global

property
insight
f t . c o m / G P I
i ssue 1 spri ng 2014
Indian summer
Investors are looking to
move into the south Asian
markets as Bangalore booms
Brand building
A company headquarters is
much more than just an oce
block for many occupiers
Foreign mission
Embassies are being
transformed into housing and
mixed-use developments
spring 2014
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04
contents
Special reports editor
michael Skapinker
Head of editorial content
Hugo Greenhalgh
Production editor
George Kyriakos
Art director
Sheila Jack
Picture editors
michael crabtree, Andy mears
Copy editors
Jerry Andrews, Helen Barrett
Sub-editors
Phillip Parrish, Liz Durno
Global sales director
Dominic Good
Head of content activation
Alexis Jarman
Content activation manager
mike Dufy
Global associate director,
commercial property
Lyn thompson
Advertising production
Daniel Lesar
contri butors
Kate Allen is the fts property
correspondent
Joe Barnes and India Ross are ft
researchers
Peter Barbalov is a design partner
at farrells
AndrewBaxter is the fts senior
writer, special reports
Mustafa Bilek is president of
mEBE, the Russian construction
and development company
Andrea Felsted is the fts senior
retail correspondent
Edwin Heathcote is the fts
architecture correspondent
Amy Kazmin is the fts South Asia
correspondent
Chris Newlands is editor of ftfm,
the fts fund management section
Anjli Raval is the fts US property
correspondent
Jude Webber is the fts mexico
correspondent
f t . c o m / G P I
05
1.
true storeys
the Seagram Building in
New York see page 14
2.
high life
the Paseo castelar
development in mexico
city see page 34
3.
tech hub
the Infosys campus in
Bangalore see page 22
openers
06
foreword
the first issue of ft
Global Property Insight
08
breaki ng ground
Londons penchant for big
commercial towers reflects a
global trend for architecture as
logo, says Edwin Heathcote
10
i ntroducti on
Planners, architects and developers
across the world are promoting
mixed-use projects, particularly if
they include cultural buildings
14
feature
the changing roster of owners and
tenants of New Yorks Seagram
Building is a microcosm of postwar
US economic and design history
investors
20
col umn
chris Newlands has seen car
showrooms go from being
indicators of wealth to sound
investments in their own right
22
i ndi a
Bangalores technology
business parks are becoming an
increasingly popular holding for
foreign private equity firms
26
supermarkets
changing consumer habits are
forcing supermarket operators to
rethink their property portfolios but
investors appetites remain strong
30
stati sti cs
A return of confidence has seen
significant growth in real estate
capital flows
occupiers
32
on the move
mustafa Bilek on the challenges of
moving ofices in moscow
34
mexi co ci ty
How Aston martin tracked down a
site for its first showroom in mexico
40
brand bui l di ng
corporate headquarters whose
design is a brand statement in itself
are very fashionable but also pricey
developers
44
col umn
Population growth more than
economic development is driving
property markets, says Kate Allen
46
i ntervi ew
Ric clark on why he is taking
New York-based ofice developer
Brookfield Property Group into new
sectors and territories
52
embassi es
Governments increasingly are
cashing in on the prime capital city
locations of their embassies
56
desi gn
flexibility of design is crucial to the
success or failure of buildings
topping out
58
si r davi d chi pperfi el d
Shaping the city
1.
3.
2.
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f t . c o m / G P I
07
foreword mi chael skapi nker
you to provide a place for staf to
lock up their bikes?
this magazine is targeted at
investors too, whether in buildings,
property companies or funds.
Where in the world are the main
opportunities? Which markets look
overheated?
our intended audience also
includes developers and we
understand that commercial
property does not stand on
its own. todays property
developments often have a
residential or leisure side to them.
We will look at the best of these
mixed developments, as well as
the interactions with national and
city governments required to
make them happen.
We will be examining the
information technology side of
property too; any new building
has to be able to cope not only
with todays computers, tablets
and mobile phones, but with
tomorrows devices too.
We want to welcome all
our readers everyone who is
interested in architecture, cities
and a better urban environment.
that means everyone who works,
has worked or plans to. Property
matters afect us all.
Michael Skapinker is an assistant
editor of the Financial Times and
editor of FT Special Reports
building blocks
Any company with international
ambitions wants a base in New
York, London, Dubai, Hong Kong
or Shanghai (or both), tokyo and,
possibly, San francisco, frankfurt,
Singapore or Sydney.
Yet deciding where to buy or
lease can be expensive, bafling
even frightening. Even the most
experienced chief executives
probably make only a handful
of big property decisions. It is
important to get them right.
But these decisions can also
be exciting. A new ofice can
show what the company stands
for. It can provide employees
with an invigorating (or at least
cost-eficient) workplace. If those
ambitions and the budget
stretch far enough, there may be
a chance to move into premises
designed by a star architect.
these are some of the issues
we plan to cover in our new series
of financial times magazines, ft
Global Property Insight.
the ft and the preoccupations
of the global commercial property
market are, in our view, a perfect
match. Like the best international
property developments, our
reporting strives to be global,
hard-headed and stylish.
Who is ft Global Property
Insight aimed at? Its intended
audience is the chief executive
or chief financial oficer who is
thinking about investing in a
headquarters or foreign subsidiary
building. What parts of the city ofer
low rents and a safe environment?
What are the local transport
systems like? Is it possible to cycle
to work and do local laws oblige
Towering presence
the buildings a
company occupies are
one of the most visible
ways it can show what
it stands for
Chief executives probably
make only a handful of big
property decisions
1.
f t . c o m / G P I
scale. the new generation of skyscrapers
has been conceived as objects rather
than engaged architecture. the Art
Deco towers of New York were divided
into base, shaft and crown, each vertical
stratum of the city the recipient of its own
visual language. the base addressed the
street, the crown the skyline and almost
endlessly extrudable shaft the mid-levels.
the object appears complete only from a
distance or in a model.
It is, of course, not a problem confined
to London. Pariss once cosmopolitan
and socially mixed centre has become
a ghetto of extreme wealth very similar
to Londons. this in turn, however, has
forced the once derided La Dfense to
reconsider its architecture and a slow,
careful reimagining of the public spaces
and the commercial architecture that
defines them is becoming, for the first
time, a genuinely engaging urban realm.
meanwhile reports that the
commercial property market in the United
Arab Emirates is recovering (thanks, in
part, to investment caused by tensions
elsewhere in the region), might strike
delight into underemployed western
architects but it also demonstrates
that there is life yet in other models of
development in ways of defining new
centres upon a virtual tabula rasa.
the skyscraper in the desert never
made any real sense it is instead a
symbolic gesture in which architecture
represents a yet-to-be-fulfilled future
of prosperity. the skyscraper is, as
Dutch architect Rem Koolhaas once
proclaimed, an inherently utopian
project. Its continuing dominance
of a commercial discourse might be
detracting from problems on the streets,
from the way in which they city works
at ground level but, as the construction
of the kilometre-high Kingdom tower
in Saudi Arabia shows, it remains a
developers dream and towers are going
nowhere except up.
Edwin Heathcote is the FTs architecture
and design critic
Arecent report by the think-tank New
London Architecture revealed that there
are 200 planning applications pending
for towers of 20 storeys or more in
London. It is an astonishing figure for a
city still seen as essentially low rise at
least in comparison with its US or Asian
competitors and it tells a story of a city
that is going through a fundamental
change. A citys towers are the symbols
of its idols. A few centuries ago, the UK
capital was a city of spires. But Londons
200 new towers are something diferent.
Virtually every one contains luxury
apartments. this new residential upsurge
in London is echoed across the Atlantic
in New York as property in both cities
becomes a global reserve currency. New
York, once the city of the commercial
skyscraper, has become the city of
the condo tower and the penthouse.
But where does that leave commercial
architecture?
the answer, rather counterintuitively,
is almost exactly where it was a century
or more ago. In New York, the Downtown
trend was firmly residential with the once
unthinkable phenomenon of historic
Wall Street buildings being converted to
apartments as the financial sector moved
to midtown. Yet when the developers of
the World trade center site, Silverstein
Properties and the Port Authority,
began to rebuild they bucked the trend,
going not for the mixed-use urbanism
of contemporary orthodoxy but rather
for a purely commercial scheme, a
cluster of super-tall ofice towers by a
cluster of starchitects: fumihiko maki,
Richard Rogers, Norman foster and
others. the efect is to preserve this
part of Downtown as a place of work.
But what is less visible is what happens
underground. Apart from the massive
(and, at $4bn, strikingly expensive)
transport interchange, below ground the
site will host a huge subterranean retail
centre spreading up into the lower floors
of the towers.
this is similar to what has been
happening in the city of London.
Here too, star architects are building
big commercial towers increasingly
spires to towers
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dominated by retail at their bases. Even
as much of big finance shifts eastwards
to canary Wharf, the city has succeeded
in repelling residential development, in
constant fear of residents rejecting newer,
bigger commercial developments and
has managed to keep itself commercial.
Yet it is doing that by expanding upwards
in a manner that has caused concern. the
city planners professed desire to cluster
towers has been smashed by a number
of huge buildings that lie distinctly
outside the designated zones. the Shard
in Southwark and the Walkie talkie in
fenchurch Street (designed by Renzo
Piano and Rafael Violy respectively) have
destroyed any idea of a coherent skyline.
the suspicion is that big name
architects are being brought in to flatter
planners and local authorities with their
presence yet the results are very far from
architectural masterpieces. Instead they
reflect a globalising trend of architecture
as logo; simplistic shapes that exist to
draw attention to themselves rather than
as constituents in an urban landscape.
London is in danger of becoming closer
in its skyline to Doha than to New York,
which, as a grid, allows for almost infinite
extrusion of the rectangular block in its
structural DNA.
Sir David chipperfield makes the point
on page 58 that part of the problem is
09
breaki ng ground edwi n heat hcote
1.
attention seeker
the 37-storey Walkie
talkie in London
designed by Rafael
Violy bursts upwards
and outwards
2.
1930s charm
New Yorks chrysler
Building is a classic
example of Art Deco
architecture
London is in danger of
becoming closer in its skyline
to Doha than to New York
2.
culture clubs
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F T . C O M / G P I
10
i ntroducti on
1.
and the extraordinary Saadiyat Island complex,
featuring buildings by Norman Foster, Gehry and
Jean Nouvel provides the front for a massive
commercial investment, a commercial quarter,
which it is hoped will benefit from the prestige of
the emergence of a new cultural quarter.
Nearby Doha is progressing with an
impressive rebuilding of the entire centre of the
city. The 31-ha Msheireb project encompasses a
group of refined commercial buildings conceived
at a scale very diferent from the more familiar
Gulf towers and designed to begin to refer to the
complex patterns and grain of the historic city, a
walkable quarter in a city in which no one walks.
The district is being built up around an elegant
shaded central square designed by London-
based architect Michel Mossessian.
The Msheireb also represents a retreat from
the idea of the ubiquitous commercial business
district. It is a deliberately and determinedly
mixed-use development, an attempt to replicate
the success of historic city centres. For nearly
two decades, this became a new urban
orthodoxy: the notion that the most engaging
and enduring cities take their energy from the
mix of uses characteristic of established city
centres. Developers have been keen to blend
residential, retail and commercial properties
in the newest blockbuster developments and
those uses often also include cultural buildings.
