Who owns the city? How urban real estate became the corporate asset class of choice

New York City is still the world's most popular land bank. Image: Getty.

The term “gentrification” does not quite capture the massive changes that have been happening in a growing number of cities worldwide in the last few years. In mid-2014 to 2015 alone, more than a trillion dollars was invested in real estate in just 100 cities across North America, Europe and Asia; this is excluding properties priced under $5m and sites available for development.

Something else is happening. Urban land – not just buildings, but also undeveloped lots – is considered a good investment at a time when financial markets are shaky. As a result, worldwide investment in urban land is increasing rapidly.

There are diverse indications of this, which I explore in depth in my book, Expulsions. For one, the top 100 cities – as ranked by level of property investment – account for 10 per cent of the world population, but 30 per cent of the world’s GDP (its overall economic output) and 76 per cent of the world’s property investment. So wealth is clearly being concentrated into a select group of urban areas.

Another disturbing sign is that worldwide real estate assets amount to $217trn, according to Savill (one of the leading expert firms on real estate). This represents 60 per cent of the value of all global assets, including equities, bonds and gold. And let’s not forget that when a piece of real estate becomes an asset, it has been financialised – which opens up all kinds of possibilities to raise the property’s value.

That said, it’s important to keep things in perspective. Although the world’s GDP is about $270trn, this is dwarfed by the value of finance: measured by outstanding derivatives (the basic measure for finance), it is worth over a quadrillion dollars.

Home, sweet home?

There are a couple of signals that this trend has something to do with investment, rather than, say, more people moving to these cities to buy a house and start a family. Let’s focus on some of the most desirable luxury buildings in Manhattan in New York – though we could have taken any of 25 or even 50 major cities in the world.

The trends I describe capture something about the desirability of investing not only in property but, perhaps especially, in urban land. This is significant in a world where much land is dying – due to desertification, floods, mining, plantation agriculture, deforestation or poisoning from mining operations.

In 2014, 54 per cent of sales of real estate priced over $5m in Manhattan were made to shell companies – companies used as a front for other operations. If we break it down into specific buildings, and take the most famous and highly-valued Manhattan buildings we find similar numbers.

Bloomberg Tower. Image: Jaroslavd/Flickr/creative commons.

Here are some relevant cases for the last few years. In the Warner Center in Manhattan, 122 of the 192 condos are owned by people who used shell companies, which hide their identities. In the Bloomberg Tower, 57 per cent of condos are owned by shell companies. And in The Plaza, 69 per cent of condos are owned by shell companies. We can observe the same trend in other cities, such as London, where 22,000 properties had been left empty for more than six months, as of February 2016.


Several major US cities saw rising investments (both national and foreign) in urban properties, from offices to high-rise apartment buildings, hotels and retail. New York led, with $70bn from mid-2014 to -15, followed by Los Angeles Metro and San Francisco Metro. These top recipient cities were followed by Chicago, Washington DC, Dallas and several others.

We see similar trends abroad, with London, Paris and Tokyo among the major recipients. In some cities, it was mostly foreign investment: for example, in London, Dublin, and Amsterdam-Randstadt. In others, it was primarily domestic investment, such as New York, Moscow and Beijing. And in many it was 50:50, as a result of the growth of foreign investment – notably in Paris, Sydney, and Vienna.

Who owns the city?

Periods of high levels of foreign investment have recurred in cities such as New York, London and Hong Kong over the decades. When I was doing my research for The Global City in the 1980s, I found multiple nationalities in the ownership of much of the City of London. In New York and Los Angeles, the acquisitions by Japanese and Middle Eastern investors had become more prominent, alongside the long-standing European investments.

But what marked these investments in the 1980s was utility. The buyers wanted and needed to be in New York or London. Today, the high incidence of shell companies is more about storing money and hiding it, than actually using the buildings.

Building big in central London. Image: lucyrfisher/Flickr/creative commons.

These days, I would argue that whether the investment is foreign or national may matter less than the fact that it is corporate. Corporate investment tends toward large-scale projects; either in large developments, or in smaller urban plots that are assembled into one larger plot. Often, existing properties are torn down to build entire new mega-projects – taller, larger, fancier than what went before.

This kind of large-scale urban development entails significant shifts in ownership; from small or medium businesses to large corporations, or from public to private. Some of the most noxious “site assembly” developments happen when a single owner buys one or two city blocks, and the city authorities cave in to their requirements by eliminating little streets and parks, and privatising everything.

