North America debates: A tale of two cities

The start of autumn has seen an industry-wide determination to seize opportunities and surmount the challenges of Brexit. For Estates Gazette, September marked the start of a landmark partnership with the UK government’s Department for International Trade and Savills to stage an investment mission to North America with a delegation of investors, developers and advisers. The objective was to set out the UK’s real estate investment case

Delegates
UK speakers	North America speakers	UK delegation
Sajid Javid UK secretary of state for communities and local government. In post since July 2016 and has committed to housing as his “number one priority”.	Woody Heller Executive managing director and head of capital transactions group, Savills Studley. Responsible for investment sales activity in the New York market. Has been responsible for more than £9bn of asset and note sale transactions during his tenure.	Duncan Sutherland Executive director, Sigma Capital; Regeneration Investment Organisation board member; HS2 board member. Works in partnership with local government and has announced a £1bn fund for a PRS portfolio for 10,000 houses in England.
Sir Edward Lister Special adviser – Department of International Trade /chairman, Homes & Communities Agency (former deputy mayor for London) Provides strategic leadership of the HCA, responsible for securing the regeneration and development of land or infrastructure in England.	Stephen Taylor Vice-president – real estate, HOOPP Among the leadership team of one of Canada’s largest pension plans, with more than £30bn in net assets and £5bn in properties in North America and Europe.	Kevin McCabe Founder, Scarborough Group International Heads of organisation encompassing all aspects of real estate, leisure and other sectors globally.
Stephen Down Head of central London and international investment, Savills Leads a team of 30 investment professionals, responsible for more than £18bn of central London transactions in the past 36 months.	Michael Spies Co-head of Europe; head of India; chair of investment committee, Tishman Speyer Jointly oversees European investment for the firm, whose property portfolio is valued more than £62bn across America, Europe and Asia.	Lee Polisano President and founding partner, PLP Architecture Widely recognised in London and globally for his expertise Notable projects include Heron Tower.
Rasheed Hassan Director cross border investment, Savills. Leads the team that links Savills’ international network with global investors Has worked on more than £20bn of transactions over the past three years.	Camille Douglas Managing director, LeFrak Responsible for the strategic real estate acquisitions and development outside New York for one of the city’s biggest family-owned landlords.	Stephen Barter Chairman, real estate advisory practice, KPMG Involved in structuring, financing and managing real estate transactions globally and has consulted on several government real estate committees.
Alex Greaves Residential fund manager, M&G Oversees M&G’s residential investment capability, totalling £500m across the UK over the past three years.	Carl Weisbrod Chair of the New York City Planning Commission and director of the City Planning Department Has more than 35 years’ experience serving the city and has created some of the city’s most dynamic and fastest-growing neighbourhoods.	Jonathan Harris Senior managing director/head of real estate – Europe, Macquarie Capital Adviser for public and private property companies, investment managers and government bodies and has led closed transactions valued at more than £15bn.
	Jennifer Keesmaat Chief planner, City of Toronto Known for her innovative and dedicated approach to developing Toronto into a walkable city, she has helped set the national agenda on urban issues.	John Moffat Development director Capital & Centric Part of senior team which spends on average £1m a week on development across key UK regional cities.
		Sayida Husain Head of capital investment, infrastructure – investor relations, developed markets, business operations, Department for International Trade Represents the government body responsible for striking and extending trade agreements between the UK and non-EU states.

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New York

It is a familiar narrative: since the UK decided to quit the European Union in the summer, the vultures have been circling. London, runs the argument, will lose financial services HQs to Frankfurt, capital to New York and global talent to wherever it feels welcome. Leaders of overseas cities, global investors and tech giants have been reviewing options, each preparing to scale back commitments to the UK because of the referendum’s outcome.

Is it true? Well, there is certainly a degree of truth in the scenario. Many European cities are working up plans to court corporates away from London, while some investors are sitting still while they wait for uncertainty to dissipate.

But it is certainly not universally the case. Just last week, Apple committed to London and the capital’s occupier appeal remains strong. Meanwhile, many investors – both short and long-term in focus – see the UK’s credentials as every bit as compelling as they were pre-June. 

