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.
investment strategies of all stripes were presented to the
audience, with Lehman Brothers investment banker George Von Liphart
bullish on buying non performing loan pools as an efficient way to jump
into a foreign market and get up to speed on the area encompassing the
loans. Soros principal Richard Georgi reported sale/leaseback
opportunities may be on the rise in Europe as corporations seek to raise
quick cash. One overriding message among the investors and advisors was
the invaluable need to find a competent, trustworthy local partner in an
untapped market.
"You have to rely on local people on the ground that you have
some sort of cultural affinity with," said Charles Wurtzebach, an
investor who spoke at the Cross Border Capital Flows presentation.
Devlin said that even that arrangement might be inadequate, advising
foreign investors to "keep your money in your pocket."
"I don't believe in the global real estate
industry," Devlin said. "You cannot run a successful real
estate business from New York" focusing on international markets.
Ironically, Rose said one of the problems cities often encounter is
a myopic outlook that prevents locals from investing. When his New York
firm attempted to develop One Financial Center in Boston in the early
1970s, Rose said he could find no Boston bankers willing to finance the
deal, forcing him to turn to New York lenders to back the project.
"It's fascinating to realize that the building boom in
Boston was done with outside talent and outside capital," said
Rose. That observation was shared by Hugh Kelly, CRE, who said "we
tend to get close to our own markets."
"When we get very close, we tend to see a lot of the
warts," Kelly said. "We see all the reasons not to do things
and we don't see the reasons to actually step into action."
As for assessing specific cities throughout the world, leaders
included the universal locations that immediately come to mind, such as
Paris, Tokyo, and London. Such meccas were labeled
"super-globals" by Newsum, but speakers also offered
surprisingly solid praise of such cities as Moscow, Athens, and Berlin,
while Georgi said Soros is even bullish on fiscally troubled Brazil and
just closed a deal in volatile Buenos Aires, which Soros had abandoned
in 1999.
Hines Interests has done several projects in Moscow, although
Timmins said a leading reason for the improvement in that Russian city
is a willingness among domestic players to invest in their own country
Bolstered by that self-confidence, Russia has begun to attract
multi-national corporations, a key factor in where Hines opts to put its
capital.
Berlin garnered particular interest, with both Devlin and Soros
predicting the city has a solid chance of emerging from its current
state of chaos, which includes insolvent banks, falling rents and a
large amount of vacant office space under construction. "It's
at the bottom right now," acknowledged Devlin, but "if I had
to pick a city for a medium-term prospect, I think Berlin is a great
place to go and will be a fantastic financial center when it is
developed."
Placing Berlin at the top of his list, Georgi also bucked other
speakers by voicing support for Tokyo. "It is the center of
everything in Japan," he said, while acknowledging that the
city's office market is in trouble at present, with 70 million
square feet currently coming on line. Athens made several lists, partly
because it recently joined the monetary union and because interest rates
have settled down after several years in the mid-20% range.
Overall, the "Global Cities in an Era of Change"
symposium fueled the sort of discussion The Counselors of Real Estate,
the Harvard Design School, and The Royal Institution of Chartered
Surveyors (RICS) sought when they began planning the program nearly
three years ago. Lovejoy praised former CRE President Jonathan A. Avery
and CRE executive vice president Mary Fleischmann for helping to
initiate the program, which was launched after the three traveled to
England in 1999 to meet with RICS.
"We were seeking to better serve our members and add global
capacity through alliance with compatible organizations," Lovejoy
said, adding he believes that mission has been accomplished with the
Global Cities program. The addition of Harvard Design School bolstered
the union, said Lovejoy, with its educational and research capabilities.
THURSDAY; SEPTEMBER 5, 2002
THE GLOBAL CITY TODAY
Panelists:
Frank Duffy, DRGW
Mark Steinitz, UBS Warburg
Dr. Ali Parsa, Southbank University
Moderator/Coordinator:
Angus Mclntosh, King Sturge
Big corporations, institutional capital, strategic alliances, and
agility cited as the key influences in today's Global Cities
Cities are a many splendored thing, offering an international
variety as widespread as the people who occupy them, but to economist
Angus McIntosh, one distinct element is beginning to inure itself in the
fabric of urban centers everywhere.
