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MARCH 12, 2018




It’s MIPIM time, and here are the five things to look out for in Cannes By Liam La Guerre nce again, it’s that time of the year for real estate professionals across the globe to head to Cannes, France. Just two months ahead of the invitation-only Cannes Film Festival, where movie stars will take to the sandy city on the French Riviera and no doubt trade Harvey Weinstein horror stories, tens of thousands of men and women in business suits carrying briefcases and card 2 | MARCH 12, 2018 | COMMERCIAL OBSERVER

holders will storm the streets of Cannes hunting deals during the annual MIPIM (or Marché International des Professionnels d’Immobilier) conference on March 13 through March 16. The bulk of the events, which is organized by Reed Exhibitions subsidiary Reed MIDEM, will be held at the Palais des Festivals et des Congrès, a massive conference center on the Cannes waterfront. MIPIM’s theme for the 29th annual conference is “Mapping World Urbanity,” and the event’s programming will try to address issues like, How will we live in cities in 2030

and 2050? And, what are the best strategies for building future cities in a globalized world? There are plenty of reasons to be excited for MIPIM, but to approach a conference as big as this (with more than 24,000 people), a roadmap might prove useful. We talked with a few MIPIM-goers from the U.S. to get an idea of what the sophisticated attendant should look out for this year.

Networking (duh) With approximately 24,200 expected participants from over 100 countries, it’s more than possible to find the right person to talk

to at MIPIM, whatever your needs may be. Of the attendees, there will be 5,000 investors and financial institutions, 4,500 developers, and 3,800 CEOs and chairpeople scrambling around the waterfront and in the Palais des Festivals. And there will be more than 3,100 exhibiting companies. And in case the conference center isn’t your scene to swap business cards, networking parties will take over the swanky hotels, luxury yachts and the beach. “The most important thing for me is the networking,” said Susan Greenfield of Brown Harris Stevens, who has been to the event for

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28 consecutive years and has already booked her flight for No. 29. “I go every year because it’s the one place in the entire year where I see almost everyone I know from around the global at the same time.” She added, “The thing that is so important about this event is you get so many decision-makers. One day I was walking down the street [in Cannes] and who could be facing me walking the other direction? Harry Macklowe. I said, ‘What are you doing here?’ He said, ‘I’m here to look for money, what are you doing here?’ ”

“MIPIM events and conferences will be great opportunities for members of the REBNYTech team to meet with industry leaders of tomorrow,” Ryan Baxter, a Real Estate Board of New York vice president for management services and government affairs, who is heading to MIPIM this year again and is a member of the advisory board of MIPIM PropTech, said in a statement. “We’re looking forward to learning more about smart cities and human-centric innovation efforts from around the world.” MIPIM also serves as the final leg of the third-annual MIPIM Startup Competition, an international tech competition in partnership with MetaProp NYC, a real estate tech accelerator. Nine finalists at the nexus of tech and real estate were selected from three previous events, MIPIM U.K., MIPIM Asia and MIPIM PropTech (in Manhattan), and those companies will face off in Cannes to determine the best of the lot on March 14. The competitors from New York City’s MIPIM PropTech that are heading to Cannes are Real Atom, the first online marketplace for commercial real estate debt financing; PlanRadar, a digital software that facilitates project management for construction companies; and Acasa, an app that helps individuals manage household bills. The winner will receive three passes to both MIPIM U.K. and MIPIM Asia 2018, four passes to MIPIM 2019 (again in Cannes), an automatic selection as a finalist for MetaProp NYC’s 2018 accelerator program as well as brand exposure and coaching at this year’s MIPIM.

If you’re thinking global and want to know what investment opportunities there are in cities abroad, this is the event for you. The European cities put on a show at MIPIM, bringing large-scale panoramas of entire cities and models of megaprojects to dedicated pavilions. Last year, London and Istanbul had massive jaw-dropping displays. “Some of the models and booths are off the charts,” said Jay Olshonsky, the president of NAI Global, who has gone to MIPIM for seven consecutive years and is returning this year. “Some people told me some of the models there are million-dollar [displays]. I always leave two or three hours for myself to walk around because you always see something you’ve never seen before.” “Le Grand Paris,” the name for the pavilion dedicated to the City of Lights, will feature 19 exhibitions and events each day. Belgium’s pavilion will feature experts and models of Flanders, Brussels and Wallonia, while Holland’s space will be dedicated to Amsterdam, Rotterdam, Utrecht and The Hague. On top of these, there will be booths dedicated to countries from Asia, Africa and North America. Not that the models and displays of cities are there just to be pretty or promote specific projects and the companies that are developing them; more than 370 political leaders and 500 representatives from cities will be in attendance to talk about development in their cities, attract developers and get investments in their locales. (We’ve already heard from the Moscow delegation!) “If you go to ICSC in Vegas, which is by far a bigger show [with 37,000 attendees], it’s more about the displays about the companies [not cities],” Olshonsky said. “New York City doesn’t come and display at ICSC like Paris does in MIPIM.”