Some of the worlds most impressive schemes
are either centred around or at least feature
cultural institutions in an efort to add gravitas to
upmarket developments but also to anchor them
in a sense of place and cultural identity.
The architecturally sophisticated development
of the Tjuvholmen area of the Oslo docks has
been anchored by the Renzo Piano-designed
Astrup Fearnley Museum. The former industrial
end of Mexico Citys otherwise upmarket Polanco
But then sometime in the 1960s, something
happened. Commercial architecture became
banal. Perhaps in pursuit of a purism inspired by
the minimalist Mies, or perhaps just because of
a dumbing down of architectural culture, the real
innovations aesthetic, urban, constructional
started to emerge in the cultural sphere. The
buildings that defined the late 20th and early 21st
centuries were the arts blockbusters, from the
Sydney Opera House and the Centre Pompidou
in Paris to Londons Tate Modern; and from Frank
Gehrys Guggenheim Museum in Bilbao and Walt
Disney Concert Hall in Los Angeles to IM Peis
Museum of Islamic Art in Doha.
The question, then, is can commercial
developers and architects regain the prestige
they once had? There are signs they are trying.
Zaha Hadids Galaxy Soho shopping centre
in Beijing brought the kind of design usually
only countenanced by cultural institutions to
the shopping centre, and the same architect
and developers Wangjing Soho ofice and
retail complex (under construction in Beijing)
amplifies the message. Gehry has also been
employed to build big towers in New York and
now Berlin, while Londons skyline has been
radically altered by a clique of starchitects,
whereas two decades ago the Citys architecture
was dominated by a handful of relatively little-
known commercial specialists.
Commercial developers now look to the
cultural sectors success in placemaking using
architecture to establish an identity. This trend has
been particularly powerful in those cities aiming
to make an impact fast. Architecture particularly
the kind of branded, sculptural designs of the
big names has proved to be an efective way
of establishing a site in the local, national and
international context, long before it is even built.
From Singapore and Kuala Lumpur to Doha
and Shenzhen, the fast-changing skylines
attempting to identify themselves as emerging
global cities are turning to big-name architects
and dramatic designs in an efort to locate
themselves within the international imagination.
This approach might not have always been
identified with success. Dubais insane rush to build
its booming desert skyline became the subject
of a perennial critique in the pre-crash days, yet
now it is bouncing back, its skyline established
and its odd mix of tourism and business making
it an established, even trusted hub.
Dubais neighbour, Abu Dhabi, is being, as ever,
more restrained. Its blockbusters remain cultural
F T . C O M / G P I
11
1.
Grand designs
Galaxy Soho in Beijing,
bringing the design values
of a cultural institution to a
shopping centre
2.
Big-name project
The Wanjing Soho ofice and
retail complex in Beijing by
the in-demand starchitect
Zaha Hadid
3.
Shifting picture
The ICC Tower in Hong
Kongs West Kowloon, which
aims to overtake Hong Kong
Island as a business centre
For most of the 20th century it would have been possible to say that the worlds most
impressive buildings and its most advanced architecture were purely commercial.
At the end of the 19th century and the beginning of the 20th, they were located
around the US Louis Sullivans Wainwright Building in St Louis, Cass Gilberts
Woolworth Building in NewYork and Frank Lloyd Wrights Larkin Building in Bufalo.
Each of these represented real architectural innovations, fromthe first atriums to the
first recognisable skyscrapers. Then the focus shifted east to the seductive Art Deco
towers of Chicago and NewYork, and the wonderful Rockefeller Center. Even after
the war many of the most innovative structures were purely commercial Mies van
der Rohes SeagramBuilding (see page 14) and Gi Pontis Pirelli Tower in Milan.
by edwi n heat hcote
2. 3.
traditional models. The City of London remains
fearful of the impact of residential development,
concerned that residents will impinge on its
ability to continually transform itself through
construction. The result is that metastasising,
spiky skyline that the Square Mile is barely able to
contain and which is now spreading to the East
End and south of the river.
Arguably the worlds most charged
construction site, New Yorks World Trade
Center, has also seen a determined rejection of
the mixed-use model. Despite an extraordinary
exodus of the big financial powerhouses
from their traditional base in Wall Street and
Downtown to Midtown, the sites developers, the
Port Authority and Larry Silverstein, decided to
maintain the site as a business district. The trend
Downtown (even, remarkably, in Wall Street),
has been for the solid, historic buildings to be
transformed into condos for the bankers who
once worked there. Silversteins decision to keep
the WTC as a business district might have meant
district has been turned into a huge retail centre
and that too is bracketed by two major cultural
buildings, the Soumaya Museum (designed by
Fernando Romero and housing the art collection
of Carlos Slim) and the Jumex Museum, an
exquisite Sir David Chipperfield-designed
gallery that opened last year and houses the
contemporary art collection of the eponymous
juice company.
By far the most significant of these schemes
is Hong Kongs West Kowloon development. This
piece of reclaimed land is one of the worlds most
radical current developments and its intention
is nothing less than a shift of the historic centre
of business gravity from the traditional colonial
nexus of Hong Kong island to the traditionally
Chinese Kowloon mainland side. The move P
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is already well under way with the elegant
KPF-designed 118-storey ICC (International
Commerce Centre) Tower that sits on top of
the Terry Farrell-designed Kowloon Station,
with its fast airport connections attracting big
corporations and financial institutions from the
other side of the harbour. The West Kowloon
Cultural District promises to transform this
still rather lifeless business district (albeit one
with the most magnificent views) using the
machinery of culture to create place and identity.
The confirmed buildings include a museum
designed by Herzog & de Meuron (architects of
Tate Modern) and a huge array of theatres and
concert halls.
Intriguingly, though, the worlds biggest
business hubs are cleaving stubbornly to their
i ntroducti on
Hong Kongs West Kowloon development is one of
the most radical projects and intends to shift the
centre of business fromthe traditional colonial
nexus of Hong Kong island to the Chinese mainland
Downtown was guaranteed a future as a financial
centre although it seems that the clients
attracted to the new blockbuster buildings tend
towards the media, law and technology sectors.
The WTC site is also a blend of the emerging
trends in city centre development. Whereas the
Twin Towers attempted to obliterate everything
that stood before them, the new design makes
real eforts to reintegrate the site into the city,
restoring routes and weaving roads back in. It also
makes use of the big-name architects: Richard
Rogers and Foster have buildings on the site,
Santiago Calatrava is building the $4bn transport
hub and Fumihiko Makis 4 World Trade Center
is an outstandingly elegant tower. Finally, it is a
development with ambitions to claw culture back
to the centre of the city with ambitious plans for a
theatre by Gehry.
The extraordinary profile and visibility of this
site may mean that its success or its failure will
determine the model of city centre commercial
architecture for years to come.
Human scale
The Msheireb project
in Doha
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The changing roster of owners and tenants
at 375 Park Avenue, Manhattan better
known as the Seagram Building
is a microcosm of postwar US economic
and design history, writes Anjli Raval
Photographs by Pascal Perich
life
storeys
Glass tower
From the Eagle Pencil
Company to Wells Fargo,
the Seagram Buildings
tenants have been
a whos who of corporate
America
A1919 wall hanging created by Pablo Picasso is at
the centre of the latest battle over the historic versus the
modern at the Seagram Building in Manhattan.
The dusky mauve and ochre Le Tricorne stage curtain
was created for a Russian ballet production and has hung
in the Park Avenue ofice towers Four Seasons restaurant
for more than half a century. But the buildings current
owner, RFR Holding, wants it out.
Aby Rosen, the New York property titan and art
collector who co-owns the ofice tower, has referred to the
piece as a rug and a carpet in conversations with the New
York Landmarks Conservancy. The preservation group
had requested an order which was granted temporarily
preventing RFR from moving the work, saying shifting the
aged piece would destroy it.
Although the property group has said the curtain had
to go because of a damaged wall, the NYLC and others
believe Rosen whose tastes run to artists such as Damien
Hirst and Jef Koons wants to use the space to showcase
highlights of his vast trove of postwar gems.
The curtain was specifically bought for the space. It is a
gift to the city and there it should remain forever, says Peg
Breen, NYLC president.
The juxtaposition of the old and new has featured in the
narrative of the Seagram Building throughout its life, from its
design and ownership to its tenant make-up and artworks.
The Four Seasons restaurant at the base of the building
a go-to lunchtime spot for tycoons and celebrities
(regulars include Martha Stewart, Ralph Lauren and
Henry Kissinger) has maintained the same landmarked
or listed interiors since it opened in the late 1950s.
Meanwhile, the revamped ofice space on the upper floors
could rival that of a start-up technology company.
No one understands this convergence better than
Phyllis Lambert, daughter of Canadian business magnate
Samuel Bronfman, who was the owner of the Seagram
Companys liquor empire. The company had outgrown
its rented space in the Chrysler Building amid a booming
postwar spirits business and wanted to build a space of its
own. But Lambert was horrified at her fathers original plans
for a showy metal and glass edifice.
In a letter pleading to her father in 1954, the then
27-year-old Lambert, wrote bluntly: No, No, No, No, No.
She believed the project would look vulgar and took issue
with his characterisation of the building as Renaissance
modernised. She urged him to construct a tower that did
not reference any previous era. If you are going to make
something, you build the most wonderful and best thing
you can at the time, Lambert, now 87, tells the Financial
Times.
The vivacious young lady who went on to establish
the Canadian Centre for Architecture was commissioned
to help oversee the design and construction of the new
tower. In her 2013 book, Building Seagram, she writes about
her role as the young director of planning. After weeks of
consultations with architects across the country she settled
on the 68-year-old German migr visionary Ludwig Mies
van der Rohe. Everyone was talking about him, she says
of the younger architects she had spoken to. It became
clear that I had to choose Mies himself.
1.
Rich tapestry
Picassos under-threat
Le Tricorne stage curtain
2.
Modern masterpiece
The Seagram Building during its
construction
1.
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F T . C o M / G P I
spotl i ght seagram bui l di ng
17
F T . C o M / G P I
A virtually unlimited budget
enabled architect Mies van der
Rohe to use sumptuous materials
2.
The tower was granted landmark status in 1989 after
turning 30 years old, in recognition of its enduring design
and architectural prowess.
A virtually unlimited budget enabled van der Rohe,
alongside American architect Philip Johnson, then his
acolyte, to use sumptuous materials. The 38-storey tower
faces Park Avenue across a broad plaza of pink Vermont
granite, bordered on either side by reflecting pools and
ledges of verde antique marble. The tower itself is a steel-
framed structure wrapped in a curtain wall of pink-grey
glass to complement the bronze spandrels, mullions and
I-beams that modulate the exterior surface. Walls and lift
banks are lined with travertine panels.
The building took only 18 months to design, another 18
months to construct and at a cost of $36m, it was at the
time the most expensive skyscraper ever built.
Seagram took up the first six floors of ofice space while
the Eagle Pencil Company, watchmaker United States Time
Corporation, typewriter maker olivetti, the Public Relations
Society of America and television producer Goodson-
Todman Productions were among other tenants.
The time over which the building was constructed
proved to be a golden period for Seagram, which occupied
a dominant position in the US drinks sector. Although the
building remains an icon of corporate power, its completion
in 1958 signalled the peak of the companys fortunes.
Seagrams market share began to drop in the following
decade and, in the years after, the company pushed
new lines of business, including forays into chemicals
and entertainment. Seagram was sold to French media
18
spotl i ght seagram bui l di ng
The juxtaposition of the old and new
has featured in the narrative of
the Seagram Building throughout its life
company Vivendi in 2000 and, two years later, the drinks
business on which it was founded was disposed of.
