The ghosts of LA, Las Vegas & NYC mix and mingle in the UAE.
It’s been a week since I returned to the US from the United Arab Emirates. The best way for me to describe Dubai to Americans is to say that it’s a strange combination of the three well known US cities; New York, Los Angeles and Las Vegas. It is a city, like Los Angeles, where every destination is linked by a freeway. There are virtually no functional avenues or boulevards. A city, like Vegas, where most large buildings are iconic in nature and intended to shock and amaze the average person with engineering feats and architectural marvels. And thirdly a city, a bit like New York, where everywhere you look, you see skyscrapers. Some of them are truly magnificent and capture everything I love about the form; but unlike NYC, Dubai lacks the urban fabric. The places in between. There are so few hole-in-the-wall places worth exploring, because there is no wall.
To be fair, there are two older neighborhoods (Bur Dubai and Deira) where urban fabric is the norm, but they are both eyed with some level of contempt by city planners and are marked for destruction. These neighborhoods are where the action is and they are actually quite remarkable. As other neighborhoods like the Dubai Marina, The Greens, and Jumeriah struggle to maintain value, Bur Dubai and Deira will be affected the least.
This leads to my second key observation: Dubai seems to have the very real and common problem of value retention with age, much like most of the American suburbs. It would seem that most buildings over ten years old are slated for the wrecking ball if they haven’t been demolished already. Fortunately this is a problem that will eventually go away as some buildings are spared and the age of the city diversifies. My biggest question is how will they patina. The Empire State building has become increasingly valuable over time, will these? At present, the design of most of these buildings and their neighborhoods makes them difficult to maintain and challenging to repurpose for adaptive re-use. It will be interesting to re-visit the city over time, to see how condo buildings have been converted to offices, or dead malls into living neighborhoods. Fortunately for the Emiratis the Americans will have to tackle this problem first.
My final thought is on velocity and market segment. In our new market reality of limited credit and less flexible lending, there are many buildings sitting vacant in what should be desirable neighborhoods. This leaves the neighborhood relatively lifeless and exposes it to the possibility of urban blight. Dubai has never seen a neighborhood devalue or become dangerous. What will happen if the target demographic never moves to a half built neighborhood? There are still newer ones on the books, waiting to be built as soon as the economy turns around. How will the built environment absorb an unexpected population of differing means and culture? I believe the best way to handle such a scenario is simply to accept it and open the door for the neighborhood to reinvent itself at the smaller scale. Poor neighborhoods need smaller, cheaper spaces in order to nurture new growth. Cheaper will happen with time, but the zoning code must also allow for storefronts to be modified, apartments to be split in two and offices to be resized. This is what NYC has done so well for so long, what Los Angeles is still learning and what Vegas will soon experience. I hope that Sheikh Mohammed recognizes the opportunity for appropriate infill when the time is right and allows it to happen naturally.
A thought on what it means to be an expat.
This evening I went to a piano bar and I felt so connected with the movie Casablanca. There’s essentially no swing scene in Dubai, and hardly any respectable live jazz music. It’s a huge difference from NYC and a painful one for a guy who used to see live music a minimum of three times per week.
It helped me understand what Humphrey Bogart’s character must have been going through living in some random city as a sort of lonely expat. I’m not there yet, but I can see that sort of lifestyle creeping up on me. There must be amazing days and must be really hard ones too.
Going to a bar like that makes me miss home a bit; not that I’ve even been away that long, but it’s more the idea of being away for a long time that makes me expect to miss it and makes one wonder what kind of new spots you’ll find.
The value of the neighborhood easily eclipses the value of the building.
On Wednesday 1/8/09 I took the London underground back to the airport and boarded a plane for Dubai at 9pm. I landed in Dubai 1/9/09 at 7:40am and spent the day touring the southern side of the city, went to the gym, napped and went to a handful of hotel bars/nightclubs.
Two of my most interesting observations are that the city is far more dense than I expected, but only about half occupied in places (at least near the Dubai Marina). Secondly, many very nice buildings/hotels have been “out-luxuried” in five years or less. In other words, what was a luxury product five years ago is now just an average to below average hotel due to the constant architectural one-ups-manship here. This begs the question, “what do you do to differentiate your luxury product in an environment like this?” Apparenly the answer here has been to just build taller, more fancy buildings with increasingly nicer finishes, but that only creates an exciting game of real estate hot potato. People keep trading properties back and forth until there’s a collapse in perceived value, the last man holding title gets sunk.
When I asked my friends on twitter and facebook I got several responses. One idea to “create the illusion of higher quality by being the most expensive.” sounds to me like the above solution. Someone else suggested that the investor “start targeting middle class and sell the product in a way that influences and supports them in feeling productive.” in an effort to capture both the mid and high end markets.