We are witnessing a deep history in the making: a systematic transformation in the pattern of land ownership in some of our major cities. Whether it’s national or foreign, large-scale corporate investment absorbs much of the public tissue of streets and squares, and street-level commerce. It shrinks the texture and scale of spaces that are accessible to the public, and ultimately changes the very character of the city. If we’re to safeguard equity, democracy and rights in urban areas, we must first ask ourselves: who owns the city?The Conversation

Saskia Sassen is Robert S. Lynd Professor of Sociology at Columbia University.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

The Réseau Express Métropolitain: the multi-billion dollar light rail project Montreal never asked for

Montreal from the summit of Mont Royal. Image: Getty.

The Réseau Express Métropolitain (REM) is the 67-kilometre, C$6.3bn light rail project Montreal never asked for.

It is the single largest transit project in Montreal in half a century. Not since the construction of the Métro has there been as bold a proposal: an entirely new mass-transit system that would have the effect of radically altering the city’s urban landscape.

Conceived, planned and costed by the Province of Quebec’s institutional investor, the Caisse de dépot et placement du Québec (CDPQ), the REM is currently under construction and slated to become operational between 2021 and 2023.

Once completed, it is supposed to provide high-frequency, intermediate-volume light-rail service on a regional level: connecting suburbs with the city centre along three axes and linking Montreal’s central business district with its international airport.

The REM may even connect to an as-yet unbuilt baseball stadium, or be extended as far as Quebec City, some 400km away, to replace the existing commuter rail network. Indeed, the REM has been strongly endorsed – by both the federal and provincial governments that back it – as a panacea for all of Greater Montreal’s transit and traffic congestion problems.
Since it was first proposed in 2015, the REM has been championed above all else as a guaranteed-to-succeed “public-public partnership”. A win-win, where various levels of government cooperate and coordinate with an arm’s-length government agency to produce much-needed new transit and transport infrastructure.

Unlike the more commonly known public-private partnership (of which there are some notable recent failures in Quebec), the obvious insinuation is that – this time – there’s no private interest or profit to worry about.

PR aside, the pension funds managed by the CDPQ are private, not public, wealth. The CDPQ’s entire raison d’etre is to profit. It has even gone to the lengths of “mandating” the REM to provide it an annual profit of about 10 per cent, a cost to be assumed by the governments of Quebec and Canada in the event the REM isn’t profitable.

The law that has made the REM possible has other interesting components. The REM is legally distinct from and superior to other public transit agencies and the extant regional planning authority. It has exclusive access to publicly-funded transit infrastructure. There’s even a “non-compete” clause with the city’s existing mass transit services, as well as special surtax on all properties within a 1km radius of each of the 26 proposed stations.

This latter element takes on a new dimension when you consider the CDPQ’s real-estate arm, Ivanhoé-Cambridge, has a near total monopoly on the properties surrounding the future downtown nexus of the REM, and is invested in suburban shopping centres that will soon host REM stations.

It seems that Montreal isn't so much getting a new mass transit system as a pension fund is using a new transport system to stimulate growth in a faltering if not moribund commercial and residential property sector.

Quebec’s public pensions have historically invested in suburban sprawl. As this market becomes increasingly untenable, and populations shift back towards the city centre, the REM is supposed to stimulate growth in “transit-oriented developments” centred on its future stations. The new surtaxes are likely intended to force sales of land for immediate redevelopment, so that new homes are ready to move into as soon as the system becomes operational.

It’s important here to remember that the city of Montreal wasn’t given several billion dollars by the government with which to spend developing its mass transit system. Rather, Quebec’s former premier asked the CDPQ to come up with a way to integrate several long-standing yet unrealized transit proposals. These included a light-rail system over Montreal’s new Champlain Bridge, an express train to Pierre Elliott Trudeau International Airport, and a dedicated commuter rail line for the Western suburbs. It was the CDPQ that proposed a fully-automated light-rail system that would use existing technology as well as some of Montreal’s extant railway infrastructure as an inexpensive way of uniting several different projects into an assumedly more efficient one.

So far so good. Cities need more mass transit, especially in the era of climate change, and Montreal contends with regular congestion both on its roadways and various mass transit systems. Moreover, access to the city’s already generally-high quality public transit systems is an important driver of property values and new residential development.

Considering the evident need for more transit, the REM theoretically provides an opportunity to kill several birds with one stone. Better still, the REM will in all likelihood stimulate the transit-oriented developments and re-urbanisation necessary for a more sustainable future city.

A map of the proposed network, with metro lines in colour and commuter rail in grey. Click to expand. Image: Calvin411/Wikimedia Commons.