In 1979, the skyscraper was sold for $85m to pension
fund Teachers Insurance and Annuity Association College
Retirement Equities Fund. In the years leading up to the
sale, a recession had enveloped the US and the banks that
marketed New Yorks debt were convinced the city was on
the brink of bankruptcy.
It was a dificult period to own and acquire new real
estate, given the high interest rates and capital constraints,
says Nicholas Stolatis, senior director at TIAA-CREFs global
real estate arm, but we welcomed the chance to acquire
such an iconic property.
Even though TIAA-CREF owned the building, the
Bronfman family remained caretakers and ensured proper
maintenance was carried out, including the oiling of the
bronze exterior of the building. This added enormous
complexity to everyday upkeep a challenge we met
during our entire period of ownership, says Stolatis.
Joel Ehrenkranz, whose law firm has been in the
building for more than 40 years, says its location, quality
and stature explain its rents of up to $200 a square foot.
other buildings advertise their views of Central Park,
but at Seagram you have a rather fabulous view of the
city buildings because the plaza sets it back. Although
Seagram, and later Vivendi, continued to occupy the
space in some fashion until the mid-2000s, the sale meant
TIAA-CREF and later RFR was no longer allowed to
use Seagram Building in its marketing. Even so, 375 Park
Avenue was the jewel in the crown of TIAA-CREFs $40bn
property and mortgage portfolio.
one factor prompting the sale of the tower to RFR in
2000 for $375m were the millions of dollars needed to
refurbish the property in the coming years, said people
familiar with the matter. TIAA-CREF, however, says:
We dont fall in love with our real estate assets. We
considered ourselves stewards of an endearing property,
1.
19
F T . C o M / G P I
and following an exceptionally long holding period we sold
when it made sense.
Rosen and business partner Michael Fuchs also the
owners of Lever House, a modernist building further up
Park Avenue secured the deal with two investors during
a frenzied Manhattan property market. Those who had
bought buildings cheaply during the recession of the early
to mid-1990s were reaping the benefits of price and rent
rises as the economy recovered.
Three-quarters of the roster of prestigious tenants
ExxonMobil and DaimlerChrysler among them were
paying rents below market rates and had leases set to
expire within five years. Development rights of the building
also spurred an intense bidding war.
The building is almost my business card. If you own
Seagram, suddenly it equates to a certain type of owner
who cares about owning a New York landmark, says
Rosen. You are the custodian of the building and are
maintaining it for a future generation. I wanted one on both
sides of the street. Under RFRs ownership the building
has undergone refurbishment, including modernisation
of its lifts, electrics, heating and cooling systems, and the
replacement of landmarked luminescent ceilings.
But the road to this point has not been easy: RFR was
hampered by the most recent financial crisis, which put
pressure on the New York ofice property sector; Rosen
became embroiled in a dispute with Seagram investors
Harry Lis and Peter Brant that resulted in them being
bought out; and the company had to undertake a $1bn
refinancing of the property after finding no takers for a
stake in it when other large sales in the city had also come
to nothing. Even so, the buildings co-owner believes he is
holding on to a piece of history that he seeks to showcase
through public art installations the buildings rotating
sculpture programme has included Jef Koons Balloon
Dog and Dan Colens Cracks in the Clouds.
Aby has tried to bring in tenants with a similar
1.
Power lunching
The Four Seasons restaurant, a
favourite with the rich and famous
2.
Rooms with a view
The buildings set-back aspect is
said to enhance the vista
3.
Host with the most
Julian Niccolini, co-owner of
the Four Seasons
4.
Financial hub
The ofices of EnTrust, which has
been a tenant since 2010
5.
Raising the bar
Dolphin Taz Trashcan by Jef
Koons in the buildings lobby
2. 3.
5.
4.
appreciation for art and architecture, says Gregg
Hymowitz, co-founder of EnTrust Capital. The
investment group moved into the building in 2010,
joining corporations such as banking group Wells Fargo,
energy giant ConocoPhillips, hedge fund Third Point and
telecommunications company Verizon.
But the buildings oldest and most enduring fixtures
remain under pressure; alongside the Picasso curtain,
the owners of the Four Seasons are tussling over a steep
rent rise. Julian Niccolini co-owns the Four Seasons lease
alongside business partner Alex von Bidder and the
Bronfman family.
Having presided over the citys lunchtime gold standard
for 37 years, he remains positive. The Four Seasons is an
integral part of the building, he says. our lease is with RFR
and our future lease will be with them. We have been there
since the beginning. P
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the retail price index and, as a result,
manufacturers and car dealers are
comfortable with agreeing inflation-
linked leases. This also reassures
investors on their tenants ability to
service these agreements.
His optimism and that of other
investment professionals comes
despite car showrooms being under
attack from the web.
According to research by consultants
Frost & Sullivan, global online car sales will
increase eightfold between 2011 and 2025
to almost $4.5bn to account for almost
one in every five new car purchases.
Audi, Nissan, Jaguar, Land-Rover,
Mini and Mercedes-Benz have all opened
digital stores, while Ford, Peugeot
Citron, Fiat and Renault have launched
websites for customers to buy cars from
them directly.
At the same time, bricks and mortar
dealerships are becoming expensive.
Margins for dealers on new car sales in
Europe are typically less than 1 per cent
of the price of the vehicle.
But Patel is unperturbed. The car
industry has been ahead of the curve
in successfully combining a bricks and
clicks approach, he says. As a result
showrooms are here to stay. Their
websites have become suficiently
sophisticated for customers to do a lot
of their homework online but they still
want to visit the showroom for a physical
inspection and a test drive.
He adds that research from Cordea
Savills shows that since 1990 the best-
performing sectors during periods of
higher inflation are regional ofices and
alternatives including car showrooms
but also budget hotels and gyms.
Patel may have a point and, although
sustained price increases seem a long
way of for the time being (cue the bad
car jokes), a look under the bonnet at
car showrooms might avert a head-on
collision with inflation.
Chris Newlands is the editor of FTfm,
the FTs fund management section
Car showrooms have long been
indicators of financial health. For any
journalist worth their salt, a simple call to
the sales staf of a luxury car showroom
during bonus season would quickly
reveal how those banks in Canary Wharf
or Wall Street had performed over the
past 12 months, and just how generously
they had lined the pockets of their staf.
News of a spike or a fall in the number
of sports cars being taken for a spin were
quickly reported back to page editors
and dissected for the expectant reader.
Indeed, in a recent edition of the FT, it
was proclaimed that the feel-good factor
in the City of London had returned, that
the biggest banks were hiring again, deal
pipelines were filling up, and bonuses
were on the rise. And just so there could
be no doubt, the article was punctuated
by the news that Britain had overtaken
Germany to become Ferraris largest
European market.
The result is that car showrooms
are proving to be a sound investment
themselves rather than just indicators of
wealth elsewhere, and the message being
driven home to investors by property
fund managers is that car showrooms
not only provide shiny sports cars but
showroomshine
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an attractive investment choice. The
argument behind this, however, is
more Volvo-esque in its reasoning than
Ferrari-like: namely that car showrooms
ofer a good hedge against inflation.
With central banks around the world
fighting against disinflationary pressures
and every efort being made to avoid
price falls, the wise owls at the property
investment companies suggest the only
way is up for prices, and that now is the
right time for investors to inflation-proof
their commercial property investments
in anticipation.
Many fund managers, including
Pimco, the worlds largest bond house,
argue the opposite and that inflation will
remain low this year. Property managers
have other ideas, however.
As a result, says Kiran Patel,
chief investment oficer at Cordea
Savills, the international property fund
manager, were particularly attracted
to inflation-linked alternatives such as
car showrooms, which in the UK are
ofering yields of between 5 per cent and
6 per cent while 10-year index-linked gilts
ofer a meagre negative 0.15 per cent.
Patel adds: Historically, the motor
industry has performed in line with
F T . C o M / G P I
20
i nvestors chri s newl ands
Ferrari feeling
Property managers are
attracted to inflation-
linked alternatives such
as car showrooms
The wise owls at property
investment companies
suggest the only way is up
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Such has been the success of Bangalores
technology business parks that foreign
private equity rms are rapidly
expanding their property portfolios in
the Indian city, writes Amy Kazmin
bangalore
express
tech temple The Washing
Machine building on the Infosys
campus in Bangalore
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The quintessential image of Indias economic
emergence was captured by Thomas Friedman in his
popular 2005 book about globalisation, The World is Flat.
Friedman starts with a visit to the 43-acre headquarters
of Infosys, one of Indias premier information technology
outsourcing companies, based in the southern city of
Bangalore.
He travels down a rutted road crowded with motorcycles,
rickshaws and beasts of burden, and arrives in what he
calls a diferent world. He describes the ultra-modern
Infosys campus, with its massive glass-and-steel buildings,
housing more than 20,000 workers, and the super-sized
video-conference facilities for interacting with the companys
clients and partners from across the globe. He also notes
amenities such as a large swimming pool, a putting green, a
health club and numerous restaurants.
Almost a decade later, the Infosys headquarters, in
Bangalores Electronic City, has not lost its ability to amaze
and delight visitors, especially those from other parts of
India who must deal with the countrys rickety public
infrastructure and the dilapidated ofice buildings of its urban
centres. But the campus is typical of the scale and calibre of
commercial property that has been developed in Bangalore,
a city that has doubled in size over the past decade.
Once dubbed a pensioners paradise for its temperate
climate, Bangalore today has 100m sq ft of commercial
ofice space, more than any other Indian city. Its vast
ultramodern business parks provide tracts of space to
house tens of thousands of ofice workers in one place. The
parks are buoyed by extensive infrastructure, such as back-
up power and water systems, needed to ensure global
companies can keep running 24 hours a day without
interruption, in a country notorious for power cuts and
other infrastructural deficiencies.
It is no surprise that many of Indias leading IT
companies, such as Wipro, are based there, but Bangalore
is also the destination of choice for the Indian operations
of global companies such as Goldman Sachs, Hewlett-
Packard, Cisco and Tesco. Now, as well as luring prestigious
tenants, the citys business parks are also attracting the
attention of private equity firms, which have been taking
stakes in completed, leased commercial property assets.
Over the past two years, Blackstone, the US-based
private equity group, has invested about $800m to build
up an Indian property portfolio of 28m sq ft. Of those funds,
half have been invested in Bangalore commercial buildings,
with its partner Embassy Property Developments, based in
the city. The two companies are completing a $325m deal
to take control of Vrindavan Tech Village, a 104-acre special
economic zone with 2.1m sq ft of leased ofice space and
75 acres of undeveloped land.
Blackstone is not alone. Qatars sovereign wealth fund,
the Qatar Investment Authority, has invested nearly Rs18bn
($289m) in a special-purpose vehicle set up by RMZ,
southern Indias largest commercial property developer.
Property companies owned by Singapores government
are also looking for potential acquisitions, and some Indian
players have begun to follow suit.
According to Cushman & Wakefield, the property
services company, private equity investment in Indian
property rose 25 per cent to Rs47bn in the first nine months
of 2013, though much of that was driven by the Qatar deal.
Of the Rs30bn invested in Indian property in the third
quarter of 2013, Bangalore was the top destination, with
Rs18.8bn of investment, while Indias national capital region,
Delhi (and its satellite city Gurgaon), and Mumbai came a
1.