Panel events and keynote speeches It’s not all deal-making and networking— MIPIM is also a place to learn about development trends across the globe. The event will feature more than 360 keynote speeches and well over 120 panels, sessions, workshops and networking socials covering a wide variety of topics—from Asia and Europe to sustainability and logistics. And those events will also serve to gather experts across the globe and offer opportunities to get someone’s ear. “[After networking,] the second thing that 4 | MARCH 12, 2018 | COMMERCIAL OBSERVER


City and country exhibitions

MIPIM MODELS: Various countries and cities have models of developments on display at MIPIM, such as London last year (top). There are numerous panels on trends and new real estate developments at MIPIM (bottom). I find very valuable is attending these program and panels because I learn so much,” Greenfield said. “You never stop learning and real estate is always changing. If you don’t stay ahead, if you don’t stay involved, if you don’t stay knowledgeable, then you are going to miss out.” Some panels to look out for include “SelfDriving Cars: Bringing a New Face to our Cities,” “Smart Housing: What Millennials Expect,” “Belt and Road Initiative: Capturing Opportunities Through Hong Kong” and “Urban Logistics: the Next Challenge for Cities.” And even Commercial Observer is getting in on the action, co-organizing the U.S.-focused two-panel event entitled “Developing and Investing in the United States: Where, What & How?” on the morning of March 14 at The Ruby Room in Palais des Festivals. Ric Clark, Brookfield Property Group’s senior managing director and chairman, will deliver the keynote address and Jonathan

Mechanic, the chairman of Fried Frank Harris Shriver & Jacobson’s real estate department, will moderate the panels. Cushman & Wakefield’s Bruce Mosler, SL Green Realty Corp.’s Isaac Zion, Hines’ Christopher Hughes, Hap Investments’ Eran Polack and Allianz’ Christoph Donner are just some of the panelists. (You can find us there!)

Tech Come for the drinks and deals, but stay for the tech! For the past couple of years, the presence of property technology companies has grown at MIPIM. As the sector is becoming a force in the industry—making more investors curious about what’s next to come—MIPIM has stepped up to provide some answers. There will be a PropTech Lab event at MIPIM for the first time on March 15, where invite-only real estate executives and tech leaders will meet and talk about the increased impact of technology on real estate.

And take in Cannes, for goodness sake! “If you think about it, if you have got to go somewhere 6,000 miles away—for you and I, it’s not too shabby to go to the south of France,” Olshonsky said. Cannes is packed with bars, restaurants, hotels and historic buildings all within walking distance of the beach. For those looking to notch Michelin stars on their belts, there are plenty of options. La Palme d’Or, Villa Archange, Paloma and L’Oasis all hold multiple stars. There are luxury hotels all around the beach area of Cannes. Some leading contenders are Hotel Barrière Le Majestic Cannes, InterContinental Carlton Cannes Hotel and Grand Hyatt Cannes Hôtel Martinez thanks to their astounding architecture and rich history. And speaking of history, while you’re in town for a real estate expo, why not do a little sightseeing? Cannes is home to Eglise Notre Dame d’Espérance, a 17th century gothic church set atop a hill that overlooks the port area and it provides some amazing views. And there is also the Musée de la Castre, a museum that is set in a castle built by 11th-century monks. Also just like the Hollywood Walk of Fame, Cannes is known for Allée des Étoiles du Cinéma, where stars leave their handprints. Finally, don’t forget to talk a stroll along the Promenade de la Croisette if you didn’t already do so on your way to and from the convention center.

Intelligent Real Estate Investments With a six-decade history of investment in quality real estate and $111 billion of assets under management, Hines has helped savvy investors across the spectrums of risk, geography and product types— including office, living/housing, retail and industrial/logistics. With a presence in 201 cities in 24 countries, more than 422 million square feet of asset experience in 1,295 projects worldwide and a 210 million-square-foot property & asset management portfolio, our fully integrated teams are uniquely poised to make the best investments in global real estate.


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America the Beautiful Major U.S. markets like New York City are an evergreen attraction to foreign investors, as are gateway cities around the world. But returns tell a more complicated story. By Matt Grossman | Illustration by Carl Wiens


ew York is often called a global gateway city, a phrase that calls to mind its status as a mecca of international commerce: one among a select group of critical nodes in the world economy with an unquestionable rank among the most magnetic destinations for real estate investment. The Big Apple, London, Paris, Tokyo—it seems almost self-evident that these hubs of finance and culture ought to be international investors’ can’t-miss first choices for buying real estate abroad. But is New York City’s prime place on the list of sought-after real estate markets a simple matter of dependably eye-catching yields? According to New York-based financial indexer MSCI, not necessarily so. In research published late last month, the firm studied 10 years of data to suss out whether those four cities—outstanding by so many measures—consistently outperformed their peers in the returns they offered to real estate investment. The authors’ findings defied the conventional wisdom that gateway cities are a surefire bet for solid returns. “Our analysis found the office sector in global gateway cities did not provide superior unadjusted returns over the decade ending 2016, based on annualized total returns,” Amit Nihalani, the paper’s lead author, wrote. Instead, it’s a collection of deeper, less tangible virtues that keeps cities like New York the world’s most compelling investment opportunities.

