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Dec. 3, 2012

Special Report: Finding a Framework for Future Global Cities

By Michael Ratliff, Associate Editor

Nova Luz master plan, courtesy AECOM Technology Corp.

New York—By 2030, it is likely that 60 percent of the world’s population will be living in an urban setting. This startling figure means that urban planners must take increasing care in planning smart developments to keep up with demand. Rapid global urbanization also means that emerging and established cities need to work harder than ever to align the goals of private investment, infrastructure development and public policy as they try to reinvent themselves for the 21st century.

A panel at the 2012 Global Real Estate Markets Conference hosted by the James A. Graaskamp Center for Real Estate (Wisconsin School of Business) at the New York Stock Exchange on Friday took the opportunity to view how aligned development goals can establish a smart urban framework for future growth.

One city that is shaping up to emerge as a dominant global city is São Paulo, the largest city in Brazil (not to mention the largest city in both the western and southern hemispheres). The city has grown from a population of 32,000 in 1880 to its current size of 11.3 million. This rapid growth was not accompanied by adequate urban planning, and some of the negative results have been problems with traffic, road infrastructure, crime, pollution and poverty. But the city is in the midst of an urban regeneration project known as Nova Luz (New Light) that is focused on reinventing ‘Cracolaindia,’ a 123-acre economically and socially distressed district.

Nova Luz master plan, courtesy AECOM Technology Corp.

The Nova Luz master-planned redevelopment, which was designed by AECOM, has a price tag of about $2 billion and will bring office space, an exhibition center for the 2014 FIFA World Cup, and most importantly, 60,000 units of mixed-income housing. The reinvention will come at a time of economic growth in Brazil that is accompanied by changing demographics, according to Ricardo Pereira Leite, chief executive officer of the São Paulo City Company for Social Housing.

“Brazil’s GDP is rising, and our urbanization rate is above the global average. In São Paulo, for example, we are close to 100 percent. The price of residential real estate is going up, and the middle class is expanding,” Leite says.

One of the biggest challenges that Leite faces with Nova Luz project is a lack of institutional investor support, forcing the city to raise most of the funds on its own. Still, Leite is optimistic that the quality of the project’s design will attract investors down the road.

“I think that in 10 years São Paulo will still have many of the problems it faces today, but I hope that we will be able to be closer to the ‘compact city’ concept.”

Another city currently in the process of a major reinvention that AECOM has advised on is New York. While the city that never sleeps is far from an emerging city, New York is getting a brand new 60-block neighborhood on its West Side known as Hudson Yards. Jay Cross, president of Related Hudson Yards, was on hand at the conference to speak about his company’s 27-acre portion, which actually breaks ground on December 4.

“Commercial office will lead the project, as it is important to get to that critical mass and then pace in the housing,” Cross says.

The Related component will begin with Eastern Yards, which has an 80 percent commercial/20 percent residential ratio that will all be built in a single phase. When that is complete, Related will begin Western Yards, which flips the ratio to 80 percent residential/20 percent commercial. That phase should be built between 2017 and 2020.

Hudson Yards

But it isn’t just new buildings that will pop up. The MTA is expanding the 7 line to 10th Avenue, the third phase of the High Line elevated park is under construction, and an adjacent portion of the Hudson River Park will be revamped during the build out. Cross says that 50 percent of the lot area will be open to the sky. The crown jewel of the first phase will be a 70-story, 2.4 million-square-foot office tower capped off with a ballroom, sky club restaurant, observatory and private club. But just how does a massive project like this move forward in a city where getting shovels in the ground is never a simple task?

“It all has to do with very enlightened public policy,” Cross says, adding that the city is giving Related a 40 percent tax rebate for the first 5 million-square-feet of office space. “Our partner in this is the MTA, who came to the table with the right attitude. The city and MTA crafted out the rules early in the process. Our job is to build a trusting relationship with the public sector.”

Tom Murphy, the former Mayor of Pittsburgh and senior resident fellow at ULI, who is largely credited with breathing life back into The Steel City, chimed in on the importance of a symbiotic relationship between the public and private sectors in any successful game-changing project.

“It is a sophisticated conversation that recognizes that Related needs to make money, but at the same time the public sector doesn’t want to get their pocket picked,” Murphy says. “Often, I say that cities have a disease in the water called the ‘It’ll do’ disease. Instead of saying we are going to be a world-class city, they will just build something ‘that will do’. Hudson Yards is a great example of what a world class city like New York wants to do.”

But while Related’s goal, like any real estate developer, is to turn a profit, the public sector shoots for social goals, according to Cross.

“There is a phrase coined by our lawyer that the public sector’s currency is not money. We oftentimes fail in terms of thinking of their currency, which are social goals. Once you start thinking of solving their problems, things turn on their head and the private sector is given an opportunity to affect big change.”

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