Glass facade
A building in the Wipro
campus in Bangalore
2.
Balancing act
A pedestrian walks past
a construction site near
corporate ofices in Gurgaon
on the outskirts of New Delhi
24
F T . C O M / G P I
i nvestors i ndi a
One of the challenges in
India has been an exit route
for property developers
1.
2.
25
F T . C O M / G P I
Demand may have dropped o modestly
in the oce market, but supply has
dropped sharply, given the lack of capital
distant second and third, attracting Rs3.8bn and Rs3.6bn
respectively.
Private equity funds interest in Indian ofice space
is good news for cash-strapped property developers,
many of which urgently need new capital to fund future
developments. This is very encouraging, says Anshuman
Magazine, managing director of CBRE, the property
services company, in south Asia. One of the challenges in
India has been an exit route for property developers. This
will encourage more investment, as now they know there is
a market. It brings more liquidity into the market.
The new interest in Indian ofice space as an investible
asset class comes despite an overall economic slowdown.
Indias gross domestic product growth fell to a decade low of
5 per cent in the 2012-13 financial year, down from a peak of
9.6 per cent in 2006-07, and there are few convincing signs
of a pick-up. Growth in GDP between April and June 2013,
typically the slowest quarter, fell to just 4.4 per cent, then
recovered slightly to 4.8 per cent in the subsequent quarter.
Bangalores overall vacancy rate for commercial
property is about 14 per cent, and rents are relatively low
from Rs30 per square foot in the 1990s-era Electronic City
to Rs50-Rs52 per sq ft in newer complexes along the outer
ring road to Rs120 per sq ft for top-grade ofice space in the
central business district.
But with demand picking up from western companies,
and development of new properties slowing due to the
dificulties of acquiring large parcels of land and securing
finance, industry players believe rents are set to rise over
time. In some of the more desirable new locations or micro-
markets, vacancy rates have already fallen to just 5 per cent.
Tuhin Parikh, who heads Blackstones Indian property
operations, says the private equity firm is confident that
ofice rents in Bangalore will increase over time, given both
the citys inherent long-term demand for space and the
sharply rising costs of construction. We think rents over
time will go up, he says. Demand may have dropped of
modestly in the ofice market, but supply has dropped
sharply, given the lack of capital.
Given what has happened to land prices, construction
costs and cost of debt, it is expensive to replicate these
assets. [Compared with] what you built them for five or six
years ago, it costs double to build them today.
At the peak of Indias growth cycle, Bangalore saw a
take-up of around 11m sq ft of ofice space a year, but that
has now fallen to around 7.5m sq ft a year.
But Ram Chandnani, head of south India operations
for CBRE, says Bangalores property market is churning,
as companies such as Cognizant, Accenture and Hewlett-
Packard, with employees scattered across multiple facilities,
move into dedicated, purpose-built ofice parks. Existing
occupiers want to consolidate their operations, and most
of it is built to suit transactions corporate occupiers pre-
arrange a deal with a developer, he says. Such moves are
freeing up older space for a new wave of occupiers.
Bangalore is not the only Indian city that ofers ultra-
modern ofice space. Gurgaon, near Delhi, and Mumbais
Bandra Kurla Complex also have large tracts of land
available. But Bangalore remains particularly attractive for
companies, just as it is a magnet for young knowledge
workers from all over the country.
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chain reactions
Changing consumer habits are forcing supermarket operators
to rethink their property portfolios, but investors appetites
remain strong, reports Andrea Felsted
Market forces Shoppers have been
cutting back on weekly visits to
larger stores and instead buying more
at smaller outlets
When Loblaw, the Canadian supermarket chain, spun
of its property assets into a separate company last July, it
underlined the potential of supermarket assets to property
investors. The sector has undergone fundamental changes
in developed markets, with Walmart in the US, Tesco in the
UK and Carrefour and Metro in continental Europe among
operators under pressure from a combination of factors.
There are a lot of changes in the supermarket sector
generally. But the constant is the investor appetite, says
Michael Rodda, head of European retail investment at
property consultancy Cushman & Wakefield.
Across developed markets, cash-strapped shoppers
have been moving away from the traditional big weekly
shop. According to J Sainsbury, the UK supermarket
chain, consumers for the past couple of years have been
buying one less thing in their weekly shop, then picking it
up on a top-up shop during the week. This is prompting
supermarket chains that traditionally have been associated
with large superstores to open smaller outlets.
Meanwhile, other alternatives to big stores are springing
up in developed markets. Aldi and Lidl, the German so-
called hard discounters, are expanding around the world,
as their no-frills oferings gain favour among more afluent
consumers.
At the same time, online grocery shopping is gathering
pace across the developed world. The UK has the most
advanced online grocery market in the world, accounting
for about 5 per cent of total grocery sales, according to
OC&C, the consultancy. In the US, the figure is about 1 per
cent, but retailers there are doing their best to catch up,
with online giant Amazon expanding its AmazonFresh
grocery business. At the other end of the spectrum a
plethora of speciality food sites are springing up in the US,
such as Goldbely and Mouth.com.
Against this backdrop, supermarket assets remain
attractive to investors on both sides of the Atlantic. The
main reason is that despite the turbulence since the
economic crisis, people still need to buy food.
It is not a controversial sector to be investing in, says
John White, a director of Osprey Equity Partners, the
investment company.
Whatever else happens, people have to eat. More
importantly, food retailers have been very adept at
adapting to changing customer habits and have been
quick to roll out multi-channel formats.
Osprey, which invests in supermarket assets on behalf
of private investors, also notes that in the UK, supermarkets
are typically let on 25-year leases, commonly linked to
the retail price index. In continental Europe, leases tend
to be much shorter, often as a result of less restrictive
planning regimes. And despite the challenges in the global
grocery market, supermarket operators still have very
strong balance sheets and profitability. The stable cash
flows generated by supermarket leases are well suited to
institutional investors seeking income to meet pension
liabilities, property experts say.
The size of new supermarkets being built is shrinking,
reflecting the changing dynamics of the market. But Simon
Lee, a director at Osprey, notes that even for bigger stores,
for the right location, the big supermarket chains are still
prepared to take space.
Although there has been a lot of press about big
food stores being out of favour, we still see for the right
locations supermarket operators taking good-sized
stores, he says.
Partly this is because operator profit margins are often
higher at traditional-format stores than from convenience
stores and online home deliveries. But it is also due to the
fact that the physical stores form a large part of the online
platform both as a point from which goods are delivered
to the home and also as click-and-collect sites from which
online orders are collected by customers.
Large car parks and prominent locations make food
stores natural click-and-collect destinations. In addition,
where retailers do not have representation in existing
stores, special click-and-collect points are emerging.
Rodda says appetite among investors for supermarket
assets across continental Europe remains strong, as long
as leases are reasonably long and the supermarkets taking
the leases have solid balance sheets.
There is appetite across the board, from central Europe
to Iberia, he says. There is appetite for both single-let
supermarkets, which will be sold to a single high-net-worth
individual, and large portfolios being sold to big insurance
companies and specialist sale-and-leaseback investors.
The one area of concern, Rodda says, is in big
hypermarkets in continental Europe where up to one-third
of the store is devoted to non-food items, such as clothing
and hardware. These have been hit hard by the economic
downturn and by the rise of online retailers.
1.
Market space
Spars industrial-themed
supermarket at the heart of a
wealthy district in Budapest
2.
Czech out
A Lidl discount store in Prague,
Czech Republic
3.
Shelf life
Walmart subsidiary Sams Club
in Elyria, Ohio, US
4. and 5.
Trolley time
Branches of Tesco supermarkets
in the UK
2.
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i nvestors supermarket s
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Despite the challenges in the global grocery
market, supermarket operators still have
strong balance sheets and protability
But Lee says the changing shape of the supermarket
sector may create further opportunities for investors.
So-called dark stores, in efect stores without customers
from which online grocery orders are fulfilled, could make
attractive investments, as could convenience shops, if they
were parcelled up into portfolios of stores.
Dark stores should have many of the same
characteristics as traditional food stores: long leases, let
to companies with strong balance sheets and a high
land value at the end of their life, he says. The small
individual lot sizes of convenience stores provide additional
granularity and liquidity to a wider portfolio. We are
certainly exploring these assets at the moment.
As the market develops, one of the attractions of
Loblaws property assets is that the group operates across
a range of store formats. In December 2012, the grocer,
which is controlled by the Weston family, announced plans
to hive of the majority of its property assets into a real
estate investment trust. Loblaw then floated a 20 per cent
stake last July, retaining the controlling 80 per cent. Such
Reits are popular in the US, providing private investors with
a tax-eficient way to buy and sell properties.
Supermarkets typically make money through their
property assets through sale-and-leaseback deals, whereby
they sell of property to an investor, usually an institution,
and then rent it back.
But Loblaws approach ofers an alternative to the
traditional sale-and-leaseback route, which some investors
believe delivers insuficient value to shareholders. They
suggest the companys model ofers interesting lessons for
grocers around the world.
Loblaws strategy is prompting some activist investors
to question whether the model could be applied elsewhere,
particularly in the UK, where Tesco, Sainsbury and
Wm Morrison have large property portfolios.
But not everyone is in favour of such an approach.
Jaime Vazquez, an analyst at JPMorgan Cazenove,
notes that Carrefour, the French supermarket group,
abandoned plans to spin of part of its property division
three years ago.
As the debate continues about how the worlds
leading grocers divide their property assets and
operating companies, the next test of investor appetite for
supermarket assets will come when Morrison announces
a review of its property portfolio in March. Institutional
investors are expected to show keen interest in any stores
that are sold of as part of a sale-and-leaseback deal,
although Morrison is expected to remain overwhelmingly
freehold.
Chris Keen, a director in the retail team at property
consultancy CBRE, says Tesco and Sainsbury have been
selling and then leasing back properties, which means
institutional investors already have plenty of these in their
portfolios. There is a bit of scarcity value [to Morrison].
If Morrison does a sale-and-leaseback there will be huge
demand, he says.
10largest markets
US UK Japan China
$214.6bn
$41.7bn
$38.2bn
$25.1bn $22
global sector share net buyers and sellers
Americas Eur
$3.24bn
Singapore
$12bn
China
$25bn
Australia
$22bn $1.57
asia-paciic outperformers, 2013
New annual transactional records were
set in many markets including
Five years of consistent growth in
global investment markets
saw volumes reach
$563bn in 2013
global 2013 volumes
$563bn
Total
Emea
Americas
Asia-Paciic
$241bn
$127bn
$195bn
Cross-border deals
Domestic deals
88% 12% 65 68% 32% 76% 24% 47% 53%
Germany
69% 31%
$67.8bn
Bought Bought
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48%
25%
15%
8%
5%
Retail
Industrial
Hotels
Other
F T . C O M / G P I
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stati sti cs gl obal capi t al f l ows
investors buy into recovery
A return of condence has seen signicant growth in the volume
of real estate global capital ows that is set to continue in 2014
South Africa
15
France Australia Canada Singapore Sweden
Source: Jones Lang LaSalle
largest recipients of cross-border investment
africas commercial real estate stock
(Million m
2
)
Sub-Saharan Africa North Africa
2
4
1 0.5
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Ofices
Shopping centres
22.4bn $21.9bn
$18.1bn
$11.6bn
$10.3bn
2014
(Forecast)
2013
full-year forecast, 2014 s and sellers
Europe Asia-Paciic Middle East Global
1.57bn $6.88bn $9.69bn $13.95bn
As risk appetite
improves, investors
are looking at
opportunities outside
the ofice and retail
space, with more
deals done in hotels,
industrial, logistics and
mixed-use schemes.