Beyond the gateways Pure capital growth in gateway cities did indeed outshine price increases in lesser markets over the last decade, a trend that was likely driven by barriers to supply creation in big cities as demand for well-located professional office space recovered following the financial crisis. But income returns in gateways tended to lag behind what regional and third-tier cities offered, making a rank-order list by annualized total returns of the 81 locations studied a muddle of gateway cities, regional centers 6 | MARCH 12, 2018 | COMMERCIAL OBSERVER

and surprising competitors. Three South African cities, Durban, Johannesburg and Cape Town—none of which is considered a global gateway—were the top global performers between 2006 and 2016, each with an office market earning annualized total returns above 12 percent. Vancouver, Canada, and Melbourne and Adelaide in Australia—three cities that don’t even make MSCI’s third tier of global significance—rounded out the top six. By contrast, London—the highest-ranked global gateway— came in at No. 26, with an annualized total return just more than half those of the highest-performing metropolises. That makes a catholic attitude towards capital allocation essential for those seeking yield at a time whenever more investors are considering deals abroad. “Amongst our client base, we see a general interest in investing more globally,” said Will Robson, MSCI’s London-based head of real estate research, in explaining what prompted the study. “Pan-regionally, you also see a lot more investors talking about city-based strategies, as opposed to national markets.” Traditionally, investors have been less facile with adopting foreign real estate than they have been at exploring corporate equities across borders. And when buyers do venture into real estate markets farther from home, they might be too intimidated to feel comfortable with spending in any but the most well-understood markets—which might impede them from finding better prospects that lie far from the beaten path. “If you compare real estate to equities, there’s a much stronger domestic bias in investors’ [real estate] portfolios,” Robson said. “Understanding the dynamics in a large number of cities is operationally difficult.” Adjusting total return for national effects dampened the researchers’ results, suggesting that within a given country, gateway cities could well be the best bet. Once national growth rates were subtracted from the data, San Francisco was tops in the world, with real estate assets growing nearly 3 percent faster than the broader U.S. London came in sixth, outpacing the overall U.K. rate by about 2 percent.




But the data suggest that country-agnostic investors looking for yield should give second- and third-tier cities the world over a careful look. Ten smallish cities in North America, Africa and Australia—places like Perth, Australia; Winnipeg, Canada and the South African trio already mentioned—outpaced even Europe’s best performing market, Stockholm. The problem is that that strategy often runs up against what investment boards and credit committees need to hear before becoming comfortable enough to give international spending the okay. When foreign equity funds and sovereign wealth funds “are trying to appeal to investors at home, they can sell New York, and they can sell Chicago. But in Shanghai, they might not know what Charlotte, [N.C.] is,” said Michael Wolfson, who researches capital markets for Newmark Knight Frank. “A lot of international investors, after they do a couple deals in safe-haven markets, they move onto where the yield is.” To be sure, some do. GIC—Singapore’s sovereign wealth fund—and the Canada Pension Plan Investment Board have teamed up to become major equity players in U.S. student housing markets from Arkansas to Minnesota, laying out nearly $3 billion over the last 12 months in an effort to gobble up assets with good income returns. (Neither company offered a comment for this article.) But in general, foreign real estate investors may hew to a traditional gateway-city approach because they are not as single-mindedly yield obsessed as some of their domestic-focused counterparts. Instead, other perks not on offer closer to home may entice them towards marquis real estate hubs like New York City.

Steady as she goes Indeed, a remarkable confluence of factors—not just yield—would appear to have produced a golden moment for foreigners to invest in real estate in America’s biggest cities. For one thing, investors are attracted by the idea that New York City real estate is permanently enticing. “There is a tremendous amount of liquidity [in New York City], which you don’t have in secondary and tertiary markets,” said Robert Knakal, the head of New York investment sales for Cushman & Wakefield. “While your yields may be higher [in smaller markets], your exit may be less certain. Here, over the past 50 years, the peak of each successive cycle has exceeded the peak at every prior cycle.” Wolfson agreed, pointing out that wealthy individual investors from abroad treat their New York real estate holdings like cash deposits. The prime virtue in holdings there is in value that can dependably be withdrawn in a pinch, regardless of how well it appreciates. “If you’re a high-net worth individual overseas, [investment in gateway cities] is more of a bank account,” Wolfson said. “It’s more or less about keeping the cash at the 8 | MARCH 12, 2018 | COMMERCIAL OBSERVER

THE ROAD LESS TRAVELED: Returns to real estate in smaller markets, like Cape Town (left) and Durban in South Africa (upper right), as well as Perth, Australia (immediate right), have outshined total investment performance in the world’s gateway cities over the last decade. levels they bought it at.” Of course, a liquid savings balance counts for little if the bank holding it isn’t reliable, so relative stability is another crucial mark in America’s favor. As volatile and gridlocked as American government has grown, it still may compare favorably to local practices abroad. “If you look at America from an American’s perspective, we think our political system is dysfunctional. But if you look at us in the context of a global economy— and from a global political perspective—we offer significant political stability,” Knakal said. “We offer economic stability relative to most places around the world.” Indeed, the U.S. might appear a stable investment destination not in spite of today’s raucous political environment, but because of it. “I actually think that some of the turmoil in Washington has demonstrated the stability of the institutions [of government],” said Doug Duncan, the chief economist at Fannie Mae. He pointed out that on inflammatory political and social issues like immigration reform, gun control and corruption,