"If you go somewhere like Shanghai, you will find Starbucks
and Kentucky Fried Chicken on most corners," the head of research
for London-based King Sturge said during a presentation at the Global
Cities in an Era of Change symposium. "The design of buildings in
cities is being dictated to us by some of these major global
corporations."
In the panel presentation, "The Global City Today,"
McIntosh joined other economists and real estate professionals to
outline the factors influencing metropolitan areas and the ways
different cities are responding to the challenges. Among those speaking
were Brett McCarthy of UBS Warburg, architect Frank Duffy of DEGW North
America, and Dr. Ali Parsa of South Bank University.
The panelists voiced concerns that multinationals are
over-influencing cultures worldwide. "These global corporations
have tremendous impact on politics and politicians of every shade, of
every color," said McIntosh. In the case of McDonald's
entering eastern Europe, he remarked that, "the Cold War of tanks
is being taken over by the hot war of hamburgers."
How that situation will play out is unclear, but McIntosh said
there is little doubt globalization is making its mark on cities in
other ways as well. In one recent study, it was revealed that leasing of
office space in global European cities such as London, Paris, and even
Frankfurt is booming, recently reaching a four-year high despite an
overall economic downturn in other parts of the continent. "There
is something going on there in terms of city consolidations and cities
dominating regions," Mcintosh said. "It's quite
prevalent."
Beyond corporate finance, developed nations are sending
institutional capital into third-world economies, said Warburg's
McCarthy, a real estate analyst who tracks global capital flow.
According to McCarthy, countries with aging populations are investing
retirement funds into developing nations to finance infrastructure
improvements. Especially in light of flagging equity markets, pension
funds, and other sources of institutional capital are looking for
higher-yielding investments, and McCarthy said Third World investment
offers that opportunity.
"Clearly the capital is flowing into infrastructure, and this
will have an impact going forward," he said. "The synergies
are there and the matching (of capital to projects) is happening."
Two Australian funds have recently been formed to invest in toll
roads, for example, including one that owns such thoroughfares in the
United Kingdom, Canada, Spain, and Portugal. Another is gearing up to
invest in airports. China is lobbying private capital to build 7,000
kilometers of railway and is now willing to provide legal protections to
attract bidders for the $40 billion undertaking. Such assurances will be
critical if countries want to be successful, McCarthy added.
"It's a two-way street," he said. "You have to
provide the conditions to make it attractive to investors."
Such has been the challenge in the United Arab Emirates, the
federation of seven empires in the Middle East that is a major player in
worldwide oil production. Parsa detailed a study on how the UAE has
worked to become a global economy similar to that seen in Singapore.
Parsa noted that both were former British colonies that only recently
gained their independence, but said Singapore has taken greater strides
to incorporate itself in the global economy, offering outsiders clear
legal and regulatory protections and ensuring that its citizens are
aware of the country's goals to be a dominant regional powerhouse.
In the UAE city of Dubai, officials have come a long way in a short
time to become an international trading center, Parsa said. After not
even being recognized 10 years ago as a regional transportation hub,
Dubai today is linked by 78 airlines to 125 other cities, and has 12
million passengers traveling through the city's airport annually.
On the down side, Parsa said there are strict federal laws, a lack of
legal precedence and a time-consuming approval process throughout the
UAE. If the country is to become a truly global region, Parsa said such
cities as Abu Dhabi, Dubai and Sharjah must be more adaptable to
outsiders, increase their business focus and be willing to work more
closely together. "For the UAE as a whole, there is a strong need
for inter-emirate and regional synergies," Parsa said.
The panel closed out with a speech by Duffy on what makes for an
intelligent city, a topic which he admitted is difficult to pin down.
Duffy noted that in the modern age, for example, a city needs the
physical infrastructure such as fiber optics and bandwidth to compete in
the technological world and to attract an educated workforce. In that
regard, he said, "an intelligent city is one that has the ability
to make changes over time," such as accommodating new growth
engines.
Beyond that element, however, Duffy said a city needs a spiritual
willingness to change, with its inhabitants eager to take on new ideas
and cultures that will broaden their horizons even further.
"Diversity, we believe, increases the agility of cities and
provides the basis of flexibility in the context of rapid change,"
he said.