What the UK – and London especially – is experiencing is being played out around the world. A backlash against globalisation, housing affordability issues and the global war for talent top the agendas of most world cities – Brexit or no Brexit.

In New York a fortnight ago it was clear that the city remains a major challenger to London as both cities compete for capital and talent. But they have more in common than divides them. And, far from Brexit helping to propel one city ahead of the other, the vote could drive them closer together.

“The two cities continue to walk almost in lockstep,” said Carl Weisbrod, chair of the NYC Planning Commission and director of the City Planning Department. “The key to both is diversity, not just at the top level but deeply in their roots. Their ability to attract talent is perhaps the most important factor.  Increasingly we see business go not just where the cheapest prices are, and not base decisions so much on tax policy, but increasingly they go where the talent is.”

Michael Spies, co-head of Europe and chair of the investment committee at Tishman Speyer, also played down the notion that Brexit would materially impact London. “More significant than Brexit is where we are in the cycle,” he said. “Brexit has to be viewed in the context of a London market that had been going very strongly for some time. The currency move is not enough of a reason to make an investment. Because the longer the investment horizon is, the less significant that initial currency play should be.”

Transatlantic advisers have seen a degree of movement but nothing to suggest a long-term shift in investment trends. “We have around 60 transactions that have exchanged since the referendum and we have got another 20 or so in central London set to exchange,” said Stephen Down, head of central London and international investment at Savills. “We have seen about 80% of those transactions from overseas. There has been a heightened level of international activity. Why? The reality is it is a lot to do with sterling – the weakness of the currency has drawn investors in.”

Woody Heller, executive managing director and head of capital transactions group at Savills Studley in New York, said he had seen an initial spike in interest in the UK since June. “Uncertainty drew a lot of interest from a lot US investors going toward London as a buying opportunity,” he said. But he questioned whether this would translate into
sustained interest: “It is too soon to say.”

The devil may be in the detail of the divorce, but for Spies it was hard to imagine London – or New York, for that matter – not continuing to figure in any serious investor’s portfolio.

“Global capital wants to be investing efficiently in reasonably large amounts and it is much more easily done in London than in any other market in Europe. If you are a major pension fund or a sovereign you need to be investing efficiently and they happen to be the same cities that are growing and benefiting from lots of positive economic development.”

For Weisbrod the parallels today –  and perhaps in the future – are striking. Whether it is in the fast-growing creative sector hunting for “older, funkier, more characterful space in neighbourhoods that 10, 15 years ago they wouldn’t have gone to” or in financial services where “employment is growing but it is growing very slowly”.

Increasingly, one suspects, London and New York will have to share solutions in much the same way they currently share problems.

PRS potential

The LeFrak organisation is determined to build a PRS platform in the UK.

The developer, best known for delivering multi-family developments in the US, bid for the London Olympics athletes’ village in 2011 but Delancey and Qatari Diar took home the prize, paying £557m.

But, according to LeFrak managing director Camille Douglas, its ambition is undimmed.

The business hopes to do for PRS what Olympia & York did for offices when developing Canary Wharf. “We have been trying to invest in London for many years,” said Douglas.

Brexit is neither here nor there – for now at least. “Other than the hit to the currency, which is significant and makes it a good time to invest, we have not seen distress. We have looked a lot in east London and Crossrail is counterbalancing Brexit at the moment.

“It might get worse before it gets better. But ultimately we believe in the same way Olympia & York believed in London, in its enduring role as a financial capital.

• To send feedback, e-mail damian.wild@estatesgazette.com or tweet @DamianWild or @estatesgazette

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Towering Toronto

EG’s visit to Toronto opened with a case for UK investment from a government minister, followed by a discussion on the themes of Canadian investment, housing delivery and Brexit, highlighting a shared agenda with one of the UK’s closest global neighbours, reports Rebecca Kent

It was perhaps the most anticlimactic answer to one of the most important questions of the North American mission. And it came from someone whose influence is valued at CAD$1.8bn (£1.1bn) of real estate investment globally.

Stephen Taylor, vice-president of Healthcare of Ontario Pension Plan (HOOPP) was asked about his reaction on 24 June, when the UK elected to leave the European Union. His response? “Nothing happened at all.”

