MIPIM's 10th showing finds healthy dose of deals CANNES, France - My, what a difference four years makes. Since my first MIPIM in 1995, attendance to this annual meeting of commercial real estate minds in the South of France has now grown to more than 10,000 people, including a surprising number of Americans.
Most Americans, in fact, will be glad to know that development of major office, industrial, retail and apartment projects around the world continues at a remarkable pace, given recent world financial market turmoil. This year's MIPIM was replete with announcements of major new office high-rises, particularly around London and in several German cities.
Of particular note, London's Canary Wharf development, which really took off in the late-1980s thanks to Canadian developer Paul Reichmann and his ill-fated Olympia & York organization, is surging ahead with several new office towers. Two 42-story towers are now under construction as the headquarters of HSBC and Citigroup, respectively, and several other towers are moving past the drawing-board stage. Who would have thought it possible only a couple of short years ago...
Citigroup is occupying 600,000 sq. ft. in one of the new towers, totaling 1.2 million sq. ft. and designed by Cesar Pelli & Associates. It will adjoin the 17-story building now under construction for Citibank. This will create a combined Citigroup complex of 1.16 million sq. ft. for a Citigroup staff of 6,000 plus capacity for potential future expansion by the time the building is delivered in 2001.
According to George Iacobescu, Canary Wharf Group CEO, more than 4 million sq. ft. of office and retail space has been committed in Canary Wharf since December 1995. "With this new development, our investment portfolio will consist of more than 5 million sq. ft. of rentable space and will comprise 10.2 million sq. ft. when the project is complete," said Iacobescu.
Canary Wharf will likely see some stiff new local competition for tenants, now that the Corporation of London has announced seven new sites around the City of London's financial district for new skyscraper proposals.
This project and London as a whole face new challenges from Frankfurt, Germany, which says it will allow as much as 20 million sq. ft. of new skyscrapers to be built in the next 10 years. The move intends to place Frankfurt as the new world financial capital.
London was also in the news with its new, and often controversial, Millennium Dome near Canary Wharf. The Richard Rogers-designed dome is set for a spectacular Y2K celebration, but what to do with it afterward? It turns out English Partnerships has hired Jones Lang Wootton and PricewaterhouseCoopers to conduct an international competition to find a buyer for the structure, which has now cost some $450 million to build. The sale will include 48 acres of land and other assets up to 20 acres nearby. So how much will it fetch? Rumor has it both Universal Studios and the Tussauds Group are considering separate bids for the structure. Outline proposals are said to be due in June, with a Dome handover anticipated for spring 2001.
MIPIM was also the venue for the formal merger announcement of Chicago-based LaSalle Partners and London-based Jones Lang Wootton. The new entity, known as Jones Lang LaSalle, will be run by Stuart Scott, now CEO of the combined JLL.
Scott participated in an open question-and-answer session with JP Morgan's Jon Zehner before a large audience, and addressed a number of key issues surrounding the merger announcement.
Scott went on the record here, saying the firm's next step was not to become an investment bank, as had been reported in a recent financial publication. "We are not planing to compete with banks; they are some of our major clients," he said. "We don't wish to wake up one morning and be an investment bank."
Scott said much of Jones Lang LaSalle's new emphasis will be placed on its global services management group, which he believes will deliver seamless, same-quality real estate advice and services to clients in 34 countries.
Scott also addressed the lengthy negotiations connected to LaSalle's merger with Jones Lang Wootton. "The good thing about this deal taking so damn long is we've gotten to know everyone very well. We will hit the ground running as a result."
Another big merger, between Insignia Financial Group's Richard Ellis and London-based St. Quintin Limited, was completed during MIPIM. The combined firm creates a brokerage powerhousein the U.K., with reach into the Pan-European property markets as well. Reports are they combination has around $300 million to spend on expanding its European base.
Overall, MIPIM's conference program of speakers was the strongest in years, and included several leading Americans. In addition to Stuart Scott, they included Jerry Speyer, CEO of Tishman Speyer Properties, and Peter Linneman, COO of Equity International Properties Ltd.
As always, attention on Western Europe was balanced with news from the Eastern side. A division of American architect/developer Portman Holdings, Portman Holdings, Skanska, and the City of Warsaw announced that Hilton International will operate a new 360-room first-class international business hotel in the city center of Warsaw, Poland. Construction is planned to begin this summer with completion set for the summer of 2001.
"Portman is known for cutting-edge development in new markets and is looking at countries with strong fundamentals and markets," said John C. Portman III, vice chairman of Portman Holdings, LP. "This is our first project of several to come in Poland."
"Hilton International is committed to an aggressive expansion policy, and this project reflects our aim of opening hotels in new destinations around the world to satisfy the changing needs of today's global traveler," said Clive Hillier, Hilton vice president, corporate development.