For the irst time in
many years, volumes
across prime and
secondary cities are
moving higher
together. Stock in
major cities continues
to be highly sought
after as well as quality
assets in smaller
regional locations.
Investment into
Europe once again
was heavily
inluenced by lows of
money from other
parts of the world. In
2013, US and Middle
Eastern groups picked
up their pace of
investment.
Money from China
more than doubled in
2013, while traditional
sources of capital
from the US, Germany
and the Middle East
continued to
dominate the
cross-border
investment markets.
65% 35% 68% 32% 91% 9% 88% 12% 80% 20%
Paris
Chicago
Los Angeles
Seattle
Sydney
London
$600bn-$650bn
$563bn
1
4
New York 2
Washington DC 7
8
Shanghai 6
5
San Francisco 10
9
3
Bought Bought Bought
Sold
F T . C O M / G P I
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One Khimki Plaza and are currently
in the final fit-out stage before our 200
staf relocate in May. The building is
located in Khimki, a dynamic and rapidly
growing international business district
just northwest of the city, with excellent
accessibility to both international and
Russian business markets (7 km to
Sheremetyevo International Airport,
20 km to central Moscow).
Not only is this building our first own
home, but it is also our first commercial
real estate development project. It is
a 19-storey ofice topped by a helipad.
The building ofers immediate access to
range of services, including: chaufeured
limos, valet parking, charging units
for electric and hybrid cars, a five-star
concierge, canteen and caf, beauty
salon, florist and newspaper stands and
bank machines.
Unusually for Moscow, it is also
constructed in accordance with
LEED (Leadership in Energy and
Environmental Design) Gold international
green certification requirements. We
wanted this building to be one of the
greenest in Russia. All the business
complex systems are designed to
provide an ideal comfortable ofice
environment: total sound and thermal
insulation, smart heating, cooling and
ventilation systems.
A complimentary MEBE shuttle bus
transfers staf between the complex and
Rechnoy Vokzal metro station and by
sidestepping the general congestion
of Moscow trafic, some of our staf
are cutting 15 hours of their weekly
commute.
MEBE One Khimki Plaza is our first
experience of major development as
opposed to construction and the
first high-grade ofice building to grace
the area of Leningradsky. With new
infrastructure earmarked, on the back
of nearby fast-growing Sheremetyevo
airport, we hope it will be the first of
many developments in the area.
Whatever happens, we will have had
the satisfaction of being able to move
into an ofice built with our very own
hands.
Mustafa Bilek is president of MEBE, a
Russian construction and development
company
Over the past seven years, two ofice
moves have had a radical efect on the
culture and ultimately the development
of MEBE.
In 2007, we made the first significant
move when we took an entire floor
in the business centre of the historic
Stanislavsky Factory in Moscow, which
includes the restored theatre where
Anton Chekhovs The Cherry Orchard
was first performed.
As the main contractor on the
residential part of this redevelopment, it
was beneficial for our team to occupy a
building on a project with which we were
so closely tied to, as well as to obtain
first-hand experience of the benefits of a
mixed-use development.
Until that point, MEBE had been
located in a small administrative building
on Krasina Street, near the Belorusskaya
metro station. We were quickly
outgrowing the ofices in terms of space,
but had also realised that, the ofice did
not reflect the ambitions we had for the
company.
With Stanislavsky, we were able to fit
out the building according to how we
all our own work
intended to use it and, as the ultimate
tenant of the space, our team was able
to gain valuable insight from the client
perspective. If we made a misjudgment,
we had to live with it. That makes you
learn quickly about how to improve.
Obviously, having a relationship
with the building owner influenced our
decision, but one of the most important
reasons for choosing our ofice was
transport links. The Stanislavsky building
is well located within walking distance of
four metro stations and the Garden Ring
road that encircles central Moscow.
We need the best people and it is
always easier to attract them to an area
that is easy to get to.
On to the second move. I am a civil
engineer and since the very beginning
of MEBE, I always dreamt of constructing
and owning my own ofice. I wanted
a building that could be built to my
specifications and be a great place for
our team; somewhere that was elegant
but also comfortable and cosy.
When we began, this was just a
dream. But in early 2013, we started
building our own headquarters MEBE
F T . C O M / G P I
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occupi ers on t he move
Built to spec
MEBE One Khimki
Plaza is the first
high-grade ofice
building in Moscows
Leningradsky district
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When Aston Martin was looking for a site
for its rst Mexican showroom, it settled
on a well-established area, though certain
compromises were necessary,
writes Jude Webber
lap of
luxury
High society
Aston Martins new
home, the Paseo Castelar
development, opposite,
is in the Polanco district,
a social and business
destination for the
wealthy customers of
luxury brands
1.
2.
36
f t . C o M / G P I
occupi ers mexi co ci t y
If James Bond lived in Mexico City, where would he
call home? finding a suitably suave address a place at
once impeccably classy yet efortlessly discreet was the
mission for the Mexican entrepreneurs who last month
opened a dealership for Aston Martin, maker of the spys
favourite cars. Its sheer size means Mexico City has no
shortage of property options, but finding the right place to
showcase half a dozen luxury British sportscars was tricky.
though many multinationals plump for the gleamingly
modern Santa fe, a sea of skyscrapers on the western
fringes of the city, the area is bedevilled by nightmarish
trafic and is more a work destination than a chic place to
see and be seen. Meanwhile, some banks, lawyers and the
like see the city centre as de rigeur: they prefer the elegant
towers along the Paseo de la Reforma boulevard, such as
the torre Diana, which, when it is finished in 2015, will be
the capitals tallest building.
In the end, the lure of Mexico Citys equivalent of Rodeo
Drive won out, and the Aston Martin team zeroed in on
the Presidente Masaryk boulevard in the neighbourhood
of Polanco, close to the centre and the western residential
neighbourhoods. the street is one big shop window
for global luxury brands in a district that is a social and
business destination for the wealthy customers most likely
to splurge on a handmade car they can not only customise
at will but, as Martin Josephi, the dealer principal, says, can
even carry their wife and children to church.
the neighbourhood had the cachet Aston Martin was
seeking, but finding the right spot in an area where prices
are rocketing and space is shrinking proved a considerable
challenge. Here the principals involved in the move and
the building itself give their thoughts about how it went.
Martin Josephi, Aston Martin Mexico dealer principal:
We didnt want to be somewhere where our customers
would have to drive specially to get to our showroom.
We wanted it to be somewhere they already went to. We
found a space that matches the brand very well. I cant
speak about specific numbers, but the rent is considerable,
especially given the large space the showroom is 4,500
sq ft (418 sq m). the obvious advantage is that its so close
to Masaryk, so you have to pay for that. the contractors
we hired to fit out the showroom were very serious about
delivery dates and costs and since Aston Martin required
us to import everything and to stick to an agreed design as
part of their corporate identity, we had a clear idea of costs.
Manuel Sanz, Aston Martin Mexico sales director:
I dont think we could have found a better place. When I
saw it, my eyes lit up. Lots of the big fish in Mexico City
1. and 2.
Wheels of fortune
the space chosen for
Aston Martins showroom matches
the brand, being close to the
Presidente Masaryk boulevard,
Mexico Citys Rodeo Drive
3.
The high life
the mixed-used Paseo Castelar
development contains
17 apartments, ranging from
250 sq m up to 300 sq m in size
3.
37
frequent Polanco, but we realised we didnt need to be on
Masaryk and to be seen by everyone. Lots of people enter
Masaryk via Goldsmith because its more private and safer.
It is an area where there are a lot of pedestrians, and that
can be good. But that could also attract a lot of people who
just want to come in and look but are never going to buy.
that invades the privacy of customers who do want to buy
and just wastes the stafs time. So there are pros and cons.
Ivn Chvez, Aston Martin Mexico marketing manager:
We thought initially of Palmas and Lomas two upscale
neighbourhoods and even entertained the idea of Santa
fe or Interlomas to the west, which have seen vast growth.
they are very nice, but we also run the Lamborghini
dealership, which is on a main avenue towards the south of
the city and we realised it would take us all day to go from
one to the other, so we chose Polanco.
We were looking for space, but there wasnt much
available. Martin [Josephi], Manuel [Sanz] and I would go
out at weekends and just drive around. We wanted that
[Presidente Masaryk] zone because it is a luxury cluster. We
saw a lot of places; some were too big, and in others we
would have had to rip everything out and start again, so
that would have been a huge investment.
When we found this space, on Goldsmith, half a block
from Masaryk, we were worried it wasnt on Masaryk itself
where all the big names are. But that would have meant
compromising too much on space, and this is more private
anyway. It was a toss-up between having a very nice
showroom 15m from Masaryk or one on Masaryk that was
big enough to fit two cars. And we still have Berger, Jaeger-
LeCoultre, Louis Vuitton and Cartier nearby.
Isaac Hans, architect and developer: We have done
lots of projects in diferent parts of the city, but Polanco is
special for me personally. In the case of the Paseo Castelar
development, where Aston Martin is located, I lived my first
years of married life in a little house on that property; now
38
f t . C o M / G P I
occupi ers mexi co ci t y
1.
2.
Polanco is the navel of this city.
Its practically what the Zcalo [main
square] used to be to the city
1.
Status symbols
the developer was keen to
welcome an exclusive brand to give
the building cachet
2.
Eficient design
the building provides very useable
business spaces free of obstructing
walls or columns
3.
The plots thicken
Scarcity of space in the
Polanco district is driving property
prices up rapidly
2.
3.
39
my ofice is there. Back then, Polanco was much calmer
and less cosmopolitan than it is now. But now, I dont want
to leave Polanco is the navel of this city. Its practically
what the Zcalo [main square] used to be to the city.
In Paseo Castelar, we wanted to do a mixed, high-end
project. We have 14 apartments, ranging from 250 sq m to
300 sq m in size, a gym and all other amenities, plus ofices
that are very eficient spaces with no walls or columns
getting in the way. there are four shops: Aston Martin, a
bike shop, a flooring shop and a cookery shop.
Josephi: Everything is top notch the travertine is from
Italy, the cabinets from Germany, the lighting from the UK.
We have the Barcelona chair by Mies van der Rohe. In the
past, we have had the dealerships for ferrari, Maserati and
Alfa Romeo, and now Lamborghini, so we are experts in
importing cars, but not all these other things. We had some
delays. take the toilets from the UK: every toilet brought
into the country has to be approved by the Mexican
authorities. You need to give them five samples of the toilet
and they test and then destroy them. We didnt make big
structural changes we just added ofices, a toilet, a storage
space, a kitchenette and stairs to the mezzanine. We had to
change the glass front into doors to get cars inside. We will
be able to fit six cars inside and one in the courtyard.
Hans: Polanco prices are very hot right now, because there
just arent enough plots of land available. Im not sure now
how much I paid for the land for Paseo Castelar, but now
people can be paying $5,000-$6,000 per sq m for lots.
What we dont know yet is whether these prices are the
ceiling or whether they will rise to $10,000.
Josephi: Renting the building was nerve-racking. there is
a lengthy tender process to be selected as an Aston Martin
dealer it took about a year in all. We had to make a down
payment to ensure the site would be reserved for us. But
we had the good fortune that the landlord wanted us there.