THURSDAY, SEPTEMBER 5, 2002
STRATEGIES FOR MANAGING URBAN GROWTH AND REVITALIZATION
Panelists:
Dame Judith Mayhew, Corporation of the City of London
Gov. Edward Rendell of Pennsylvania, former Mayor, Philadelphia
Peter Hall, San Diego Center City Redevelopment
Commission/Moderator:
Nicolas Retsinas, Joint Center for Housing Studies, Harvard
Commentator:
Bowen "Buzz" McCoy, CRE, Buzz McCoy Associates
Coordinator:
Richard Peiser, Harvard Design School
Urban Revitalization Challenges Major Cities--Capital And
Cooperation Required
Governor Edward G. Rendell stressed the importance of
infrastructure at the Global Cities in an Era of Change symposium.
Lauded as "America's Mayor" for revitalizing Philadelphia
in the 1990s, Rendell explained the city had to right itself through
infrastructure improvements and other changes before the private sector
would return.
"The free market is not anxious to put capital in most
American cities until it feels they have turned the corner,"
Rendell said. "We need to create a nurturing environment and a good
physical environment (for companies)."
Governor Rendell spoke at the "Strategies for Managing Urban
Growth and Revitalization" panel. The panel was moderated by
Nicolas Retsinas, assistant U.S. housing secretary under President
Clinton, and also included Dame Judith Mayhew of the Corporation of the
City of London and San Diego planner Peter Hall.
During Rendell's tenure from 1992 through 1999. Philadelphia
increased convention space and opened new hotels to bolster tourism,
while also helping traditional businesses. In one instance, a clothing
manufacturer wanted to build a new plant, but required a cleanup of the
parcel in advance. Rendell's administration ensured it was
accomplished.
Equally important to physical upgrades is providing a stable
revenue climate, Rendell added, maintaining Philadelphia lost 250,000
jobs in the years prior to his election partly because of 19 tax
increases over an 11-year period. While acknowledging some political
shrapnel in backing business tax abatements and focusing on the
financial center, Rendell insisted such attention is critical.
"You can't shy away from the downtown," he said,
adding the city is now embarking upon an extensive neighborhood
improvement initiative fueled by a healthy budget. By the time he left
office, Philadelphia had converted a $250 million shortfall into eight
straight years of revenue surplus.
Rendell praised current efforts to foster life sciences research,
and cited a migration among empty nesters and the young back into
downtown Philadelphia, with commercial buildings being renovated for
residential use. "One of the great roles going forward is to be a
place where we can mingle with each other," Rendell said of
improving cities.
Judith Mayhew discussed the ambitious London Plan. Concerned over
increasing poverty and strains on housing, schools and public
transportation, the mayor of the United Kingdom epicenter recently
issued a forward-thinking document known as the London Plan. The
initiative calls on the restoration of brownfields sites, upgrades to
sewer and water systems and increased transit options to accommodate
700,000 people expected to pour into the city of 7.4 million during the
next 13 years.
"It is, simply, London's way of managing urban growth and
revitalization," Mayhew said of the London Plan. By current
estimates, London will need another 25,000 homes and 130 schools in the
next decade. Electrical networks will also have to be modernized to
support London's place as a hub for telecommunications activity,
Mayhew added.
A cornerstone of the London Plan is sustainable development to
reduce environmental waste and efficiently use scarce resources. The
effort is also aimed at "soft issues" such as better health
care, education and expanded recreational activities. "Here as
well, the Plan envisages growth and development of a full range of
amenities to support and enhance the lifestyle as London grows,"
Mayhew said.
Back in the United States, San Diego has been engaged in a
long-term initiative to overhaul its downtown. Hall, who joined the
Centre City Development Corp (CCDC) in 1995, outlined its creation in
1975 as an effort of the San Diego business community to save a dying
downtown. The CCDC's purview was a 1,500-acre swath where it worked
to leverage public funds for enhanced private investment, a common theme
at the Global Cities conference.
"Government action equaled public reaction," Hall said of
the $445 million in public bonds issued to prime the pump, including
$100 million for infrastructure improvements. After 27 years, the CCDC
area has yielded more than 6,000 residential units, 4.7 million square
feet of commercial space and 4,555 hotel rooms. San Diego is now
garnering $55 million annually in tax revenue from the new development.