In the Dubai market the one exception to this policy of participation in the iconic building arms race is a company called Limitless, which is focused on creating the next destination neighborhood instead of iconic buildings.
The problem of course with iconic buildings is that they can be eclipsed, but if you create an iconic district, it retains it’s charm despite the lavishness of the buildings. Think of your favorite urban neighborhoods, SoHo, Wicker Park, Rittenhouse Square, the French Quarter, the Pearl District, etc. If someone builds an iconic building in a different part of town does it affect the quality of the life or the property values in your favorite area? Not usually… because a neighborhood is about people. People who live and die, but en mass have the ability to be timeless.
4) Green Technology, the 2030 plan and Original Green – There are several new city plans including PLANYC (2030 plan) and the Abu Dhabi 2030 Plan that talk at length about a city with intelligently designed transit, water, electrical, communications and other building infrastructure. They also heavily emphasize sustainability goals. I believe the concepts behind the plan are relevant to the city of the future in the extreme. Conservation of resources is not just important environmentally, it is fiscally intelligent as well. The enthusiasm for green technology will continue to drive improvements in the real estate products that can be provided, and I have done my best to stay on top of the subject. I am a LEED Accredited Professional, attended the annual GREENbuild conference and the Congress for the New Urbanism this year and have been exploring a much deeper level of the movement.
I think the USGBC and other rating organizations like it (BREEAM, CASBEE, CaGBC, GreenGlobes, etc.) are achieving meaningful results through the use of standards which (for better or worse) are increasingly becoming law across the globe. International real estate investors need to understand the principles and goals behind these systems as they become increasingly popular in the marketplace and in regulation.
I also believe that the more fundamental solution to our environmental problems comes from a historical understanding of transportation, planning and architecture. Before the US and British industrial revolutions, all energy was expensive. There are literally thousands of years of building tradition in cities from all types of climates all around the world. These traditions incorporate the best practices from generations of master builders and end users. I am very much in favor of technologically modern buildings that make financial sense in the current economy, but I am also very interested learning as much as possible from our ancestors.
This leads to a concept called the Original Green, which discusses the more fundamental issues I’m referring to. As architect and author Steve Mouzon puts it, “If a building cannot be loved, it will not last. And its carbon footprint is absolutely meaningless once its parts have been hauled off to the landfill.” In a nutshell he argues the following:
- We must first build sustainable places before it is meaningful to even discuss sustainable buildings.
- Sustainable places should be nourishing, accessible, serviceable, and secure.
- Sustainable buildings should be lovable, durable, flexible, and frugal.
These tenants encompass the entire green movement and are the universal principals Abu Dhabi 2030 seems to be based on. The Congress for the New Urbanism (CNU) is an organization I have been involved with for the past five years. My membership in this organization has provided inspiration and perspective for most of my ideas on environmentalism in the real estate industry. The CNU works to create compact, walkable and diverse places that are inherently sustainable and enjoyable to live in. The Original Green concepts derive from many of the principles discovered by the CNU.
3) Crowdsourcing/Crowdfunding – Crowdsourcing is a popular topic at the moment. I believe that it has and will continue to fundamentally alter the business environment. The goal of crowdsourcing is to leverage the mass collaboration enabled by Web 2.0 technologies to achieve business goals. It is commonly used to compile building data, provide tech-support, solve complicated research problems, or create t-shirts that sell out every batch. The opportunities in real estate are endless. Some ideas I’ve had are to improve building management services, revolutionize the design process, alter the property search/acquisitions process (already in progress), and to identify specific demand for a product type before investing in it.
Its close cousin, crowdfunding, could be used to finance projects in a much more fine-grained, sensible manner than the large funds currently building cities with limited and unidentifiable character. As I see it, large investment funds will continue building the raw spaces and crowdfunded smaller projects will occupy them or create infill spaces with the character and diversity typical of the best old cities.
2) BIM – Building Information Modeling is possibly the most revolutionary technology in the history of design and real estate project finance. It is still a technological toddler, but the first developer, investment group or architect to properly use it will reap huge rewards. The principle is simple. Instead of creating a voluminous set of drawings and construction specifications, create a precise computer model of the building or renovation. The ideal software will generate the construction documents, error and omission free.
Because the model has every component that the physical construction will have, it should be easy for the software to count quantities and compare them to online directories of cost data. This gives owners, investors and architects the ability to price proposed changes in real time. It also has the potential to calculate schedule changes, zoning or code compliance and several other major hiccups common in the building process due to proposed changes.
AutoCAD Revit software is a popular choice, but several systems exist. Some examples of successful projects using the technology can be found on the AIA’s website here.