An American project took home top honors during the annual MIPIM Awards ceremony. The massive $730 million Ronald Reagan Building at 1300 Pennsylvania Avenue in Washington, D.C., won the MIPIM Special Jury Award this year. The 4 million sq. ft. structure, designed by Pei, Cobb, Freed & Partners in association with Ellerbe Beckett, is the second-largest building (in sq. ft.) in the United States (the Pentagon is bigger).
"In effect, it's the Kennedy Center for trade," said Terry Soderberg, president of Federal Triangle Corp., which developed the building on behalf of the U.S. government.
Other winners in the competition were: Scottish Widows Headquarters in Port Hamilton, Edinburgh, U.K. (Office Buildings); DaimlerChrysler Potsdamer Platz in Berlin (Business Centers); Forum Aveiro in Portugal (Shopping Centers); Place Princesse Palatine in Asnieres-sur-Seine, France (Residential Developments); ING Bank & NN Building in Budapest (Refurbished Office Buildings).
Another item of note. It seems that a serious battle is brewing between two major firms that are in the business of supplying "serviced offices" or turnkey office workspace on a worldwide basis. Both Regus and HQ Business Centres are going toe to toe in opening offices at a furious pace around the globe. The idea of servicing smaller firms as well as supplying large corporations with packaged office space has caught on in recent years. HQ was a major sponsor of MIPIM's opening-night celebration/reception, which was complete with a fireworks display to rival any July 4 send-up in the States. Already these two firms are making significant inroads into the United States, and we can anticipate their rivalry to continue.
Lastly, Depfa, one of Germany's largest investment funds, is planning to launch an $800 million fund that will target shopping centers in southern Europe.
As always, stay tuned for more international happenings via our International News page.
1998 CMBS highlights: A year of lessons NEW YORK, N.Y. - E&Y Kenneth Leventhal's 1998/1999 Commercial Mortgage-Backed Securitization (CMBS) Update reports that, despite financial crises in Russia and Asia, new issuance of CMBSs rose from $43.9 billion in 1997 to $78.3 billion in the third quarter of 1998. Although the volume hit new heights, partial year results were significantly different.
First-half volume soared from $16.2 billion in 1997 to $43.4 billion in 1998, while second-half volume grew from $28.1 billion in 1997 to 34.9 billion in 1998. Fourth-quarter volume of $21.1 billion may not have met expectations set earlier in the year, but it is large compared to the prior year's performance indicators.
During 1998, CMBS captured a greater share of overall commercial mortgage originations. Even though the market stalled in the third quarter, CMBS probably provided two-thirds of all mortgage funding. Life company portfolio lending of $20 billion to $25 billion did not compare to conduit issuance. Volume in 1999 should retreat, however, E&Y Kenneth Leventhal does not envision a swarm of portfolio lenders racing to take back market share.
Albany business park gets wired up ALBANY, N.Y. - Albany-based Mercer Companies is the developer of a unique business/technology park, called E-Comm2 that could be a model for the workplace of the 21st century. E-Comm2 program, called "Share the Vision," encourages a community atmosphere. The price tag is expected to be more than $200 million and as of yet, no financing has been announced.
Located in downtown Albany, E-Comm2 will provide an infrastructure that fits a company's immediate needs. No longer will it be necessary to rent more space with the anticipation of future growth. This type of infrastructure is designed so, as a company grows, the space grows with it. Because of features like Intel's networking technology, this infrastructure enables companies to plug in to the complex and immediately begin operating. If a company adds new employees or downsizes, it only has to plug in more hardware or unplug existing hardware.
The Albany-based infrastructure developer, also called E-Comm2, will offer tenants advanced technological amenities such as fiber optics and enhanced copper wiring, which will provide tenants with high-speed voice, data and video transmission services.
Also available will be video conferencing, high-speed internet access, data storage and firewall/data security. In addition to technology services, E-Comm2 will offer its tenants accounting functions, human resources assistance and legal assistance. These individual infrastructure requirements will be built into each company's lease and the rent will reflect the individual technology choices of that company.
Currently, the E-Comm2 community includes companies such as Intel Corp., InterCONNEX, Matrix Intermedia, The WERCS Ltd., Open Service Inc., Mercer Management Inc., Brainstorm-Micro, Berkshire Marketing Group, Orion Data Inc., Wolkcas Communications Group, Proliant Consulting Group and RE/MAX Commercial Properties.
The buildout of the project is expected to take five to 10 years with Albany already approving more than 1.1 million sq. ft. of office space for development.The future development will include a high-rise office tower; three new mid-rise buildings; a new four to five story building and a hotel/conference center.
A new entity named E-Comm2 will manage the complex, which is a consortium of technology-based firms, developers and real estate specialists that have a common vision for the workplace of tomorrow. A contractor and architect have not been named for the project as yet.
Despite deal closings, REIT purchases slow SAN FRANCISCO, CALIF. - Alliance Capital/CB Richard Ellis' REIT property transaction and portfolio trends summary for the fourth quarter of 1998 (March 8, 1999), reports that REIT acquisitions have been slow due to the impact of tightening credit markets in the second and third quarters of last year.