Sanz: It is a great location. We just have to hope it doesnt
fill up with trafic. It is an area where a lot of women go
shopping and womens influence on their husbands is
very important in sales like this.
Chvez: there are disadvantages to Polanco: the trafic
can be crazy, but then there is no part of town that would
be commercially viable that doesnt have trafic. We will
expand our existing Lamborghini workshop to house the
Aston Martin one, and we can pick up clients cars for free
when they need servicing or repairs, and deliver them
back, saving the owners the hassle.
Hans: I wanted an exclusive brand in the building. Aston
Martin gives the building cachet and brings the building
the status it deserves. It is magnificent for both sides.
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Corporate headquarters whose design
makes a statement about their occupiers
values are the height of architectural
fashion but also come at a premium,
writes Andrew Baxter
living
the brand
High flyers
British Airways
Waterside headquarters,
London
Occupying a prime corner location on the Avenue
des Champs-Elyses, Louis Vuittons Paris flagship store is
pink and elegant, its terraced upper floors enhancing an
aesthetic efect that says wealth, luxury and opulence to
anyone passing by.
On fashionable Rue du Faubourg Saint Honor nearby,
the headquarters of rival luxury brand Herms is less
striking than the Louis Vuitton building, yet it combines
dignity and a sense of tradition with a certain Gallic
quirkiness. A statue of a white horse and flag-bearing rider,
harking back to the brands equestrian roots, seems about
to jump from the parapet.
At this rarefied end of the retailing market, property
has become part of a companys advertising and image-
building, says Carlo Barel di SantAlbano, executive chairman
of Cushman & Wakefield, the commercial property
company: On main streets round the world, these retailers
want absolutely the right location, and they will say, I only
want that corner and, when it comes up, you get it for me.
Luxury goods companies are not alone in using
buildings to reflect and reinforce their brands and business
proposition. From Microsofts headquarters in Redmond
on the US northwest coast to IBM in Armonk, New York
state, and Infosys and Wipro in Bangalore, India, technology
companies have built expansive headquarters campuses,
often set in woodland or with landscaped lawns.
Not only do these university-style buildings imply their
occupants are smart people, they are also emphasising
the companies size and strength. That was particularly
important in the late 1990s and early 2000s for the Indian
information technology outsourcers as they progressively
took on more challenging work from western corporate
clients visiting senior executives could be reassured by
their partners physical presence.
Big law firms also want their ofices to say something
about themselves. In a curious reversal of old and new
worlds, City of London magic circle firms like to assert
their brand via spacious marble and glass foyers, while
some Wall Street counterparts have a penchant for
mahogany-panelled interiors.
So what happens when these brand-conscious
companies decide they need to relocate their head ofice,
maybe because their current building is too small or,
as often happens, they want one new centre to house
employees currently in several disparate facilities?
It is an opportunity to make a fresh statement about the
group, but there are risks in moving from a city centre to the
42
F T . C O M / G P I
occupi ers brand bui l di ngs
1.
Fun palace
A refurbished 15th-century palazzo
makes an inspiring setting for
Guccis design team, but it is the
Rome location that counts more
than the buildings Renaissance
frescoes. The Italian luxury goods
maker moved its design ofice from
its historic base in Florence to the
Eternal City in 2009 because Rome
is bigger, more international and
has better transport links. Gucci
was one of the first European
companies to build a statement
modern HQ in the suburbs in
the 1960s it moved its base from
central Florence, where expansion
is dificult, to the outskirts
2.
Making a point
Inside the Infosys campus in the
Electronic City of Bangalore
3.
Luxury on show
Louis Vuittons flagship store
on the Champs-lyses in Paris
4.
into the valley
The Googleplex, Mountain View,
California
suburbs. Will the brand and the business sufer through a
move to a cheaper but less-fancied district, in particular if it
becomes harder to retain and attract talent?
Singapore-based Mark Lampard, Asia Pacific managing
director of corporate solutions at Colliers International,
another commercial property company, had exactly this
conversation in February with a tenant at Two ifc, one of the
priciest rental locations in Hong Kongs Central district.
They were saying, Do we as an organisation need to be
in this iconic building with its easy access to the train and
airport? If we decide to move to Kowloon [a much cheaper
area] on the other side of Victoria Harbour, wouldnt we
have to create something really special to keep staf
enthusiastic and feeling the organisation still wants them?
According to property consultants, the key to making
the most of a big relocation and avoiding the pitfalls is for
companies to do their homework. Googles plans for a new
UK headquarters costing as much as 650m are a case
in point. The building, which is unlikely to be ready until
at least 2017, will be close to Kings Cross rail terminus in
central London, an area once notorious for its drug-taking
and prostitutes. But the district has already undergone
an enormous amount of regeneration, so there is little or
no reputational risk for the search engine giant, says Guy
Douetil, Emea corporate solutions managing director at
Colliers International.
He adds: Google would not have made this decision if it
had thought there was a risk of all its people walking out the
door. In any case, he says, the company already operates in
a much more competitive jobs market than central London
its home base is in Silicon Valley, California so it knows a
thing or two about attracting and retaining talent.
Indeed, the Googleplex in Mountain View embodies the
companys unusual approach to stimulating its workers
creativity and incentivising them not to move elsewhere
in the Valley. The Android statues shaped like KitKat
bars and other sweets, nap pods, sports facilities and
recreational workshops are all aimed at amusing, diverting
and relaxing them.
In much the same way, workers at the new Kings
Cross site will be living the brand, literally, according
Retailers want the right location and
say, I only want that corner and,
when it comes up, you get it for me
1. 2. 3. 4.
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to Peter Walshe, global BrandZ
director at Millward Brown, the
brand consultancy. BrandZ is a huge
customer database that forms part of
the WPP units annual ranking of the
worlds top 100 brands, published in
the Financial Times. Googles staf are
the innovators they are incredibly
important in driving the brand
forward, he says.
Of course, few end-users would
ever need to visit HQs such as the Googleplex, but new,
bespoke buildings do create an ideal opportunity to target
brand messages specifically at employees, via external or
internal features. British Airways 16-year-old headquarters
next door to Londons Heathrow airport is a good example.
Its huge glazed internal atrium was built with six themed
sections, each planted with trees to represent one of the
continents the airline covers. This emphasises BAs global
remit while enhancing the working environment.
In central London, meanwhile, rents have been rising
in the past two or three years, particularly in emerging
locations such as Kings Cross and Southwark, says Dan
Bayley, managing director for central London at BNP
Paribas Real Estate, the property consultants. Yet the
organisations that have often been driving that are ones
that have cheaper locations out of town.
These companies often fast-growing web businesses
such as Amazon and Twitter will be aiming to attract
global citizens who want to live and work in central London,
he says. The same suburban to urban trend is evident
in San Francisco and New York, notes George Roberts, a
partner in Cushman & Wakefields London markets team.
But smaller media and technologies companies want
to make a statement about themselves too. Shoreditch
[just north of the City of London] is a very popular area
for them, says Bayley. When they say they want to be up
there, you know exactly what sort of building they will want
exposed brickwork, timber floors so its partly the internal
space that matters, but also the buildings exterior image.
However, for all the growing worldwide interest over
the past decade in combining disparate ofices into one
statement building with a better working environment, a
couple of caveats need to be made.
First, apart from the few business sectors whose
property costs are an operational pinprick compared with
the money they can make, relocations almost always
have to make sense in tangible financial terms as well as
enhancing the brand and business intangibly.
The new base may have a higher rent than the average
on all the old ones, says Bayley, but it could also be smaller.
New buildings are more eficient so you can fit more
people in, but there are bound to be some roles that
become redundant, he adds. As a result, the relocation
could be more or less cost-neutral.
Second, some companies see no reason to use their
head ofices for brand-building. Coca-Cola is fifth in the latest
Millward Brown brands ranking, yet you could walk past its
Atlanta HQ without giving it a second glance remove the
logos from the roofline and it could be a bank back ofice in
New Jersey.
Japanese companies such as carmaker Nissan and
supermarket groups such as Tesco in the UK take a similar
approach, says Walshe. They have very modest buildings in
very modest areas, he says. Their head ofices may not be
so pleasant to work in, but none are customer-facing. So why,
these companies would argue, should they be part of brand-
building that focuses on products and points of sale, backed
up with marketing, advertising, the web and social media?
There is another point. Its about not overspending, so
the company cant be accused of corporate indulgence,
says Walshe. Its the opposite of the show-of vanity bit.
That might give backers of the more grandiose
relocation schemes pause for thought. Early last year one
of the architects hired to design Googles new UK HQ told
the FT it would articulate a conversation between the world
within and the city beyond.
Yet so far the project has seemed more like a dialogue of
the deaf: Google reportedly threw out the original designs
which included a roof-top running track and garden
late last year and said it wanted to challenge itself, and
presumably the architects, to do something even better.
Its about not overspending,
so the company cant be accused
of corporate indulgence
INVESTORS
DEVELOPERS
MANAGERS
OUTLET COLLECTIONAT NIAGARA
Niagara-on-the-Lake, Canada
ARDEKO
Boulogne-Billancourt, France
ASCENT
San Jos, California, United States
Opening May 15, 2014
ivanhoecambridge.com
World-class real estate.
Shopping Centres | Ofce | Residential
With:
On FT.com
It seemed like a good idea
when advertising and media
agency Ogilvy UKmoved
its main businesses from
central London to Canary
Wharf in 1992. Yet, says the
current chairman: There
was a period, probably in
the first four or five years,
when it could have killed the
agency. Next year, following
a four-year search for a new
home, Ogilvy is moving back
to central London.
Find out why at
www.ft.com/gpi
seen in investment bankers ofices
tomorrow.
The digital economy is also
increasing interest in warehousing and
distribution. As shoppers around the
world move online, the way in which
goods are sold and distributed is being
transformed. Retailers need big-box
logistics, warehousing and distribution
with tech specs to match. According
to a survey by the Urban Land
Institute, a UK-based property research
organisation, developers in the US and
Asia-Pacific rate industrial as having
the best development prospects this
year. Europe has been a little slower to
embrace online shopping, but demand is
growing there too.
Developers are keeping a keen eye
on the situation: traditional distribution
methods do not work in built-up
residential urban areas. An articulated
lorry is ideal for restocking an out-
of-town hypermarket but is hardly
suitable for inner-city deliveries. Instead,
distribution specialists are acquiring
peripheral sites on city fringes, where
lorry-loads of goods can be split up into
smaller van-loads and transported less
obtrusively to smaller local shops.
Ultimately, the divisions between
diferent types of property are becoming
obsolete. Commercial developers are
moving into residential, rather than, for
now, the other way round.
Companies that previously only had
to think about their corporate clients are
now marketing directly to the consumer
market a massive shift and a strategic
challenge.
Commercial developers could mitigate
the risk by partnering with residential
specialists, but they must choose carefully.
A volume housebuilders approach of
build, sell and get out quick might not
result in the sustainable neighbourhoods
with which a developers brand wants to
be associated.
Kate Allen is the FTs property
correspondent
More than half of the planets
population now lives in cities, up from
one-third 50 years ago, according to the
UN. Over the next 40 years that figure is
expected to rise to more than two-thirds.
This is changing how we live, work and
shop, and has implications for all types of
property developers.
In retail, it really is all about location.
Population growth is becoming a
more important driver of development
decisions than economic performance.