Hall acknowledged it has not been an easy road, with political
clout in San Diego often misaligned with the CCDC's vision. Not
only are residential issues more of concern to the city's
councilors, who represent specific districts, Hall said term limits make
it harder for them to adopt a forward-thinking stance. As a result,
"land use policies in our region have taken on the context of a
full-contact sport," Hall said.
London has encountered a similar problem, said Mayhew, with a
decentralized power structure making it difficult for resources to be
directed to long-term needs. The London Development Agency, for example,
would like to raise municipal bonds, but currently is not allowed. It is
an issue that must be resolved, according to Mayhew, in order to prepare
London for the 21st century "The city and the hinterlands are
mutually dependent and we can't deprive one or the other," she
said.
THURSDAY, SEPTEMBER 5, 2002
ECONOMIC AND WORKPLACE DRIVING FORCES
Panelists:
Mahlon Apgar, CRE, The Boston Consulting Group
Will Mcintosh, AIG Global Real Estate Investment Corp.
Ken O'Gara, Pepsico
Lee Timmons, Hines Partners
Moderator/Coordinator:
John McMahan, CRE, Centerprise
Tracking Multi-Nationals Influences Real Estate Decision Making
It is spelled the same as always, but the concept of
"location" is rapidly evolving worldwide, according to
panelists at the Global Cities in an Era of Change international real
estate symposium. Technology, globalization and other forces are
"changing the paradigm" of where companies are expanding, said
speaker Mablon "Sandy" Apgar, CRE, whose Boston Consulting
Group (BCG) helps firms find space internationally.
"Redefining the factors of location ... is an important
challenge," Apgar said during the "Economic and Workplace
Driving Forces" panel during the event. Unfortunately, he added,
neither business schools, real estate educators "nor much of the
theory and practice have yet grasped the magnitude of these
changes."
Most of the 23 companies BCG is assisting internationally are
industrial-era operations, which still seek inexpensive land, low-cost
labor and bountiful natural resources. But the needs of BCG's
information-related clients are dramatically divergent, said Apgar.
While also labor-conscious, such players require an educated workforce,
and depend on high-bandwidth and other telecommunications capabilities
more so than physical infrastructure.
"When they cross that threshold (to the information age), you
literally can look at the globe in terms of fundamental labor economics,
but they are not defined any more by concentrations of traditional
location criteria," said Apgar. "You're no longer moving
the workers to work, you are moving the work to the workers."
Moderator John McMahan concurred, noting cities deemed knowledge
centers have fared well, with one recent survey listing Helsinki,
Stockholm, and Copenhagen as popular targets for foreign investment.
Cisco Systems recently tabbed Amsterdam for its European headquarters,
while Amazon.com has been active in the Netherlands as well. "The
message seems to be that there are some new cities, new players in this
game, and some of them are coming on very strong," said McMahan,
executive director of the Center for Real Estate Enterprise Management,
a California-based think tank, and who is also a member of The
Counselors of Real Estate (CRE).
Panelists detailed why companies have moved into certain areas, and
which cities are likely to garner capital interest going forward.
Joining Apgar and McMahan were Kenneth O'Gara of PepsiCo, Hines
Organization principal Lee Timmins, and AIG Global Investments Managing
Director Will McIntosh.
PepsiCo has three real estate needs, said O'Gara, those being
manufacturing, distribution and office space. Each has five or six
unique criteria, he explained, with geography and a city's physical
makeup important for distribution. An active port allows product to be
shipped via barge, while office space must be close to core businesses,
such as local bottlers. PepsiCo is currently developing its largest
manufacturing facility in Ireland's County Cork, one that will
produce concentrate for North America and Europe. A favorable tax
agreement, good labor force and centralized location led PepsiCo to make
the $100 million investment, according to O'Gara.
"What we do in a city depends upon what the city provides to
us," said O'Gara, adding PepsiCo sees its primary growth
coming overseas, which presently represents just 20% of its revenues.
AIG pays close attention to which countries multinational companies
are entering, said McIntosh. Not only does it indicate stability,
MG'S investment group aims to develop facilities for such
companies. "A great deal of the research we do involves studying
what the end users are looking for, and trying to make sure we're
in those markets ready to provide the kind of product they want,"
said McIntosh. "If we do that and do that well, we're going to
produce the returns our clients are looking for."