Acquisitions closed by REITs totaled approximately $13.7 billion from October 1998 through December 1998. Despite a $7 billion drop off from the previous quarter, activity was still higher than in any quarter prior to October 1997. The total value of acquisitions closed by REITs in 1998 was $70.7 billion, a single year record.
Even though the large transactions declined, there were still large property acquisitions in the fourth quarter. Among the largest were Host Marriott's $1.5 billion purchase of Blackstone Group's portfolio of 13 luxury hotels; and the partial closing of Boston Properties' acquisition of San Francisco's Embarcadero Center.
These two companies and Cornerstone Properties were the top three most active companies for the quarter. In Midtown Manhattan, four major properties changed hands for a total of nearly $800 million.
Alliance Capital/CB Richard Ellis also reported that one in seven dollars invested were in San Francisco mainly because of the Embarcadero Center transaction and Cornerstone Properties' acquisition of William Wilson Associates. The report indicated that most of these REIT dollars were invested in the fourth quarter.
The office sector was also reported to have dominated the market despite Host Marriott's high level of activity since converting to REIT status last year. The office sector dominated acquisition activity for both the fourth quarter and the entire year, accounting for 40% ($5.56 billion) and 33% ($23.54 billion), respectively, of the value of REIT sales closed. Retail came in second with 21% of acquisitions in the fourth quarter, 27.3% for the year; and followed by hospitality, which notched 16.4% of acquisitions in the quarter and 16.4% for the year.
Panama Canal turnover sparks investor interest PANAMA CANAL, PANAMA - U.S. military control of the Panama Canal will officially end on December 31, 1999, and foreign investors are showing increased interest in the area's $4 billion-worth of land, buildings, port facilities, airports, residential housing and other facilities that will be turned over to Panama.
Thus far, major U.S. and foreign companies are investing more than $1.5 billion to locate their operations in Panama. Standard & Poors has recently affirmed its double-'B'-Plus long-term sovereign credit and senior unsecured foreign currency ratings as well as its single-'B' short-term currency rating for Panama.
The terms of the Panama Canal treaties, signed in 1977, call for the transfer of thousands of former U.S. military buildings, installations and other facilities - such as schools, hotels, golf courses, airports and 233,000 acres of prime real estate - to the Panamanian Government.
The Panama Canal is also up for sale and investors are actively being recruited. Nearly 14,000 ships travel through the canal each year and there is potential for the Canal to become the main container transshipment center of the region.
Legislative actions reported by NMHC and ASHA WASHINGTON, D.C. - NMHC and ASHA have been working to get legislation passed in the apartment industry. The following are a few of the significant events NMHC and ASHA accomplished in 1998.
*The NMHC and National Apartment Association Joint Legislative Program turned back an attempt by the U.S. Department of Housing and Urban Development (HUD) to eliminate the residential occupancy standards used by the apartment industry. As a result of NMHC action, Congress has required HUD to clarify its policy on reasonable occupancy standards by specifying that two persons per bedroom is a generally reasonable standard.
*NMHC successfully urged Congress to have HUD revise and reissue its Fair Housing Act design manual. An NMHC-commissioned technical review of the subsequently revised manual found more than 150 inconsistencies and ambiguities between the 1998 Manual and HUD's earlier Fair Housing Accessibility Guidelines.
*NMHC was the organizing force behind the 1998 Real Estate Summit on Capitol Hill, which brought together congressional leaders with key real estate professionals. The Council was also influential in the formation of a new bipartisan Congressional Real Estate Caucus.
*Attempts to legislate mandatory access provisions for telecomunications providers were successfully warded off in several states. Comments on similar legislation were filed in Nebraska and California, and an amicus curiae brief was filed in an Ohio case to oppose a claim by a cable provider that it had the right of eminent domain to enter a property and wire it for cable.
*The Joint Legislative Program's advocacy efforts secured market-based reforms to the resident-based Section 8 program, eliminating the program's onerous "take one, take all," "endless lease," "90-day notice" and "federal preferences" requirements.
*A special NMHC task force submitted more than 84 proposals to modify the International Code Council's (ICC) draft building and fire codes. Special provisions governing sprinklers in multifamily and seniors housing constructions have to date been successfully defended by NMHC.
The NMHC report on the 50 largest apartment owners and managers in the United States was just released with National Real Estate Investor's March issue. A complete analysis of the results can be reviewed at www.nmhc.org/top50 or by calling 202-974-2333.
In the January issue of National Real Estate Investor ("Competition diminishes among retail financiers," p. 46), Bruce Kaplan's and Mike Tobin's company was incorrectly reported. Kaplan and Tobin are president and managing director of development, respectively, of Chicago-based Northern Realty Group Ltd.
In the same article, a quote was incorrectly attributed to Kaplan. Kaplan's quote should have read, "Financing is definitely available for the right project in the right location."