For example, Klpierre, a French developer
of shopping centres across Europe, has
looked at cities population growth to
decide where to expand and where to
sell holdings. It believes, for example,
that southern France, particularly near
Toulouse, is attractive despite the woes
of the wider French economy.
For ofice developers, the blending
of leisure with work is driving home the
importance of a central location. For the
past few decades, ofices have relocated
from city centres to non-prime areas,
where costs were cheaper and car-based
commuting was king. But in recent years,
occupiers have been drawn back into
people power
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central areas. Staf want to shop and go
to bars and restaurants after work. For
prime ofice developers, the important
question is where opportunities for
value growth lie. That means identifying
geographically well-positioned areas that
have so far missed out on star status.
A good example is Farringdon in
London. For decades it has been a
run-down and overlooked area, lying
between the West End and the City.
The opening in 2018 of Crossrail, the
east-west cross-city rail line, should
reinvigorate the area, with Farringdon
station set to become one of the UKs
busiest transport hubs. Developers have
already started snapping up tired old
buildings in the area.
The confluence of work and play
means the type of space occupiers
want is also changing. The working style
of technology, media and telecoms
companies is shaping other occupiers
demands, not least because banking
and financial companies are increasingly
having to compete with tech upstarts
to attract and retain talent. What Google
adopts for its staf today will often be
F T . C O m / G P I
44
devel opers kate al l en
Back in town
Developers increasingly
are catering to the
desire of ofice workers
to be close to city
centre amenities
What Google adopts for its
sta today will often be seen in
bankers oces tomorrow
Fromhis NewYork base Brookeld Property Group
chief executive Ric Clark is pushing ahead with
diversication fromoces into the retail, industrial
and residential sectors as well as emerging markets,
reports Anjli Raval. Photographs by Pascal Perich
manhattan
transfers
global outlook Ric Clark has
been expanding Brookfields
portfolio to include retail
properties in Brazil and
China, for example
Ric Clark, head of the global property armof Canadas
Brookfield Asset Management, shuns the flamboyant
persona adopted by property tycoons such as Donald
Trump. Sitting down with you to give an interview like this is
not a natural thing, says the softly spoken chief executive.
Brookfield Property Group is undergoing a
transformation, from an entity largely focused on ofice
buildings in New York, London, Sydney and Toronto to one
that is also a major owner and operator of global shopping
centres, industrial warehouses and apartments.
This strategy, which goes against a typical investor
preference for focus, is being keenly watched by property
sector analysts, and all eyes are on the 55-year-old
publicity-shy Clark.
Measured in his responses, Clark makes his case. Our
strategy comes from a healthy respect for the cyclical
nature of real estate and financial markets, he says.
We have learned over time that in order to deliver
more consistent and reliable returns it is good to have the
flexibility to allocate capital to geographies where there are
better risk-adjusted returns or to [diferent] sectors.
Brookfield Property Group consolidated and spun of
most of its commercial property assets last year under
a new company based in New York called Brookfield
Property Partners.
The aim was to wrap together investments in retail
companies General Growth Properties and Rouse Properties
which remain traded on the NYSE warehouse operator
Industrial Developments International and Fairfield, the
apartment platform. By the summer it is expected that the
publicly traded Brookfield Ofice Properties will be privatised
and also brought under the same umbrella.
Ofice properties will make up around two-thirds of
assets of the soon-to-be $51bn entity. But the company
is aggressively expanding across all sectors through
acquisitions. It is also targeting growth in Europe and
emerging markets such as India, China and Brazil.
We have been spending a lot of time on both
developed and emerging markets, says Clark. We are
seeing opportunities and we think there will be more
transaction flow for us [in the future].
A third-generation real estate guy, Clark grew up
largely in Pennsylvania and St Louis in the shadow of
his grandfather and father, who were both residential
developers.
Clarks first job after university where he paid his way
as a labourer and handyman was with Olympia & York,
the international property developer behind the Canary
Wharf project in London and the World Financial Center,
now known as Brookfield Place, in New York City.
From 1984, Clark took on a number of executive posts
with Olympia & York and then its successor after bankruptcy,
Brookfield Properties. Previously president of subsidiary
Brookfield Ofice Properties commercial operations, he rose
through the ranks to his current position.
Like other senior executives Clark is well versed in the
investment philosophy of its parent company, which has
$175bn in assets under management, from property to
renewable power, infrastructure and private equity.
For anything we do, we have access to all the firms
employees to help us, says Clark, noting the complicated
restructuring of General Growth Properties, which buckled
under a mountain of debt and filed for bankruptcy in 2009.
Brookfield has roughly a 30 per cent stake in the company.
Brookfield Property Group buys assets directly or via
controlling interests in businesses with a combination of
equity capital and debt financing, often in conjunction
with BAMs property funds or by partnering with sovereign
wealth funds or other large investors.
The Bermuda-based Brookfield Property Partners is a
property-operating company for tax reasons but competes
head-to-head with leading property investors such as
Measured tone
Ric Clark may not adopt the
flamboyant persona of a Donald
Trump but is steeped in the
property business, being a
third-generation real estate guy
48
F T . C O M / G P I
i ntervi ew brookf i el d
Our strategy comes from a
healthy respect for the cyclical
nature of real estate and
nancial markets
Blackstone Group. At the same time it seeks to rival US real
estate investment trusts, including Simon Property Group,
Boston Properties, Prologis and Avalon Bay, that have
traditionally been go-to options for equity investors in high-
quality retail, ofice, industrial and apartment properties.
Brookfields approach, like Clarks own personal style,
is more aligned to a tight-lipped investment group as
opposed to a rambunctious property company.
We dont need to read our names in the paper, says
Clark, whose coolly analytical approach is at odds with
the blustering risk-taking developers who often dominate
industry headlines. When asked about his presence on the
New York real estate party circuit, he says: I try to do as
little of that as possible.
Clark is unhesitating when talking about business
strategy but terse when speaking about himself. How
would he describe his management style? I have no style.
To provoke a response I ask if he gets angry. Not often.
What does he do for fun? I hike and ski when I have time.
He is most comfortable when he is on message.
Brookfield is a good company, with good assets and
a strong balance sheet and he speaks about the
collaborative, collegial, friendly work environment.
People who know Clark say aspects of his personality
resemble those of his mentor Bruce Flatt, chief executive
of Brookfield Asset Management. Known as the [Warren]
Bufett of Canada, Flatt has a reputation for being modest,
smart and a strong leader who has elevated the Brookfield
platform to the status of a global heavyweight helped by a
handpicked cluster of well-scrubbed executives like Clark.
Ric and other executives at BAM are very corporate.
They are skilful asset managers who put down the shades
and do the math. They are not visionary deal makers
who have big egos. That is not how they operate, says
James Sullivan, analyst at Cowen and Company, the
investment bank.
50
F T . C O M / G L O B A L - P R O P E R T Y - I N S I G H T
i ntervi ew brookf i el d
2.
3.
Absorption of oce space is increasing
in most markets and we are seeing rental
rates increase and occupancies go up
Even so, Brookfield Property Group has become one of
the largest corporate landlords in North America by square
footage. Although the company and its parent escaped
without significant debt dramas during the credit crisis, it
was not completely untouched.
The ofice property sector has been hampered by
cost-conscious corporations, stung by the global financial
crisis, downsizing and searching for cheaper ofice space.
Brookfield Place has, in particular, drawn some negative
press.
The sector has been the last to recover from this last
economic downturn, says Clark but adds: The ofice
sector has begun its recovery. Absorption of ofice space is
increasing in most markets and we are seeing rental rates
increase, occupancies go up and vacancies go down.
But it was on the 8m sq ft World Financial Center
project that Clark truly cut his teeth. The fallout of the
September 11 terrorist attacks, he says, was probably the
most dificult thing I went through in my career.
We owned five properties immediately adjacent to the
World Trade Center that had pretty meaningful damage,
says Clark, who lives a short walk away in Tribeca. The
properties were open you could walk in and out and the
next thing you know, you are thinking about security and
how you position your properties diferently in this kind of
environment.
Manhattans barren west side is the next frontier for
Brookfield. It has embarked on a $4.5bn project of ofice,
residential and hotel properties.
But it is not going to be an easy sell. While the
company has won over Canadian investors with its talk of
diversification, those in the US have yet to be convinced.
Brookfield Property Partners shares on the New York Stock
Exchange, which at the time of writing have declined by
21 per cent from the initial listing price of $25 per unit,
now trade at about a 20 per cent discount to Brookfields
published net asset value. This compares unfavourably
with the average US real estate investment trust, which
currently trades at parity with NAV, according to estimates
by Green Street Advisors, the property analysts.
Clark talks of harnessing the pool of capital, operating
prowess and expertise of the BAM parent company to
1.
We will lose more money than
anyone if we make an investment
that is not good
51
F T . C O M / G P I
enable the property business to make opportunistic
purchases. It remains to be seen whether his steady-as-
you-go approach will be enough to convince investors that
Brookfield is more than just a safe pair of hands, but also a
property group that is able to successfully compete on a
world stage amid hungrier, more focused rivals.
Another concern is the companys external
management structure. Most public property companies
are internally managed to align the interests of
management and shareholders. But sector analysts
have questioned whether Brookfield Property Partners
is incentivised to pursue growth to maximise fees for
BAM its sponsor, which has a 90 per cent interest in the
company rather than for shareholder value.
Clark says the consequences of chasing growth to
boost fees for BAM will erode the very substantial equity
investment we have in here, so we will lose more money
than anyone if we make an investment that is not good.
He emphasises that investors were bullish about the new
company largely because of BAMs ties.
In spite of analysts raising a red flag, the company
is ploughing on and is at the centre of mergers and
acquisitions chatter. Recent investments have included a
stake in Shanghai-based property developer Shui On Land.
While retail is preferred in China and Brazil, ofice properties
are being targeted in India.
After acquiring the EZW Gazeley industrial platform
and Hammerson ofice portfolio in the past 18 months,
Clark says the company is poised for more activity in
Europe. Meanwhile, in the US, following the acquisitions of
Industrial Developments International and Verde Realty,
two industrial property companies, Brookfield is expecting
to invest in the sector again.
Few doubt Clarkes diligence at managing a business
that he says is not quite as complicated as it might seem.
But while he is excited about what lies ahead he may
need to be more persuasive to get others to buy into the
story of Brookfields expanding empire.
1.
Eyes wide open
Ric Clark surveys a model of
the developing skyline
of Manhattan
2.
Newground
The New York World Trade Center
west concourse, opened in
October 2013
3.
Commuter link
A new pedestrian walkway to
PATH station at New Yorks
World Trade Center
4.
Up Down Under
Brookfield Place Tower, Perth,
Australia, which houses mining
company BHP Billiton
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A spate of embassy property sales in
London reects a growing trend around
the world of cash-strapped governments
looking to realise lucrative assets,
reports Kate Allen
missions on
the move
Flying the nest A gilded
eagle statue is unboxed for a
groundbreaking ceremony at
the construction site for the
new US embassy in
Nine Elms, south London,
ahead of the embassys move
in 2017 from Mayfair
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Russian oligarchs and Chinese billionaires are among
those who have benefited from Londons rocketing
property prices. And with prices in the super-prime areas
of Kensington, Mayfair and Belgravia at an all-time high,
governments around the world are realising they are sitting
on significant property assets: their embassies.