politicians still defer to courts’ legal rulings and interpretations, demonstrating that the rule of law still holds more sway here than any interest group or political initiative. That might be more than you could say of China, which recently, by all appearances, detained Wu Xiaohui, the head of one of its largest insurance companies, Anbang, for six months before even indicting him on ill-defined charges of “economic crimes.” Anbang maintains significant U.S. real estate holdings—New York’s Waldorf Astoria and Essex House are among more than a dozen American hotels the company controls—positions rumored to be up for sale now that the Chinese government has seized control of the firm. The lack of transparency with which the Chinese government has proceeded only underscores the comfort that America’s legal foundation offers foreigners. “If you are a very wealthy person somewhere around the globe, you have [good reason] to feel very, very confident about deploying capital into the U.S.,” Knakal said. Even the most basic quality-of-life issues, largely taken for granted in New York and

other gateway cities, may be less of a sure thing in some of the high-growth markets MSCI singles out. Cape Town, South Africa, for example—one of the cities that performed the best over the past decade in MSCI’s data—has been suffering through a calamitous drought since 2015, creating a water shortage exacerbated by a swift population expansion that has outpaced the city’s infrastructure. Without a deluge of summer rains or a massive new effort to desalinate seawater, the city is expected to run dry of potable water by mid-July. BusinessTech, a South African website for business news, found in interviews with local companies and government officials that many fear that if “Day Zero” (the date on which the municipal taps get switched off and Cape Town dwellers are allocated a daily ration of 25 liters) arrives, the economy could grind to a halt. To make matters worse for property investors, South African lawmakers are moving towards a constitutional amendment that would grant the government permission to seize privately owned land without compensation at will, raising a long-term threat to



the sanctity of the nation’s property rights. And Cape Town isn’t the only city where impressive returns to real estate coexist alongside existential risks. Seoul, South Korea’s real estate market has yielded higher returns than any American city other than San Francisco over the last 10 years, but its position just 25 miles from the North Korean border would likely make the South Korean capital North Korea’s first target if tensions between the countries boil over into a military conflict. America’s immense military power helps ameliorate similar concerns when investors look at opportunities here. Their interest in U.S. real estate as a stable place to park assets is decidedly manifest “in terms of international security,” Duncan affirmed. “The U.S. has bar none the world’s strongest military. [That represents] an investment in maintaining lines of trade.”

It’s the macroeconomy, stupid For all the political factors undergirding foreign investment in America’s premier gateway city, the underlying economic environment the United States can pitch to

international financiers today may be the most compelling attraction of all. Although some monetary economists argue that the Federal Reserve was less proactive in counterbalancing the financial crisis and the subsequent recession than the conventional wisdom suggests, none can deny that America’s central bank responded far more aggressively than its European counterpart. From the second half of 2007 through the end of 2008, as the U.S. banking system threatened collapse, the Fed cut the federal funds rate 97 percent to nearly zero from a hair above 5 percent. The European Central Bank (ECB), on the other hand, responded much more gradually: its 4.25 percent headline rate in mid-2007 didn’t fall below 1 percent until five years later. As a result, a relatively strong U.S. economy recovered much more quickly, enough so that the Fed became willing to begin raising the federal funds rate again at the end of 2015— before the ECB’s rates had even bottomed out. That economy-wide strength has translated into dependably positive returns on U.S. investments at a time when benchmark rates in Europe and Japan remain negative. And, somewhat curiously, the dollar has simultaneously weakened against each of those region’s currencies over the last six months, further sweetening the deal for foreign buyers. At press time, a dollar bought about fourfifths of a euro, down about 14 percent from this time last year. And at the greenback’s high in early March, 2017, one dollar cost about 115 yen. In January of this year, the dollar fell to a discount of about 8 percent off that level, though it has retreaded slightly since then. That’s a counterintuitive shift that economists like CME Group’s Blu Putnam don’t see a single easy explanation for. “It is interesting—[former Federal Reserve Chairman] Alan Greenspan would have called it ‘a conundrum,’ ” Putnam said. “You would have expected to see some strengthening in the dollar.” He suggested that foreigners may fear that recent U.S. expansion is accelerating into territory where continued price increases will be fueled by inflation rather than by real growth, somewhat curbing their eagerness to climb aboard. Or, it could reflect waning confidence in an up cycle going on 10 years old. “This is approaching the second-longest expansion we’ve ever had,” Putnam noted. Experts hasten to point out that cross-border investors arbitrage currency imbalances only at their own peril. Money prices evolve in a random walk, they say, making it nearly impossible to time trades like real estate deals to advantageous dips in the value of the target country’s currency. “If you want an opinion in which direction is the dollar going to go, that’s very, very hard to do,” said Thomas Mertens, an economist at the San Francisco Federal Reserve. “Exchange rates are just inherently hard to forecast.” Somewhat less opaque are the effects that the real estate world expects from December

A NORTHERN LIGHT; Vancouver has been one of the world’s most rewarding places to invest in the 21st century. 2017’s fiscal stimulus—in the form of corporate and individual tax breaks—to have on the business cycle. Seyfarth Shaw’s February survey of more than 150 owners, developers and investors found that 58 percent believed the tax cuts would extend the current cycle for another year or two, while 17 percent more thought the effects would be even longer lasting than that. “In the general scheme of things ... we’re seeing that the cycle should continue through 2019 and 2020 based on the tax act, growth factors [in the United States] and international growth,” said Ron Gart, a partner at Seyfarth Shaw. He added that the investors believe the federal funds rate this year looks likely to hit a sweet spot, rising enough to reassure the market of solid economic growth while keeping financing loose enough for deals to get done.