In the decade since becoming an overseas developer, Texas-based
Hines has also reacted more to market demand than its own development
strengths, Timmins said, making it important to track multi-nationals.
Known at home for office and retail, two of Hines' earliest
international ventures involved a residential component, while the
developer has also completed several industrial projects in Mexico.
"That's a real departure for us," said Timmins. Hines
currently has 50 projects in 19 foreign cities.
Hines is also influenced by demographics and the strength of a
city's real estate market, said Timmins, chiefly because its funds
generally have an eight-year horizon. "If vacancy rates are above
20%, we're probably not going there," said Timmins. "If
vacancy rates are maybe 10 or 12 or 15% and falling fast, that is a
market that will look very good to us."
Investor appetite is key, said McIntosh, with capital often fearful
of emerging markets. It can be frustrating, he said, explaining
investors prefer established markets such as the United Kingdom,
Germany, France, and Spain. But such capital incorrectly expects higher
returns overseas, even in stable climates. "They don't want to
go to the countries where we can get them the risk premiums that they
want for their international investing," said McIntosh.
"It's a real dilemma."
Both Timmins and McMahan defended investment in emerging markets,
but acknowledged potential complications. in Moscow, a Hines plan to
develop housing and sell to the U.S. government hit a snag when Russia
became upset at the Clinton administration. Russia blocked the ownership
transfer, leading to a summit showdown between Clinton and Russian
leaders. "If you told me in 1992 I'd be dealing with a
residential project in Moscow that was on the agenda for the summit, I
would have said you are crazy," Timmins remarked. "But that is
the type of political issue we encounter in all of these
countries."
In the future, Hines plans to limit its exposure mainly to markets
where it is already active. "The goal is to be deeper and deeper
into the countries in which we are currently operational, to do more
projects followed by more projects, and to have a long-term
horizon," Timmins said.
AIG is bullish on Asia and ultimately hopes to expand into Latin
America. At present, however, McIntosh said Mexico is the only Latin
American country "we can get excited about," citing its
improved credit rating, the ability to do dollar-denominated leases and
the positive impact of the North American Free Trade Alliance.
PepsiCo favors Latin America, said O'Gara, with Brazil and
Argentina seen as possible suppliers of juices for its Tropicana line.
McIntosh said the demographics of 175 million people make Brazil a
long-term gem, but stressed that economic woes make it too unstable at
present. "There's just too much uncertainty among my
investors," said McIntosh. "But we think it's going to be
a big market going forth and we want to be there."
THURSDAY, SEPTEMBER 5, 2002
INNOVATIONS IN INFRASTRUCTURE
Panelists:
Peter Head, Faber Maunsell & AECOM
Joel Kotkin, Pepperdine University
Peter Lewis, CRE, MIT
Commentator:
Bowen "Buzz" McCoy, CRE, Buzz McCoy Associates
Moderator:
Barry Gilbertson, CRE, PricewaterhouseCoopers, CRE
Urban Population Surge Demands Attention To Economic,
Environmental, And Transportation Issues
With the worldwide urban population growing by 180,000 daily,
cities must stretch threadbare resources even further in the new
millennium, stressed one panelist at the Global Cities in an Era of
Change symposium. Experts in the "Making Cities Work" segment
of the program offered ways municipalities can overcome that challenging
dilemma.
"The answer is by supplying the right fabric," said
moderator Barry G. Gilbertson, CRE. The PricewaterhouseCoopers principal
"set the scene" by stating that 1.3 billion people live on
fragile lands which cannot support them, fueling migration that will
wedge two-thirds of the world's population into cities within 50
years. "Think of that in terms of the demand it places on energy
and water," said Gilbertson. "Also think of what it is going
to do for housing, and can we do anything sustainable with
housing?"
So-called sustainable development, a topic raised throughout the
conference, garnered particular attention by the "Making Cities
Work" speakers, which included Pepperdine University professor Joel
Kotkin, Massachusetts Institute of Technology Real Estate Director Peter
Lewis and British planning consultant Peter Head.
Representing the Greater London Authority Sustainability
Commission, Head detailed London's efforts to improve housing,
transportation, health and education without overwhelming city
resources. "Sustainable development needs to balance the Triple
Bottom Line," he said, covering economic, environmental and social
issues. While some feel a tradeoff is inevitable, Head disagreed. There
is "a way of getting the three going together and creating win,
win, wins," he said. "I'm quite radical in that sense,
but I actually believe it's possible through very innovative
approaches."