Using BIM, will open developers and investors up to a much more flexible design environment. In my time working for Bovis Lend Lease on several of Extell Development’s projects, I realized that one of the things Extell does very well, is work hard to please it’s clients (the condo buyer) through customization. Extell was on the cutting edge in NYC of customizable new construction. While at BLL, I oversaw several major unit combinations, partition modifications and finish changes, and every single one of them was a construction coordination nightmare. The cost of modifications to a building as it is being built is astronomical primarily because the design is static. The construction documents have to be manually adjusted with each change, and when something is inevitably missed, it costs the builder and the owner money. Until BIM, there was no conceivable way a design team could effectively find every drawing and specification that each change affects and make the required notations in the middle of the project cycle. That is all starting to change.
The the potential value of predictable changes to investors, developers and buyers is enormous. Soon homes, apartments and offices will be as easy to customize as tennis shoes, and the developer most capable of doing it will reap serious financial rewards.
Unfortunately, the real estate markets that I’ve been working in with my investors for Asgard Associates are very difficult to do business in at the moment. In response to the current liquidity issues, I’ve been talking to several companies lately about relocating to the UAE to work on big projects again. This has prompted me to put a lot of the things I’ve been thinking about the direction of the industry in writing (finally). So over the next week or so, I’ll be blogging on my top four emerging trends in construction, design and development.
1) Information Systems – While I was working at the CTA, I was blessed with the opportunity to use a state of the art program/project management system. The centerpiece of the system was a customized version of Citadon’s ProjectNet software. I didn’t realize what a gem they had created until I came to Bovis and used their uninspiring system based on Meridian Systems’ Prolog. I truly believe that much of the project management process could be simply and easily improved by using more intelligently conceived documentation software. This change has to be lead from the top. The CTA used its $5.1 billion charter to force its general contractors and subcontractors to make the necessary changes in each of their organizations.
More information on the project can be found in the whitepaper published on KFA’s website, but a few of the concluding points are telling of the problems with implementing new changes to the construction industry:
- For many of the parties to a construction project, productivity is not a clearly defined concept. To put it bluntly, if one is being paid by the hour, reducing the number of hours required to get the job done is not an attractive proposition – unless there are balancing considerations, such as competitive pressures. Only the owner is clearly motivated to do more with less. And only a fraction of Web-based project-management systems are bought by owners.
- Most Web-based project-management vendors underestimate the extent of computer-illiteracy in the construction community, and thus underestimate the amount of training required for successful project implementation.
- Construction projects are not highly disciplined affairs. Unless the use of a new tool can be tied to payment, subcontractors will tend to do things “the old familiar way,” despite any benefits they might gain from the new tool.
Probably the most important point here is the first one. Best practices, including new technological solutions in construction management can only come with the support of owners, because they are most incentivized to realize the gains.
Here’s a short video on the environmentalist movement’s dirty secret. Green power and fancy buildings can only help save energy, but they can’t shorten the distance we all need to travel. The scale of our built environment is inherently inefficient and must be addressed!
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A reflection on the importance of sales.
I’m in Chicago for the first time in three years. I strongly considered living here after I graduated college, but decided to learn to build skyscrapers in NYC instead. I think it was a good decision, but the opportunity to attend an options trading seminar and do some dancing has brought me back.
This trip was really intended to be the calm before the storm that seems to be brewing in my life. Right now I’m six months into an effort to create a successful real estate development start-up. One of the lessons that I obviously needed to learn was the importance of sales, marketing and income. Without income and cash flow all businesses die a painful death.
Coming out of Bovis, I had made what I believed to be some serious connections with investors and other entrepreneurs. I thought all I needed to do was make my skills with project management available to be successful. In retrospect, this was an immature approach to starting a business. I should have spent much more time moonlighting to build a consistent consulting business. With even a paltry income, I could have more easily quit to focus on my real estate pusuits. All this is preface to the fact that it is now time to obtain a much larger source of income to start the process over again. The past six months have been humbling and in that sense, perhaps the best use of the time I could have made.
The lessons are:
1) create an income before relenquishing the first
2) focus heavily on sales in the first few months
3) build sales around the vision and grow
4) real estate investing is a slow to pay business, so you must have immediate income coming in right away
So now, what are the options? Find better gigs for Asgard or find a serious income for Andrew Malone and get back to moonlighting.
More on Chicago later.
Hello all, let’s start this blog off right! That’s me in Spain wearing a Peruvian hat.
But seriously, this blog is intended to establish my online identity a little better. I’d like to spend some time discussing a few ideas I have for how to improve the construction, architectural design and real estate development industries. I might also digress into the weedy ditches that sometimes include thoughts on businesses, the circus arts, dancing and cocktails. Most importantly, I’m hoping to make this as interactive as possible. I’d like to do as much intellectual networking as possible, and generally just let people know what’s on the brain.
More to come soon!