An enduring role All those variables combine to bestow upon western gateway cities a comfortable niche within global asset managers’ portfolios, said Ted Willcocks, the global head of asset management for Manulife, the insurer that gobbled up John Hancock Financial in 2004. “We invest the majority of our funds on behalf of our general accounts, and we need to backstop the liabilities,” Willcocks said. “Real estate is traditionally an alpha to a fixed-income portfolio, meaning it might

return 9 percent over 30 years.” That’s a long-run niche that investing in stable growth markets can fulfill for Manulife with aplomb. Strong fundamentals—not volatile spikes—fit the bill best. “The economy is rapidly changing throughout the U.S., with a number of cities becoming tech hubs,” Willcocks said. Now, he said, investors are most interested in asking, “ ‘Where’s the talent? Where are the jobs?’ ” To the extent that New York and San Francisco answer that question more dependably than Durban, the city that MSCI found offered the highest returns, investments in those U.S. cities should remain attractive, even if exposure to income comes with a steeper price of admission. Granted, MSCI found that over its 10-year horizon, returns in British, American and Irish cities were more volatile than in Asia or Continental Europe, but that statistic may actually mask an indication of strength. Those countries experienced the most severe banking crises in the late 2000s— but also recovered the quickest, leading to higher standard deviations than elsewhere. The bottom line is that “over the very long term, many investors expect capital appreciation,” Robson said. “If there is a long-term investment horizon, the investors may be less concerned with year-by-year volatility as long as the long-term trajectory still looks good.” COMMERCIALOBSERVER.COM | MARCH 12, 2018 | 9


Lands of




With an abundance of empty space, European retailers sense opportunity in the New World—and some American brands are looking to Europe for salvation By Lauren Elkies Schram



ast week, while JLL retail pro Michael Hirschfeld was in London for business, he learned of three U.K. retailers collapsing. Those were the U.K. arm of Toys “R” Us, which went into insolvency administration, Maplin Electronics, which failed to find a buyer to get it out of administration, and dining chain Prezzo, which is being restructured. In addition, the 600-fleet London fashion chain New Look is looking to make deals with landlords to close underperforming stores and reduce rents. The news sounds eerily similar to headlines in the U.S. as bankruptcies, e-commerce and the popularity of discount department and specialty stores have impacted the retail business on both sides of the pond. “I think the retail challenges are universal,” said Hirschfeld, a vice chairman of national retail tenant services at JLL who spends 80 percent of his time bringing retailers from Europe to the U.S. and vice versa. This comes, however, with a big caveat. It is often said that what happens in the U.S. market will then follow in Continental Europe and Great Britain. But JLL warned in a retail report comparing the U.S. and Europe at the end of 2017, “we shouldn’t assume markets automatically mirror each other.” In Europe, and the U.K. in particular, retailers braced themselves for the change in shopping patterns due to e-commerce faster and earlier than did their U.S. counterparts, according to the JLL report. And beyond the internet, there are clear differences between the two markets. One of the big ones is the sheer amount of retail space available in the U.S., in large part due to an excessive number of shopping centers. In the U.S., there is 13,713 square feet of leasable shopping center space per 1,000 people, JLL determined at the end of last year. In the U.K., by contrast, there is 3,175 square feet per 1,000 people, and in Europe as a whole, there is 2,335 square feet. And the European retailers smell the opportunity—many view the U.S. as if “it’s on sale,” Hirschfeld said. “You’re seeing rent levels that you could achieve in the financial crisis. It’s a very opportune time. The demand is super strong.” Hirschfeld brokered deals to bring British

clothing company Superdry to various cities in the U.S. and is working on a deal for British toy store Hamleys to come to New York City. Accessories brand Furla, which comes from Milan and already has a store in Manhattan, is expanding with a new lease in Aventura Mall in Miami, Fla. (one of the top malls in the country), and one in the Forum Shops at Caesars in Las Vegas (another top U.S. mall) with likely another three or four more in major markets, he said of his client. Susan Kurland, an executive vice president and a co-head of global retail services at Savills Studley, said that the difference between retail in Europe and the U.S. is the vacancies. “The difference is their spaces are filled,” Kurland said. “You walk down our Madison Avenue, and almost every store on Madison Avenue is available.” She is working with a high-end Chineseowned Milan-based company, which is looking to enter the U.S. “[The owner] feels the only places to expand are China and the U.S. as those are the two most important markets,” the broker said. “They’re in…the exclusive places in China. They’re on the important street in Milan. He feels that the U.S. is really important for his expansion.” While there will be more store closures in Europe, JLL determined that the continent is “unlikely to experience the sheer volume of closures currently being forecast in the U.S.” Another distinction between the U.S. and Europe is that most of Europe employs a high-street model rather than a shopping-center model. Furthermore, in shopping centers, the U.S. has relied on department store anchors (which have been one of the worst victims of e-commerce and commoditization), JLL noted. In Europe, on the other hand, shopping mall owners have been quick to switch gears with their anchor tenants, often turning to food-and-beverage concepts, and they are more diverse in their offerings. Yet another important difference between European and U.S. leases is the rent structure. In the U.S., when a tenant signs a lease it knows what the rent is for the entire term. In the U.K., for example, you may sign a 10-year deal, but every couple of years you go through a fair-market rent review process, Hirschfeld said, so you don’t know your rent.