The cost is certainly daunting, with Head reporting London will
require $110 billion pounds to accommodate growth over the next 15
years. Sixty percent is needed for public transportation investment,
Head estimated, especially as population increases and rising costs for
motorists add ridership. "The system is greatly overloaded and
needs new capacity," Head explained.
In admitting past undertakings have failed, Head claimed the public
and private sectors can effectively share in the upside by uniting
resources. Office rents abutting a recent extension of London's
Jubilee Line grew 14% above the norm, Head noted, while property values
also rose disproportionately. If investors can enjoy a project's
fruit, Head predicted they will buttress public investment. In London,
he said a $50 billion public commitment should yield a $60 billion
infusion of private capital.
"The great challenge in the issue of private/public sector
benefits going in partnership is to try and get the risk/reward balance
right," Head remarked, with private enterprise motivated by a
return on equity design and construction revenues from delivering the
product and opportunities for entrepreneurial development in the
upgraded area.
A common mistake for public/private partnerships is drawing up the
contract before establishing performance requirements, according to
Head. "You've got to have those targeted and fixed from the
start," he said, outlining a three-step process that begins by
forging a strategy "to deliver safety and value for money within a
sustainability development framework." After setting performance
goals, the next step is to contract it out to the necessary disciplines,
and then to deliver the project.
"My experience is that if one follows that simple process from
start to finish, you do get success, and almost invariably it's
never done, which is very frustrating," Head lamented.
Despite past struggles, panelists vowed the effort must continue,
with Head adamant that public transportation be addressed.
"Governments worldwide do not still seem to understand the
relevance and the connection between investment in public transport in
dense cities and the benefits that can come from it," he said.
"The only country that really understands it is France ... which is
why Paris really does work very well."
In his presentation, Lewis said institutions can assist host cities
via investment in both the physical and social environment. "The
city of Cambridge is inextricably linked to MIT and Harvard," said
Lewis, estimating MIT has pumped $28 million into sewage and roadway
improvements near the campus, built several hundred affordable housing
units and features community education and tutoring programs.
"We're really trying to give something back," said
Lewis, with the school contributing $18 million in taxes and fees to
Cambridge in 2001. Greater Boston has been economically enhanced by more
than 50 colleges and universities, Lewis opined, noting MIT's
Cambridge First program has generated $38 million in goods and services
revenue for local businesses. Universities contribute "on
technology, health care and financial services," Lewis added, while
acceding they also drive up housing costs, use city resources and
exacerbate density. In recognition, MIT pays a special fee for its tax
exempt property and to offset services such as police and fire response.
Schools create jobs, Lewis continued, with MITrelated businesses
employing 125,000 in Massachusetts alone. Those firms contribute $10
billion in income and sales of $53 billion, said Lewis, citing homegrown
giants founded by MIT graduates such as Digital, Raytheon and Gillette.
"An educated workforce is increasingly important in the shift from
an agricultural economy to a manufacturing economy to a service-based
economy," he said.
THURSDAY, SEPTEMBER 5, 2002
KEYNOTE ADDRESS
BY JOEL KOTKIN, PEPPERDINE UNIVERSITY
Terrorism, Global Migration, And Digital Revolution Cited As Key
Challenges Facing Today's And Tomorrow's Cities
Joel Kotkin insists he is not "anti-city" but the
Pepperdine University professor does forecast trouble ahead as the
metropolitan model proceeds into the 21st century.
"I see a lot of scary trends," Kotkin said during his
keynote address at the Global Cities in an Era of Change international
real estate symposium. "There are many things to be concerned
about."
Kotkin detailed three challenges cities face: terrorism, global
migration, and the digital revolution. His view on terrorism was
especially disconcerting, with Kotkin insisting the September 11th,
2001, attacks are prompting companies and residents to consider suburban
relocation.
"People who had decided, 'I can live in New York or I
want to live in New York' are now choosing to be elsewhere,"
Kotkin said. "I think you are going to see more of that."
