By Matt Giammanco '13

One country, two special administrative regions, nine passport stamps, 12 company visits, 26 students, not to mention planes, trains, automobiles, and boats! The annual Columbia Business School Real Estate Association international study trip took place this past March 11-18 in China, with visits to Shanghai, Hong Kong, and Macau.

By way of comparison, whereas the United States has 9 cities with more than 1 million people, China has 12 cities of more than 7 million people and more than 150 cities with 1 million plus. Every five years, a population equivalent to that of Germany (80 million) is moving into Chinese cities, recently pushing the total urban population in the country past 50. Simply put, there’s no shortage of people to supply the real estate industry with owners and tenants. The major questions deal with how developers can profitably build space for all of them and what jobs the market will supply to allow continued upward mobility.

The group met with various firms across all realms of the real estate industry, including developers, investors, banks, advisors, and many others. We heard from both bulls and bears gained an understanding of just how vast and complex China is.DevelopersIn Shanghai, the group met with an international development firm, Tishman Speyer, founded by Jerry Speyer '64, as well as a regional Chinese developer, Shui On Land. Both provided background about their own operations within Shanghai and mainland China as well as insight into specific projects. The group learned about Tishman’s $2.5 billion mixed-use development, The Springs, for example, and how Nike recently signed up to occupy 55,000 square meters in the 743,000-square-meter project. Shui On Land gave a full walking tour of its urban infill development, Xiantiandi, which is considered one of Shanghai’s more successful mixed-use developments, containing high-end condominiums, luxury retail space, boutique hotels, and a manmade lake.

In Hong Kong, the group met with Hongkong Land Limited, one of the island’s more successful developers and operators of real estate. Its core portfolio comprises the bulk of the district known as "Central," the traditional office area of Hong Kong. The company also has developed numerous residential condominium projects throughout China and Singapore.InvestorsRepresentatives from CBRE Global Investors in Shanghai and Blackstone in Hong Kong shared information on the challenges in investing in Chinese real estate and insights into how different the environment is between Hong Kong and mainland China. The firms were also candid about their respective return goals and how they evaluate risk within the Chinese market.

Banks

In Shanghai, the group had a great discussion with the professionals at Standard Chartered about real estate financing structures in China. In Hong Kong, the group visited two different investment banks with slightly different focuses. At Citigroup, staff discussed real estate investment banking from both the debt and equity side of transactions. At Morgan Stanley, the group visited the gorgeous headquarters within the International Commerce Centre in Kowloon, hearing the back-story of the building itself. This was followed by a chance to take in the great views of the Hong Kong skyline with the Morgan Stanley real estate team, including Olivier de Poulpiquet '94, the co-CEO and co-CIO of Morgan Stanley Real Estate Investing. Later that evening, Mr. de Poulpiquet and Morgan Stanley hosted a number of real estate alumni who traveled from near and far to meet and greet our group, network, and enjoy a gracious reception.

Advisors

Two advisors provided tremendous background information on Shanghai and Hong Kong. Jones Lang Lasalle gave a thought-provoking overview of the Shanghai macroeconomic environment and the real estate market, making a great starting point for the group. Nicholas Brooke, chairman of Professional Property Services Limited in Hong Kong, provided the other bookend to the trip, with an equally interesting overview of the history of Hong Kong from both an economic and a real estate perspective.

Others

Other company meetings included a walking tour of the Caohejing High-Tech Zone, a state-run technological office park located in Shanghai; a tour of the retail floor space at a Metro Cash and Carry, a Costco-style big box retailer with an expanding Chinese presence; and a private tour of a luxury suite the Venetian Hotel & Casino in Macau.

Closing Thoughts

After taking some time to digest the trip, my major takeaways and questions are as follows:Beijing Matters: The central government’s role in Chinese economics is obvious and profound. For example, the presenters at Tishman Speyer explained to us the importance of strong government relations--both in Beijing and at the local level--to a foreign firm trying to undertake a large-scale development project. Tishman was successful in gaining approval due to its great international development track record; other firms thinking of developing real estate in China may need similar backgrounds in order to gain favor.

Population Situation: China has 1.3 billion people. What will be the makeup of the cities’ demographics and the real estate property mix? Longer term, how will the one-child policy impact the future workforce if China truly wants to transition from a net exporting economy to an economy that relies more on domestic consumption?

Pollution Solution: One thing we could not escape in either Shanghai or Hong Kong was the air pollution. It’s unfortunate, since both cities have tremendous skylines to showcase. My Global Economic Environment class recently debated whether China could continue to grow without major pollution effects. The answer was contested, but after having been there it’s obvious there’s a long way to go.

Debt’s Not Exactly the Issue: Consumers rarely take mortgages that are higher than 50 of the value of the property compared to upward of 80 in the United States. If China were to undergo a "bubble popping" that many are predicting, it won’t be because consumers are overleveraging.

Unique Urban Landscapes: Shanghai and Hong Kong are genuinely beautiful cities, albeit in different ways. Shanghai has a dazzling office district and a number of beautiful urban areas despite some zoning inconsistencies. Hong Kong is a lot smaller but still has an amazing array of commercial real estate to show off along the reclaimed shoreline.

Thanks to student organizers Bhavya Choudhary '12, Fred Knapp '12, and James Hoeland '13 for organizing a packed itinerary with this great variety of company visits and site tours; to trip co-sponsors the Jerome A. Chazen Institute of International Business and the Paul Milstein Center for Real Estate; and to Ariel Shtarkman '07 for planning assistance. Students were accompanied by Lynne Sagalyn, Earle W. Kazis and Benjamin Schore Professor of Real Estate and Director of the Paul Milstein Center for Real Estate; M. Leanne Lachman, Executive-in-Residence at the Paul Milstein Center; and Kate Kerrigan, Administrative Director of the Paul Milstein Center.

Photo: The Shanghai skyline (Ira Panova ’13 ).

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