But one thing both places have in common is that consumers have so many options for how they want to shop. “We’re seeing across the board a fragmentation of distribution,” said Betsy McCullar of Hilltop Alliance, who develops and executes marketing and strategy solutions for brands and businesses. “Western Europe is even more fragmented than the United States because, for example, the U.K. and Germany—and France, to some extent—have a big mature structure of department stores. But Italy and Spain are still dominated by one-off specialty stores.” Among the European brands that are on the fast track in the U.S. are fast-fashion brands Swedish Hennes & Mauritz (H&M), Zara from Spain and the U.K.-based Reiss Ltd., The Wall Street Journal reported in May 2017. Amsterdam-based Scotch & Soda is also popping up in the U.S. with 25 stores. European discounters like German grocer Aldi, German competitor Lidl and Irish clothing company Primark are on a tear in the U.S., Bloomberg Gadfly pointed out last October. International cosmetics companies like Rituals from Amsterdam are taking New York City by storm. Plus there are food chains like Wagamama, an Asian food concept that actually hails from London, that has set up shop in New York City and Boston. When entering the U.S., European retailers focus on major cities for entrée. Since they’re used to high streets at home, European retailers want to rent on a U.S. high street. And they generally enter by way of one of the gateway markets of New York City, Miami, Los Angeles, San Francisco, Chicago and Las Vegas, Hirschfeld said. They often choose a U.S. location that is most similar to where they hail from, Hirschfeld said. “Brands usually like to do either the East Coast or the West Coast initially, and I believe that most start on the East Coast first,” said Robin Abrams, a vice chairman of retail at Eastern Consolidated, with New York City being a priority due to its tourist population, ease of navigation, walkability and great public transportation. For U.K. retailers, New York is logical, Abrams said, “because it is more similar” than other places in the U.S. Interestingly, CBRE’s most recent annual global retail report highlighted Philadelphia as a target city for international retailers in 2016. That year, Italian furniture company Natuzzi Italia and Superdry set up shop in Philadelphia, the fifth-largest city in the U.S. The market was appealing, the report said, because of its increased millennial population, income growth, new multihousing developments, burgeoning food and retail scene and reputation as a tourist destination. But there’s no refuting that New York City often is the beau ideal market for European retailers looking to expand abroad. “Retailers looking for a first or second opportunity look at New York,” said Mark Kostic, a vice president of retail leasing in the U.S. at Brookfield Property Partners. “Everyone’s next step is a global flagship in New York.” Kostic worked on the deal to bring 12 | MARCH 12, 2018 | COMMERCIAL OBSERVER

JUST A LIDL BIT: German competitor Lidl has been going strong in the U.S. along with German grocer Aldi. European suitmaker Suitsupply to Brookfield Place. The brand has fared well since the men’s store opened about a year ago, and the women’s store Suitstudio opened this past November, he said. Jason Pruger, an executive managing director at Newark Knight Frank, said he will be helping Black Sheep Coffee expand from London into the U.S. come springtime. He anticipates that Black Sheep will enter the country by way of New York City. “We are looking to expand in the U.S. because we have be inundated with customer requests, particularly in the last few months— mostly Americans living in the U.K. or who came across Black Sheep while visiting the U.K.,” said Gabriel Shohet, one of the co-founders of Black Sheep Coffee. “New York City has many Black Sheep fans but is one of four U.S. cities [including Chicago, Washington, D.C.. and Atlanta] we have shortlisted as a potential starting base for a U.S. market entry.” Faith Hope Consolo, the chairman of Douglas Elliman’s retail leasing, marketing and sales division, said that New York City is “the shopping capital of the world, and the No. 1 leisure activity in this country is shopping. Yes, New York City is the center of the world. Companies are willing to risk everything to

make it here. Just like the song goes, ‘If you can make it here, you can make it anywhere.’ ” Going the other way, U.S. retailers often start in London for their European expansion, where English is the native language. Indeed, companies from the U.S. marked the majority of new international retail entrants to London in 2016, according to CBRE’s global retail report. (Hirschfeld called London “probably the retail capital of the Europe in many ways.”) But London is desirable for just about any retailer looking to make an entrance on a global stage. “Overseas brands continue to see London as the pathway to greater expansion” in Europe, the Middle East and Africa, or EMEA, the CBRE report said. London was the second most-targeted market globally for international retailers entering new markets in 2016 (behind Hong Kong) and 10 markets in EMEA made the list of 19 global cities with the greatest international retailer presence. And this was the year of the Brexit vote for the U.K. to leave the European Union, so presumably the vote did not rock anybody’s faith in London retail. At the end of last year, New York-based high-end fitness brand Equinox opened its fist standalone E by Equinox location—an

