Global Cities in an Era of Change: an International Real Estate Symposium.

Sponsored by

Harvard Design School

The Counselors of Real Estate

September 4-6, 2002

Royal Institution of Chartered Surveyors

How Can Cities of the World Compete for Capital and Economic Vitality?

Harvard University

A summary of the first international real estate symposium of its kind, sponsored by Harvard Design School, The Counselors of Real Estate, and The Royal Institution of Chartered Surveyors.

For three days in early September, they came to conquer the world, or perhaps more appropriately, to help the world conquer itself.

An international lineup of academicians, urban planners, and real estate practitioners converged on Harvard University to dissect the urban animal to its core and determine where cities will be headed in the brave new world. The real estate symposium, Global Cities in an Era of Change, also sought to identify the world's premier growth areas and to offer insights into what elements are required to ensure a city's success and overcome mounting challenges such as overcrowding, poverty, and pollution.

Attendees came "to find out how cities are moving forward," said speaker Angus McIntosh of London's King Sturge. The Counselors of Real Estate (CRE), the Harvard Design School, and the Royal Institute of Chartered Surveyors (RICS) sponsored the symposium. Nearly three years in the making, symposium steering committee Chairman George Lovejoy, CRE, said the groups strived to present no less than "the consummate symposium on international real estate."

"We're enthusiastic about the capacity," Lovejoy said in opening the first of six panel discussions that focused on everything from identifying what makes a city global and how urban spaces are being designed in the 21st century to the influence of cross-border capital on developing nations. Impacts of migration, pollution, poverty--and even prosperity--on cities were also examined, while many weighed what fallout the World Trade Center attacks and other terrorism might have on the global expansion of cities.

"The terrorism threat is a serious threat," insisted Pepperdine University professor Joel Kotkin, who delivered the conference's keynote address and was among the most vocal in exposing the struggles faced by the modern city. Others disagreed with Kotkin's notion that the September 11th incidents will lead companies and others to shy away from the central city. Dame Judith Mayhew of the London Development Agency countered that European cities have coped with terrorism for decades, maintaining Americans will also strengthen their resolve.

Such interaction among speakers and audience members was common throughout the conference, engendering spirited debate about whether the urban model can survive given the mounting pressures of modern society. Among the most confident that it will endure was New York City developer Daniel Rose, CRE, who recalled that cities at the turn of the 20th century were deemed doomed because observers felt waste from ubiquitous horses would limit their growth. "The horses are gone, but New York and London are still there," Rose said. In a latter-day example, New York City's crime problem was also considered unsolvable, but Rose noted great strides have been made in that regard in recent years.

Rose also delivered the message that inhabitants of a city must act locally to keep problems from overwhelming a metropolis. He and others, such as speaker Bowen "Buzz" McCoy, said a level of personal involvement with schools and the underprivileged can ensure a city will remain relevant and livable into the future, stressing that, "it's not the amount of the check, it's the amount of time" donated.

In a similar vein, speakers called for greater reliance on sustainable design and rational urban planning in the development and operation of cities to protect dwindling natural resources. Indeed, one of the greatest threats facing cities worldwide, according to some at the conference, is the lack of water, among the most critical of all human needs. "Water is a very serious issue everywhere," said speaker Brett McCarthy of UBS Warburg. Almost as much as oil, water is among the most valuable resources in the Middle East, South Bank University professor Ali Parsa added, so much so that it has created constant conflict. McCarthy said private investment may soon enter the water utility business in an effort to capitalize on the need for better systems.

To no great surprise, the issue of capital influence on global expansion was a major topic throughout the conference, with a host of experts on hand to help decipher which markets are garnering the greatest interest and what elements are required to make a city popular among investors. Along with real estate users, such as PepsiCo, audience members heard from investment bankers, real estate developers, and economists who offered their insights on the cities they find most appealing and the factors influencing capital decisions.

PepsiCo, for example, has made substantial inroads into Istanbul, and company official Ken O'Gara offered reasons for entering that market and the steps taken to ensure it was a secure and fruitful initiative. But while PepsiCo was willing to put its capital there, real estate developer Hines Interests of Texas opted against doing so after taking a long look, representative Lee Timmins told the audience.

"For me, they are at the wrong end of the real estate clock, and it doesn't make sense for us to be there today," said Timmins, explaining his firm's capital typically has an eight-year investment horizon, whereas PepsiCo as a user has a longer view of the market. Others, such as real estate advisor Will McIntosh, said it has been difficult to get investors comfortable with the notion of putting their capital overseas, especially in developing countries.

"It's a real dilemma as real estate money managers are trying to invest internationally," said Mcintosh of AIG Global. Conservative investors "look at you like you've got three heads."

Another aspect of the conference was the role that foreign governments can play to encourage private investment. Political upheaval, corruption, and an uneven legal system are among the leading reasons certain cities fail to pass muster, many of the speakers reported. Hines recently opted against buying an office building in Bombay, india, largely because tenant's rights are especially strong and legal recourse was deemed too risky, Timmins said. in Moscow and Paris, meanwhile, stringent land use laws have also been difficult for Hines to get comfortable with, he said.

Investor Jeremy Newsum praised politicians in Liverpool, England, for adopting a pro-business stance that provides the struggling city its best opportunity yet to emerge from the malaise enveloping it since World War II. "It is absolutely critical for any city that there be a good fusion of business and politics," said Newsum, a notion seconded by no less than Governor Edward G. Rendell of Pennsylvania, who outlined his efforts to overhaul Philadelphia as mayor of that struggling metropolis in the 1990s. Rendell said that strict attention to business interests enabled him to lure capital back to the mid-Atlantic metropolis.

Rendell was among several veteran city officials and planners who added to the heft of expertise at the conference. Mayhew provided an outline of London governmental efforts to address a 43% child poverty rate and mounting city health problems, while San Diego planner Peter J. Hall described how that California city has engaged for more than a quarter-century in a battle to bring back a community decimated by suburban flight in the 1970s. The initiative has yielded a seven-to-one ratio in private investment versus public financial input, Hall said.

The conference also relied on private sector input as well, with practitioners on hand who have traveled the world over to develop, acquire, or finance commercial real estate projects of every scope imaginable. London investment banker Paul Rivlin of Deutsche Bank delivered an in-depth look at how the European market is responding to global interest, while Warburg's McCarthy detailed why institutional capital is changing the formula for real estate investment in all corners of the earth. Australia, he said, is becoming a leading international financier, as are pension funds in Germany, the Netherlands, and the United States.

Australian real estate investment funds now comprise fully 7% of the country's equity market, compared to 1% for most countries, McCarthy said. Of the 7%, 24% is invested in U.S. real estate. Australians have developed a sudden appetite for real estate opportunities in North America, as witnessed by one such fund's current commitment to buy a downtown office building in Boston for $400 per square foot. in his presentation on "The Global City Today," McCarthy predicted institutional capital would become a prime driver of investment in undeveloped countries in the coming years, primarily to gamer higher yields. Countries such as Germany and the Netherlands are already amassing funds to search the globe for opportunities, McCarthy said.