Often located in architecturally imposing period
buildings, embassies are particularly attractive for
conversion to housing. Londons long history as a
global diplomatic centre means many of the biggest
opportunities for developers lie in the most opportune
and expensive parts of central London.
Research by Savills, the estate agents, suggests
embassy properties across the city are worth as much as
1.4bn in total.
Embassies move rarely and their locations are usually
a function of historic legacy, explains Charles Dugdale,
a residential development partner at Knight Frank, the
property consultancy. As a byproduct of their often
prestigious locations, there is a significant commercial
incentive to relocate to a lower-value area.
A study conducted last year by estate agents Wetherell
found that a wave of sales of embassy and other
diplomatic buildings could create hundreds of new homes
in Londons most expensive neighbourhoods. Around
20 properties were up for sale in the first six months of
2013 alone, the firm found, the largest number being in
Kensington followed by Mayfair, Marylebone and Holland
Park. Grosvenor Square, Kensington Palace Gardens and
Portland Place were particularly popular addresses.
Peter Wetherell, the firms managing director, says the
expiry of long-term peppercorn rents granted by central
London landlords, such as the Crown Estate and the
Grosvenor Estate, was responsible.
These highly advantageous leases have either expired
or are coming to an end, and some of the diplomatic
missions are, therefore, seeking new premises that will be
more cost-efective to run, rather than paying commercial
prices on their current properties, he says.
The flagship move has been the sale of the US embassy
in Grosvenor Square, one of Londons most desirable
addresses, to Qatari Diar, the Middle Eastern sovereign
wealth fund, and developer Chelsfield in 2009 for an
undisclosed sum. They plan to convert the Grade II-listed
modernist building, completed in 1960, into a mixed-use
development, although details have yet to be announced.
The US, meanwhile, is using the proceeds to fund its move
south of the Thames, set for 2017, as part of the dramatic
transformation of the previously run-down Nine Elms area.
Since that transaction, several more London embassies
have cashed in on the citys booming housing market.
The former Kazakhstan embassy at Thurloe Square, South
Kensington, is being converted by developer Northacre
into luxury homes, with finance from Abu Dhabi Capital
Management. The Dutch embassy is moving from its Hyde
Park Gate home, which has been bought by Irish developer
Ballymore, also to Nine Elms. China is also considering
shifting its diplomats to Nine Elms, which would free up its
Portland Place property.
And last autumn, Lodha, the Indian property company,
bought the Canadian High Commission, formerly at 1
Grosvenor Square, Mayfair, seen as potentially one of
Londons most exclusive addresses (see box), for 306m.
Properties that can be redeveloped will be most
attractive to Asian buyers, who like modern homes with
high-tech services, according to Henry Pryor, who acts as
a buying agent for high-end London house purchasers.
Meanwhile, converted properties appeal more to buyers
from the Americas, he says. As embassies relocate, it is
interesting to see the value of what was, in diplomatic
terms, a piece of Canadian or American soil jump as they
become London real estate at London prices.
The great embassy sell-of taps into a wider trend
driving London property markets: the move from
commercial to residential. The UK government changed
the planning rules last May to make it easier to convert
ofice buildings into homes. While this has been opposed
by local politicians in Westminster where many
embassies are based the flood of property conversions
continues unabated.
As a result, while the UK capital is by far the largest
market for embassy acquisitions, the trend is spreading
around the world. Lodha, for example, purchased its first
diplomatic property in 2012 when it acquired Washington
House, the US consulate building in Mumbai.
Meanwhile, the French government has been cutting
back on its diplomatic properties in recent years, selling its
embassy building in Dublin last year. It has also reportedly
sold an apartment in Berlin, the consular residence in Hong
Kong and a plot in Kuwait City. And the Greek consuls
residence in London was sold of last year.
In addition, the requirements of the diplomatic corps
are also shifting, making embassies, particularly those in
historic buildings, obsolete.
Embassies in the modern age now need to be eficient
ofices, rather than converted mansions, says Dominic
Grace, head of Savills London residential development
team.
Older buildings also tend to be more dificult to make
secure an increasingly important factor. Also, the long
reach of most democracies fiscal beancounting now
extends globally, so only countries that are awash with
sovereign wealth can justify trophy embassies, which
often have millions of value tied up in them that could be
better spent back home.
54
F T . C O M / G P I
devel opers embassi es
Canada cashes in on Indian appetite
As an entry into the London property market, it was a dramatic move. The first
UKacquisition by Lodha, the Indian property developer, was the Canadian High
Commission at 1 Grosvenor Square, last November. The 306mpurchase drew
admiring gasps fromthe market and rapidly came to symbolise the strong appetite
among developers for diplomatic property, driven by the great scope that embassy
buildings ofer for redevelopment.
The price was around 30per cent higher than the property had been expected to
sell for and as many as 80bidders competed to acquire it, according to people with
knowledge of the matter.
The attraction for most bidders was primarily the opportunity to convert the
embassy into residential property. It has the potential to be the best address in
London, according to Charles Dugdale of Knight Frank, who advised Lodha on
the purchase.
As a by-product of embassies
often prestigious locations, there is a
signicant commercial incentive to
relocate to a lower-value area
1.
Breaking newground
The new US embassy takes shape
in Nine Elms, south London
2.
American dream
The design for the new US
embassy in London
3.
Pastures old
Kazakhstans former embassy in
South Kensington, London
4.
On the move?
The Chinese embassy,
Portland Place, London
5.
Relocating
The Dutch embassy in Londons
Hyde Park Gate
6.
In Indian hands
The former Canadian High
Commission in Mayfair, London
55
F T . C O M / G P I
1.
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2.
4.
6.
5.
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56
devel opers desi gn
1.
open-plan work spaces are one way to be
flexible, but they are not a new trend; the
Herman miller factory, built in Bath in the 1970s
for the furniture manufacturer and designed
by farrell Grimshaw Partnership, shows early
exploration of this style. It pioneered the need
for space that occupants could adapt to as their
needs changed.
Jump forward 40 years, and such flexibility
built-in flexibility
is accepted as an ingenious solution. Recent
changes to planning policy, which have meant
ofice space can be converted to residential
spaces without planning permission, will not
work if buildings are not flexible. Architects are
not only designing buildings for the immediate
client but also for future occupants. the most
successful commercial buildings have always
been those that take into account the changing
nature of the workplace.
our ofice is in an old 1930s aeroworks
factory, which has seen many refurbishments
and currently houses ofices as well as
residential accommodation a great example of
how buildings can adapt over time if the design
is flexible from the start.
With technology, information and research,
we can create environments that promote
health and wellbeing. Poor design will mean
buildings will require more adjustments
and refurbishments in the future when they
change use. they will have a shorter life span
and possibly will be demolished, which is
economically and environmentally unsustainable
for todays businesses and their successors.
Peter Barbalov is a design partner with Farrells,
the architect planning firm
f t . c o m / G P I
57
1. Stacked up
Buildings are not designed
just for the immediate client
but also for future occupants
2. and 4.
Working on every level
the Home ofice
government building,
central London, by farrells,
1998-2005
3.
Adaptable space
the Herman miller
furniture factory in Bath, now
listed, completed in 1976
5.
Sustainable thinking
14 Pier Walk, an ofice
development on the
Greenwich peninsula,
London, by farrells,
2006-08
Design is pivotal to the success or failure of an ofice, and newbusiness models
often mean a radically diferent approach is called for. Such shifts have brought
employers the chance to be more flexible. Newtechnology means workers no
longer need to be tied to one place. Some designers create co-working spaces
to accommodate the needs of freelancers and entrepreneurs. These changes
mean designers must rethink the requirements for commercial property
the standard model will no longer do.
2. 3.
5.
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The third issue is scale. If there is one
thing we have learnt from the historic city
it is that there needs to be a human scale.
Our historic cities were shaped by the
technical, social and economic limitations
of the time. Now that those limitations
have been removed we can build
anything. So the question is whether
we impose limitations on the scale of
development and hinder investment
or veer towards a free-market approach
and let these things happen.
As architects, the things we tend to
like the most, that afect us the most, are
the smaller things. In Berlin I look out of
my apartment on to a scene of buildings
of four or five storeys, with people in
the streets, a small courtyard and a
caf. But when you move to a diferent
scale the things that link us to the city
are removed. Take Londons Shard: it is
quite beautiful in many ways, but I cant
relate to it there is always a distance.
Architecture has become something that
happens to us. Yet we always want to be
a part of it, sitting in a town square or a
caf that dimension is very dificult.
In Zurich, proposed projects are put
into a scale model of the city and there is
a high level of discussion. London seems
to have abandoned that idea. Instead,
there is an anxiety or loss of confidence
that results in polarised positions, with
developers and architects on one side
and everyone else on the other.
Unless we become better at
articulating a shared notion of what our
cities should look like we will remain stuck.
We have de-professionalised the
planning process in the UK. Investment at
the level London has needs better planning
machinery. We need city architects or
planning oficers with power. I am sure
Peter Rees, City of London planning
oficer, would say he has done that and
assured a quality of building in the City,
but what about the rest of the country?
Planners should be able to speak with
authority, have time and be treated with
respect. We need, together, to picture
what the city should look like.
As told to Edwin Heathcote
The narrative of contemporary
commercial architecture features a
number of stories that intersect. For a
start, there is the demise of the public
sector as developer. We now depend
almost exclusively on private investment.
The question is, what gives shape
to a city? How should it look? The idea
of town planning now seems rather
old-fashioned and romantic. In the UK it
appears only as a controlling mechanism.
In Germany, for instance, Frank
Gehry is to build a tower on Berlins
Alexanderplatz. There
has been a huge public
reaction. It is actually a
very reasonable tower, but
Berlin has been shocked
by the idea that the future
appearance of the city is
being determined not by city
planners but by developers.
Berlin does not have
the same huge investment
momentum as London,
so there is more time to
discuss what things look
like. In London there is
huge investment, but the
planners are overworked
and there is too little time to
discuss the implications. On
the continent, though, they
see it another way and can
only dream of the scale of
investment in London. Of
course, you want investment,
but how do you do it? Do you
want it restricted or directed?
How do you evaluate and
assess development? By the
shaping the city
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amount that gets built or by the quality of
what you leave?
There are three issues facing
development. The first is aesthetic and,
perhaps surprisingly for an architect, that
is probably the easiest. The second is the
social dimension. In London, as values
rise you get a cleansing of building
typology and social mix. The centre of
the city becomes a wealthy ghetto. The
life of the city depends on diversity, but
do you accept this cleansing just as part
of development or do you say you need
to adopt mechanisms to deal with it?
F T . C O m / G P I
58
toppi ng out si r davi d chi pper f i el d
1.
newinterpretation
The Neues museum
in Berlin
2.
World-class space
mexico Citys
Jumex museum
We have de-professionalised
planning in the UK. We need city
architects with power
sir david Chipperfield is one of Britains most successful and respected
architectural exports. His sensitive rebuilding of Berlins neues museum
was widely acclaimed and his recent Jumex museumin mexico City and
extension to the saint Louis Art museumare among the worlds finest
contemporary gallery spaces. He has also designed major commercial
developments across the world that are equally refined and elegant, and
recently completed his newofice and apartment in Berlin
2.
1.
global
property
insight
f t . c o m / G P I
Coming in June
The second edition of FT GPI will be
published to mark the opening day of the
London Real Estate Forum. The FT is the
exclusive media partner of the forum,
which will be held in the UK capital on
June 11-12.
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