Kotkin cited examples where employees, including senior management,
have begged out of their urban offices, and noted that even with 13
million square feet destroyed or damaged in the World Trade Center
attacks, the vacancy rate in Manhattan has risen. Those staying face
higher occupancy costs, Kotkin said, with the insurance system
particularly unsettled. Several trophy properties are technically in
default due to a lack of terrorism insurance, he said, adding that
workers compensation rates are rising in urban markets.
Some in the crowd disagreed, including Brookings Institute fellow
Anthony Downs, who acknowledged a deconcentration movement but cited
alternative reasons. "I don't think terrorism is a key
factor," said Downs, a notion seconded by others. Kotkin remained
firm, predicting more attacks might worsen conditions in cities
worldwide.
"I'm not trying to scare people, but let's think of
this as an issue because it is an issue," Kotkin said, adding,
"I think there is an extreme possibility for [another terrorist
attack] to happen."
Even without that influence, Kotkin said a stream of people are
fleeing the urban lifestyle. In California, he said, whites are moving
to the outer limits of the suburbs or even into the countryside.
Upwardly mobile, educated minorities are enhancing the trend, with only
the poorest residents left behind, said Kotkin.
"The vast amount of America's growth is happening in the
suburbs," Kotkin said, while estimating that 30 to 50% of the
population in Amsterdam, Marseilles and Paris are immigrants, often from
poor countries such as Iraq and Turkey. In the Netherlands, 28% of the
Dutch have reached the highest level of education, Kotkin said, while
just 4% of Turkish and Moroccan immigrants had attained that level of
degree.
"Rotterdam has decayed, and the white, middle-class people
have moved to the suburbs," said Kotkin. Although immigration-legal
and otherwise-is up sharply in the United States, Kotkin said the issue
will be more daunting for Europe. "Their economy lacks the kind of
dynamism we have to absorb immigrants," he said, with the overseas
welfare system likely to be further burdened.
On the third challenge, Kotkin did say certain cities, including
Boston, New York and London, have a leg up in attracting knowledge
workers in the new millennium. But communities must remain vigilant to
keep IT workers stimulated, said Kotkin, who overall sees virtuality
leading to further dispersion of the public. "The vast majority (of
IT workers) don't want to live in the center city," he said.
"The job growth continues to be...in lower density areas."
Kotkin concurred that some downtowns have seen inward migration,
largely empty nesters and recent college graduates. But middle class
families are key to a city's survival, Kotkin stressed, and claimed
those fueling that trend are often simply going through "a
phase." In one study of the latest New York City boom, 82% of the
emigrants were 35 or less, only 57% were married and just 10% had
children. "For the most part, [living in the city] is just
something that people do between when they go to college and when they
grow up," Kotkin said.
FRIDAY, SEPTEMBER 6, 2002
CROSS BORDER CAPITAL FLOWS
Panelists:
Ivo DeWit, ING Real Estate
George Von Liphant, Lehman Brothers
Richard Georgi, Soros Real Estate Partners
Paul Rivlin, Deutsche Bank
Coordinators:
Karen Sieracki, KASPAR Associates
Hugh Kelly, CRE, NYU Graduate Real Estate School
International Real Estate Investment Track Record Shaky
As a well traveled principal with Soros Real Estate Partners,
Richard Georgi has homes on three continents and a watch sporting 22
time zones, moderator Hugh Kelly noted at a panel presentation here
during the Global Cities in an Era of Change symposium. But while
entrenched in the cross-border real estate industry, Georgi cautions
that the infancy of the movement and a shaky world economy make for a
challenging business pursuit.
"There is a very limited track record of successful
international real estate investment," said Georgi, explaining his
company pitches clients on buying property in foreign markets "with
great care and humility." Georgi calls the expansion of such
activity "inevitable," but said Soros is treading lightly at
present.
"It's a very challenging time to identify places where
one can invest with conviction," Georgi said. "There's so
much uncertainty and so much dampened growth prospects, it's really
difficult to see where in the world there are great pockets of
growth."
Georgi's remarks came during the "Cross Border Capital
Flows" panel, one seeking to explore "the who, what, when,
where, how and why of moving money across borders," Kelly told the
audience during the three-day event at Harvard University.
