amendment, and if it doesn't
arrive, they further speculated that the government would
pass a new law allowing for the project to move forward, as
it allegedly did in the cases of development projects at
Haydarpasa Train Station and Galataport.


8. (SBU) We'll build you better for less: While many had
initially accused the Municipality of impropriety in the deal
in the absence of a tender process for developing this
property, those cries have died down. The Chamber of
Architects, for example, told us that "maybe" the Chamber of
Accountants would go after the project on that basis, and
others have underlined that while there may be a perception
of impropriety, the Municipality can do as it wishes with
land it holds. Allusions to the lack of competition in this
deal surfaced again October 31, however, when the Ankara
Chamber of Commerce offered in a letter to Mayor Topbas to
build the Istanbul Municipality a better complex on better
terms, offering 50 percent share in the venture.


9. (C) Just bad public perception or corruption?:
Privately, some contacts suggest the real issue is not the
need for a tender, but corruption. One real estate executive
speculated that the Mayor himself is privately receiving a
cut on this deal, adding that he'd heard similar
"allocations" are being made to people close to the AK Party
on other projects, such as the Haydarpasa Train Station.
This contact was noticeably nervous in discussing his
opinions on the deal in an October 11 meeting just after the
announcement.


10. (SBU) Moving forward: Newspaper reports last month
cited an unnamed Turkish Foreign Ministry official who hinted
that Dubai interlocutors were having second thoughts as to
whether the investment would be worth the public criticism
and hassle. Chamber of Architects also told us the Crown
Prince of Dubai reportedly said "any proposal would be
unlikely to...please the Chamber." Meanwhile, though,
several television stations broadcast ads heralding the new
Dubai Towers project throughout the day and night, and
newspapers have featured full-page ads promoting Dubai
International Properties' arrival in Istanbul. Moreover,
press is reporting that the Chairman of the Abu Dhabi
Economic Department, Sheikh Hamid bin Zayed Al Nahyan, is
visiting government officials in Ankara this week to
investigate additional investment opportunities in Turkey.
While here, he reportedly invited Turkish contractors to bid
on USD 100 billion in UAE-based construction projects.


11. (C) Comment: Istanbul residents were struck by the
figure a robed and regal Dubai Crown Prince cut in press
photos as he oversaw the agreement's signing on the banks of
the Bosphorus, before dining and praying with the Prime
Minister. There is no doubt that the massive amount of
capital the United Arab Emirates could potentially invest in
Istanbul would stimulate Turkey's economy, and even attract
other investment. But the clumsy handling of public
promotion of the Dubai Towers deal, on top of the recent
Galataport outcry and in light of the prize real estate being
offered for the project, may have limited public appetite for
the "Dubai-ization" of Istanbul. The deal seems unlikely to
fall apart as a result of court cases, but -- unless Dubai
Holding begins to see this as more trouble than it's worth --
Dubai Towers will go forward with little public good will.
Ironically, and unbeknownst to the vast majority of
Istanbulites, the landmark, super luxurious Ciragan Palace
Hotel where the October 7 signing took place (and where
Presidents and other VIPs are routinely housed when visiting
Istanbul) is already owned by the UAE's Abu Dhabi Investment
Authority. End comment.
JONES