US embassy cable - 05ISTANBUL1916

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, Istanbul 
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