even higher-end Equinox—in central London. “Opening our first standalone E by Equinox in one of the most esteemed neighborhoods in London was only fitting,” Gentry Long, the managing director of U.K. operations for Equinox, said in a press release in December 2017. “We’re thrilled to introduce an elevated take on the private members’ establishment with fitness at its core.” Some in-demand cities for U.S. retailers going abroad are Germany’s Munich, Berlin, Hamburg and Frankfort for fashion brands and food and beverage brands, Hirschfeld said. And there’s Paris, France and Milan, Italy. He has not seen a lot of demand for a Spain brick-and-mortar location. In the last coupe of years, Hirschfeld’s team has brought Detroit-founded Shinola watch, bicycle and leather company to London. And his team brought Seattle-based outerwear company Filson to London. “What you must look at when you’re looking throughout Europe, or Asia or South America is products that are transferrable to other markets,” Virginia Pittarelli, a principal of Crown Retail Services whose clients have included Sephora and Godiva, told Commercial Observer late last year.“That’s really the key.”

Investor and Developer Outlook: Opportunities in the US


his year, Commercial Observer partnered with MIPIM to co-organize the program’s U.S. panel on Wednesday, March 14 entitled “Developing & Investing in the United States: What, Where and How?” This two-hour session gathers top developers and finance professionals to discuss what assets and markets in the U.S. are hot and why, selecting the right partners which loans/ structures have had the most success and tips for investors looking to expand their portfolio stateside. We sat down with a selection of the panelists to learn where they feel the greatest opportunities are in the U.S. today. Here’s what they had to say:

“ What do you think are the greatest opportunities in the US today?”

Ric Clark Senior Managing Partner and Chairman, Brookfield Property Group and Brookfield Property Partners

Ric Clark.

“I would point to two opportunities in the U.S. The first is retail, where the headlines have it wrong. The future of retail is actually very promising. Yesterday’s mall may be struggling, and owners that attempt to put lipstick on the old model and merely ‘hang on’ may be in trouble, but if you are in a good location and are willing and capable of investing in your property to reshape the retail experience, there is real opportunity. “Brookfield Place New York in Lower Manhattan is solid evidence that retail is alive and well. It is 98 percent leased and coming off a very strong 2017. The secret is no secret: We continue to spend a lot of time and investment animating our public spaces, driving foot traffic and creating unique experiences. Great food options and year-round, high-quality arts and events programming continue to help drive success for our retailers. At Manhattan West, too, we are taking the best of Brookfield Place even further, creating a dynamic and experiential destination that we think will be a model for the future of retail. “The second opportunity is in major, mixed-use complexes in the country’s most dynamic gateway cities. The worldwide and U.S. populations are rapidly urbanizing. Meanwhile, Millennials are accounting for an increasing share of the workforce. This cohort is tech-savvy, they care about the workplace experience, and they mix work, live and play unlike previous generations. Employers looking to attract, retain and motivate their workforces are increasingly looking to engage and cater to millennials. That requires more than modern office buildings; it demands multiple uses, co-located and activated year-round. “We call it Brookfield Place making. By combining premier office assets, grand public spaces, high-end, experiential retail amenities, residences, hotels, access to transportation and world-class arts and events programming, Brookfield has pioneered the creation of a dozen of these unique destinations in major cities, including New York and Houston. It is not easy to replicate, but given the rapid urbanization and rise of millennials that continues, those that are able to create these kinds of places have a great opportunity to succeed.” COMMERCIALOBSERVER.COM | MARCH 12, 2018 | 13

Christoph Donner Chief Executive Officer, Allianz Real Estate of America

Christoph Donner.

“In my view, there are four promising opportunities within the U.S. Real Estate Market. The first is to buy ‘generational’ real estate. These assets only trade at the most mature point in the cycle. As a long-term investor, this is when you look to capture the better assets. In addition, these properties don’t sell in down markets. Allianz is poised to invest in the highest quality assets, in irreplaceable locations, with best in class partners, knowing that these assets will remain attractive through cycles. “Lending throughout the capital stack also presents opportunities as the U.S. profits from higher all-in rates versus other countries. Lending in a mature cycle means having an extra cushion of equity that at 60 to 70 percent LTVs should protect Lenders during a regular down cycle. Currency hedging may take away some of the advantage, but longer durations provide additional benefits, matching assets & liabilities combined with the attractive coupons. “My last 2 points relate more on the opportunistic side. One is to take advantage of the arbitrage of U.S. Public REITs stock prices vs. NAVs of their portfolio. Some REIT stocks are now trading at significant discounts to their NAVs. Share prices are lower than what it would cost an investor to buy individual assets. At some point, that arbitrage should even out or REITs may be taken private. The other is to take advantage of potential distress in the retail sector (malls or high street retail). Owners are not seeing the NOI’s that they were predicting. If they are overlevered, this may result in troubles with their lenders or JV partners. I do believe we may see activity in some of the pristine markets that are potentially now overvalued compared to prior years.”