For some it might have been a momentous day in the spring of 2016, but one of Canada’s top 10 institutional investors, barely batted an eyelid.

It was welcome news to a delegation of UK developers and investors that had travelled to Toronto to strike investment deals, and to the secretary of state for communities and local government, Sajid Javid, who moments earlier had spoken of a “revolution” in local leadership, and a commitment from the British government “not to shy away from the significant challenges facing the UK”.

His talk was aimed not just to reassure, but also to encourage investment in regeneration and infrastructure from Canada, a country second only to the US in the amount of real estate investment it makes into the UK.

In spite of Brexit, Taylor confirmed HOOPP was standing by the UK. Its current investments in the country, made either side of the referendum – Veridon’s iPort, a 6m sq ft strategic rail freight interchange scheme in Doncaster, and a 273,000 sq ft mixed-use development in Creechurch Place, EC3 – will remain in its portfolio.

Taylor said: “The biggest question in my mind is how Brexit will map out, including the movement of people between borders and how business models will need to change. But the UK remains one of the 10 fastest-growing economies in the world and we see no reversing of that as a result of Brexit.

“In fact, we are likely to see our total investment in real estate in the UK double in the next three-to-five years, and that was a decision we made pre-Brexit and a decision that remains.”

It was music to the ears of the assembly, as the discussion navigated through a shared investment agenda between Toronto and the UK, with the delivery of affordable housing and the opportunities around it the prevailing themes.

There are no quick fixes in regenerating a high growth environment, said Toronto’s chief city planner, Jennifer Keesmaat, who is advancing an ambitious transport, housing and urban planning programme in response to a growing generation who are shunning long commutes to live in an environment where amenities are cyclable, walkable and affordable.

But she warned of “reverberations in a community” where new housing does not cater for a variety of affordability levels, rental and ownership.

Talk over development inevitably led to a debate over green belt land.

“It is the future workforce we are catering to and they do not want to live in areas that have a long commute,” Keesmaat said.

“The cities that continue to sprawl outwards increase commuter time, reduce overall productivity, reduce quality of life and eventually those communities built on greenbelt become costly to maintain because infrastructure per capital cost remains so high.”

HOOPP’s Taylor agreed, and said these were similar demographic shifts he was looking at for opportunities in the UK, and relying on strong local partners to identify.

A contrasting view came from Sir Edward Lister, who urged for development along transport corridors and on greenfield sites upon which London train stations sit “because there is no point in having a nice station in the middle of a piece of land where nobody actually lives or goes to”.

He added that in London alone there was enough existing brownfield land to deliver 400,000 homes, and in his capacity as chairman of the Homes & Communities Agency, he would bring to bear the HCA’s little-used plan-making and compulsory purchase powers to bring sites forward.

Alex Greaves, residential fund adviser for UK institutional investor M&G, described “exciting opportunities” in the UK market and said he was secretly pleased with the referendum result.

As he addressed the audience, his firm was releasing details of a regional transaction, a £28m private rented sector scheme with developer Mulberry in Manchester, and further investments in Leeds and Birmingham are also expected to be announced, signalling a major vote of confidence in the regions.

Looking at the near future, Stephen Down, head of central London and international investment at Savills, was unconvinced Brexit would insulate the UK from the economic issues of the Eurozone.

However, “North American investors really do look at the UK and London first,” he said.

Canada can empathise with Brexit

If any place in the world can empathise with the UK’s experience of Brexit it is Canada, said Toronto’s city’s chief city planner Jennifer Keesmaat.

She said: “The notion that we are better apart than we are together has been part of our national dialogue.”

In a 1995 referendum voters in Quebec rejected a separation from Canada to form a sovereign state.

“We’ve been through it, and although on a different scale, we had the Quebec referendum and it has been put to rest now, but it certainly has been within our lifetime and our generation,” she added.

Toronto is fourth in the Economist Intelligence Unit annual liveability ranking, alongside Vancouver and Calgary, which ranked third and fifth respectively.

Keesmaat said the key is immigration, neighbourliness and an improving transport system.

Click here to see all the coverage of Estate Gazette’s North American investment mission >>

• To send feedback, e-mail Rebecca.Kent@estatesgazette.com or tweet @Writer_RKent or @estatesgazette