Other speakers concurred that market conditions are difficult
universally. Yet even as cities such as London, San Francisco and Tokyo
face erosion of rental rates and vacancy increases, capital continues to
chase deals, with foreign sources often displaying more optimism than
domestic funds. In London, there is "dysfunctionality between the
letting market and the investment markets," said panelist Karen
Sieracki, of KASPAR Associates, Ltd., an expert in European real estate,
who said properties in the United Kingdom continue to attract investor
ardor even though leasing is off sharply. Most buying in 2002 has been
from overseas, said Sieracki, a point underscored by Paul Rivlin, the
managing director for Deutsche Bank in London. Rivlin noted domestic
property companies are divesting assets.
"The ones you would expect to know best about what the markets
have in store are significant net sellers," said Rivlin. "That
says to me that buyers must be buying pretty near the top of the
market."
Such overheating could lead to a pricing bubble, Rivlin and several
colleagues said, with Georgi maintaining that over-aggressive capital is
already driving up values in the United States. "We saw this before
in 1987 to 1989, exactly the same phenomena where the underlying
occupancy dynamics in the property market in the United States are
actually pretty weak," Georgi said. In markets such as
Jacksonville, Fla and Oklahoma City, Georgi said effective rents have
fallen to zero after accounting for commissions and concessions.
"You're basically giving away the space just to cover
your operating expenses," said Georgi. "That we haven't
seen for a decade."
Other speakers were less dismal. Henderson Global Investors
Managing Director Charles Wurtzebach said the relative stability of real
estate is driving capital in that direction. Aging populations of North
America, Europe, and Asia are also prompting pension funds to pursue
yield through real estate to support their growing list of
beneficiaries, Wurtzebach added. "I don't really believe that
in the next three years there's any big crisis that's
looming," he said. "When you look at the underlying economy, I
think fundamentally we're in fairly decent shape."
A critical element of investing globally is having the proper
approach and infrastructure, panelists also advised. Along with tax and
currency issues, local culture, property rights regulations, and the
varying legal systems also offer potential challenges. In one ongoing
situation, Lehman Brothers is among a consortium buying the first
non-performing loan pool ever in China, but after having won the bid
last November, the group is still awaiting approval from the Chinese
government.
Not only is the approval process unclear, panelist and Lehman
Brothers principal George Von Liphart said he discovered the Chinese
government has little control over the provinces, making it hard to
evaluate loans secured by property outside the major cities. The same
uncertainty applies in Japan, he said, where "the rules change if
the results aren't to the liking of the policy makers."
"They seem to find a way of moving the goal line every period
to accommodate their larger policy concerns," said Von Liphart,
calling that tendency "definitely pronounced in Asia." But as
long as one proceeds with caution, they should be fine, Von Liphart
asserted, with Lehman a major investor in Asia. Liquidity is not a
problem, Von Liphart said, noting the firm recently securitized and sold
two residential portfolios and two non-performing loan pools in
Thailand. "You can basically exit just about anything through the
capital markets," Von Liphart said.
No matter what experience a global investor has, it is imperative
to connect with a local partner, panelists stressed repeatedly. In fact,
many cited it as the leading requirement when pursuing a peripatetic
investment strategy including Ivo De Wit of ING Real Estate.
ING always seeks to join a local company when entering a given
region, De Wit said. In the United States, Dutch-based ING has forged a
solid relationship with Clarion Partners, through which they have
acquired properties throughout the country:
"Our main goal is to keep it local," said De Wit, with
ING favoring firms possessing a similar culture and appetite for
investment-quality properties. "It's also looking at what they
can add to your own organization, what are the strengths of these
organizations and which is the knowledge that they can contribute to
your own organization," De Wit said.
FRIDAY. SEPTEMBER 6, 2002
THE FUTURE VISION
Panelists:
Anthony Downs, CRE, Brookings Institution
Alex Kriegar, Harvard Design School
Jeremy Newsum, The Grosvenor Office
Daniel Rose, CRE, Rose Associates
Bowen "Buzz" McCoy, CRE, Buzz McCoy Associates
Can Cities Cope? 60 Million People Streaming Into Urban Areas
Annually
If Brookings Institute Senior Fellow Anthony Downs is right, one
product seems a surefire investment in the 21st century: bumper
stickers.
"It is my opinion that congestion is an inescapable part of
living in a large and growing metropolis region anywhere in the
world," Downs proclaimed during the Global Cities in an Era of
Change sym