The REM is the business “test case” on which two new government entities are based; the CDPQ’s infrastructure development arm, and the Canadian government’s infrastructure development bank.

The REM is also intended to stimulate economic activity in important economic sectors – such as engineering, construction and technology – that could soon be in high-demand internationally. Both the governments of Quebec and Canada see tremendous value in the economic potential of infrastructure mega projects at home and abroad.

This aside, the actual development of the REM has been complicated by what appears to be a bad case of over-promising and under-delivering, at least in terms of how seamlessly it could be integrated into the city’s extant transit and transport systems.

Though the train as originally conceived was intended to use an existing electrified railway line as the backbone of the network, it now appears that the REM cannot in fact be adapted to the line’s current voltage. The entire line, and the tunnel it passes through, requires a thorough overhaul, something that had last been completed in the mid-1990s. The new electrification, as well as the reconstruction of the tunnel, will cut it off from the regional commuter rail network. Rather than have different types of rail systems share existing infrastructure, the REM will force the premature (and unnecessary) retirement of a fleet of high-volume electric trains.

Consider that while the REM will connect the city with its international airport, it’s not planned to go just one kilometre farther to connect the airport with a major multi-modal transit station. Dorval Station integrates a sizeable suburban bus terminus with a train station that serves both regional commuter rail as well as the national railways network.

It’s difficult to understand how and why such an obvious and useful connection wasn’t considered. Given long-standing interest in high-speed and/or high-frequency rail service in Canada, La Presse columnist François Cardinal has noted that a REM connection between airport and a likely future rail hub would extend access to international air travel far further than just downtown Montreal.


The REM was also supposed to integrate seamlessly into the Montreal’s built environment, its promoters insisting construction could be completed with minimal inconvenience to current transit users. By the end of this year, REM-related construction will force a two-year closure of Montreal’s most-used commuter rail line, and sever the most recently-built rail line off from the transit hubs in the centre of the city. Tens of thousands of commuters throughout the Montreal region will be forced to make do will already over-saturated bus and métro service.

Though public consultations revealed these and other flaws, concerns raised by the public, by professionals and even some politicians were largely ignored. The REM also failed its environmental assessment. The provincial agency responsible for such evaluations, the BAPE, stated baldly that the project wasn't ready for primetime and lambasted the CDPQ’s lack of transparency. In turn, the BAPE was accused of exceeding its mandate. The REM made a similarly poor impression, with transit users groups, architects and urban planners criticizing the project in whole and in part.

The main points of contention are that the REM won’t do much in the short term to alleviate congestion across the city’s existing – and comparatively expansive - mass-transit network. Quite the opposite: it is already beginning to exacerbate the problem.

Because the REM was conceived without the involvement of either the city’s main transit agency or the regional transit planning authority, its progress is hampered by a wide-variety of problems that would otherwise likely have been planned for. And because it’s a mass-transit solution to what is primarily a political consideration, the REM will provide higher-frequency service of dubious necessity to the city’s low-density suburban hinterland, much of which already has ample commuter-focused transit service. The high-density urban-core, which is most in need of transit expansion, will benefit perhaps least of all.

While it’s unlikely the REM will fail outright, it’s also unlikely to stimulate much new interest in using mass-transit services: it will first have to win back those who may abandon mass-transit while the REM is being built. Providing higher-frequency service to suburbia is the kind of thing that sounds good in theory, but doesn’t respond to commuters’ actual needs. Arguably the REM’s best feature – its real-estate development potential – has been somewhat obscured from public view because of obvious conflicts of interest. The REM’s limitations – and there are many – will for the most part only become known once the system is operational, at which point it will be too late.

The REM provides interesting theoretical avenues worthy of exploration – particularly the potential relationships between new transit development and how it may stimulate new growth in the housing sector. But building a new transit system – especially one this large and complex – ultimately requires the fullest possible degree of cooperation; with transit users, extant transit agencies and regional planning bodies.

Ignoring the recommendations of experts, the public and government assessment agencies for the sake of expediency is never a wise idea. When it comes to designing and implementing the mass-transit systems of the future, the needs, wants and opinions of users must be paramount. In Montreal, it appears as though they were an afterthought and an inconvenience.

Whether Montrealers will be able to vote with their wallets remains to be seen. As things now stand, it appears the city’s bus network will be forced to integrate with it, removing redundancy and ensuring that users won’t have much choice but to use it.

It’s difficult to imagine how forcing people to use a transit system they never asked for will encourage greater use.