Alexander Joerg Managing Director and Head of Real Estate Finance Department, LBBW “There are various decision drivers to successfully capitalize on the currently available commercial real estate opportunities in the U.S. Some of the key aspects in the decision making process include the anticipation of trends. While it is important staying ahead of capital markets, especially in the current interest rate environment, and weathering real estate cycles, in general, choosing a strategic real estate location and asset class remains essential, especially for long-term return and liquidity objectives. Recently, we have seen several major U.S. corporations strategically evaluate their location options. For instance, General Electric Co. moved its new world headquarters to Boston, citing that it had been chosen from a list of 40 locations because of its business ecosystem, talent, long-term costs and quality of life for employees. More recently, Amazon made headlines in announcing that it is in search for its second corporate headquarters in North America. In this context, Amazon issued an RFP for a competitive site selection process, which provides in many ways a road map for Corporate America’s demands when choosing a location with characteristics such as a business-friendly environment, highly educated labor pool, strong university system, access to transportation, sustainability and energy efficiency, and overall high quality of life. Having received an overwhelming response, Amazon has shortlisted 20 locations for its new headquarters. It remains to be seen which place Amazon will chose in the end. Though, all contenders bring to the table the necessary winning attributes for a 14 | MARCH 12, 2018 | COMMERCIAL OBSERVER

Alexander Joerg. location with continued growth prospects. In line with this list on a micro level, Google’s pending high-profile purchase of Chelsea Market in Manhattan may be just one example for a winning recipe when choosing a location and opportunities in the future.”

Jonathan Mechanic.

Jonathan Mechanic Chairman, Real Estate Department, Fried, Frank, Harris, Shriver & Jacobson LLP The real estate market remains hot in the United States as values continue to increase in many markets and remain stable in others. The industrial sectors, particularly warehouses and logistical assets, student housing and multifamily continue to be particularly strong, while manufactured housing has become a newer growth area. Many investors remain focused on the largest U.S. gateway cities, but some investors are looking to invest more in secondary cities. Perhaps suburban offices—where returns are stronger and there is less cap rate compression—will attract more capital. Expansion in space needs for the tech business is another theme. And as tech grows, there are also opportunities to reposition malls and other retail spaces. “Meanwhile, there are signs of change in the public markets. Many REITs are trading below net asset value, so privatization transactions may be a growth opportunity for both debt and equity capital. Interest rates appear to be heading up, and the question then becomes whether lower advance rates will follow, thus leading to increased opportunities for preferred equity and other more structured products. “Lastly, there has been expansion in open-ended real estate funds and the creation of new product types in the nontraded REIT area.”

Bruce Mosler Chairman, Global Brokerage, Cushman & Wakefield

Bruce Mosler.

“With the GAAP regulatory changes, the new tax laws and continued strong corporate growth, it will be incredible to see what opportunities arise in the next few years. Tax reform will definitely provide opportunity in the commercial real estate industry. The preservation of 1031 exchange kept investment sales volume up in 2017 and will do so moving forward, and corporate tax rate reduction will provide companies with additional profitability that turns into jobs, growth and eventually rent as they take more space. “Additionally, I think there is great opportunity in the changing landscape of the office market. We cannot underestimate the impact and opportunities that the coworking arena has provided to the market to landlords and tenants alike. Coworking space as an amenity can provide great opportunity to tenants and can make landlords competitive in the market.”

Eran Polack.

Eran Polack CEO and Co-Founder, HAP Investments LLC “We strongly believe that the New York City metro area’s residential market is primed for investment. Although it is well documented that the millennial generation has been slower to choose homeownership in favor of renting, I fully expect this trend to shift over time. Interest rates are at historic lows, which presents a unique opportunity for buyers, but that window will be closing. In a market like New York City where condo stock is low and that already benefits from being a preferred living destination for millennials who we predict will eventually choose to own a home, we think there’s a tremendous opportunity for investment and new development.”

Isaac Zion.

Isaac Zion Co-Chief Investment Officer, SL Green Realty Corp “New York City fundamentals remain very strong with consistent job growth—more than 10,000 jobs added in the last two months, including a valuable gain of more than 8,000 jobs in the financial sector. Thanks in part to financial sector hiring,

leasing activity spurred net absorption in 2017 and deal volume exceeded 34 million square feet, a big jump from the 28.8 million square feet completed in 2016. Add to that the city’s deep talent pool, diversified mix of industries and employers’ increasing recognition of a high-quality work-live-play environment as a necessity to attract and retain talent, there is no city in the world better situated for commercial real estate investment than New York City.”


alone won’t ensure they’ll prosper in the future.

How do you prepare your kids for financial independence?

If you’re unsure about how to talk to your kids about money, you’re not alone. Whether they will inherit a little or a lot, you should talk. But how much should you share? And what should you tell them? We’ve been advising families for more than a century and can provide insight, guidance, and educational tools to help. For a deeper understanding of how to prepare your children for your wealth, call Sharon Klein and her team at 212-415-0547. Download our research Navigating the Wealth Transfer Landscape at

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