China: Finishing touches

1 country, 2 special administrative regions, 9 passport stamps, 12 company visits, not to mention planes, trains, automobiles, and boats!  There’s no denying the Chazen China trip was moving and shaking for a full week.  Now that I’ve had some time to digest it all and recite the details of the trip to friends and family (not to mention fully adjust back to Eastern Standard Time), I find myself repeating certain details and questions that I found to be major takeaways of the trip.

–          Beijing Matters: The central government’s role in Chinese economics is obvious and profound.  The policymakers in Beijing take on a lot more responsibility then most others.  For example, the Chinese government owns all of the land in China (yes, all of it); you can only develop or own property in leased fee status, which means that you are essentially leasing the ground from the government for a certain period of time.  When that lease expires, the government can technically just take the building back, no questions asked.  This hasn’t happened yet because no ground leases have come to their expiration date yet, but it’s the 800-pound gorilla in the room anytime anyone is interested in developing property in mainland China.  This is just one example of the government’s reach and influence, but shows how dealing with policymakers can be somewhat sticky.

–          Population Situation: China’s 1.3 billion people is obviously a big figure, and is still growing (albeit at a slower pace due to the one-child policy).  Most people predict the high pace of urbanization to continue in China at a rate of approximately 80 million people per year (equivalent to the population of Germany).  There are already over 150 cities in China with over 1 million people. Where will most of these people work in order to support that type of population movement?  According to the visits we had, about half of them will have college degrees.  What will be the makeup of both the cities’ demographics and the real estate property mix? Longer term, what will the impact of the one-child policy be?  What will it mean for China’s workforce in the future?  This will have a big impact 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 get away from in either Shanghai or Hong Kong was the air pollution.  It’s unfortunate, since both cities have tremendous skylines to showcase.  We recently debated in my Global Economic Environment class whether China could continue to grow without major pollution effects. The answer was contested, but after having been there its obvious there’s a long way to go in the major metropolitan areas, despite the fact that the manufacturing operations are on their way out to the tier 2 and 3 cities.

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Hong Kong skyline through the fog

–          Debt’s Not the Issue:  Unlike the US and other major Western economies, China doesn’t have an overleveraging problem in their residential real estate sector (at least for now).  Consumers rarely take mortgages that are higher than 50% of the value of the property (compared to upwards of 80% in the US).  So if China were to undergo a “bubble popping” that so many are predicting, it won’t be because of over-leverage.  It’s more likely that if anything extremely negative did happen in China, it would be a black swan situation that no one saw coming rather than a debt issue.

–          Unique Urban Landscapes: Shanghai and Hong Kong are genuinely beautiful cities, albeit in different ways.  Shanghai has a dazzling office district, and has a number of beautiful urban areas throughout its massive area, despite some zoning inconsistencies.  Hong Kong is obviously a lot smaller, but still has an amazing array of commercial real estate to show off along the reclaimed shoreline.  They are definitely places worth visiting for the real estate, as well as for the unique cultural aspects of daily life.

Overall the trip was a huge success in terms of the quality and variety of the companies we visited, the number of sites we toured, and the breadth of the education we received.  It was certainly worth the 30 hours of flying, the bureaucratic red tape, and massive jet lag.

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Shanghai’s Pudong district skyline

Thanks for following along.  I hope you enjoyed all of the Chazen blog posts throughout our spring break!

Matt Giammanco ‘13

China: A Pictorial

The real estate business is obviously very visual, so I figured the best way to blog about the various sights throughout Shanghai, Hong Kong, and Macau was to show you all.

In Shanghai, we visited the Urban Planning museum, and got to see a scaled model of the entire central area of Shanghai.

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The model was intricately detailed (down to the small model cars in the parking lots), and provided our group a great way to familiarize ourselves with the layout of the city.  If you look in the picture above, you’ll notice that some buildings are glowing, mostly along the highways and by the waterfront.  Those glowing buildings are the planned building stock that will be completed by 2020; they aren’t even built yet!  Obviously, it shows how serious China is about maintaining Shanghai as a financial center, as well as providing housing to a growing urban population.

We also visited the tallest building in Shanghai, the Shanghai World Financial Center, or as it’s known, the “Bottle Opener”.  You can see why in the picture below:

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This was the view from the observation deck at the Shanghai World Financial Center.  We were 474 meters (1,555 feet) above ground!

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Next we visited another tall building, this time in Hong Kong.  This building is called the ICC Tower. This building is 484 meters high (1,588 feet), and provides a great view of the Hong Kong skyline (if it’s not foggy…which unfortunately it was for us on that day, so no great pictures) because its in the Kowloon area of HK, across the river from HK Island.  Below is a picture of the actual building from the Hong Kong Island side:

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That fog your seeing was fairly persistent throughout our few days in HK.  It’s actually mostly pollution, which was quite shocking.  Not only did it detract from the beauty of the skyline pictures, but it also served as a constant reminder of how serious the pollution problem in China is.

We also got to see some vacant office space in the ICC Tower during our visit to Morgan Stanley.  It helped to give us a sense of the true layout of the building.

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On our day trip to Macau, we were fortunate enough to get a guided tour of the Venetian Hotel & Casino, which includes the largest gambling floor space in the world (55,000 square meters, or almost 600,000 square feet!).  We also got a private tour of one of the ultra-premium suites.  These suites aren’t for purchase, but are generously provided to the highest-spending clientele.  The rooms were massive, and included a private pool and garden, 4 bedrooms, 2 full bathrooms, a workout room, a full kitchen, a private massage room, and two haircutting rooms with barber chairs and sinks.  Excessive?  Possibly.  But I know if I were spending hundreds of thousands in one facility I would want my own private haircut as well.

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I’m on my way home now unfortunately, but I’ll be sure to leave one final post with a summary of what we learned, what we saw, and what it all means.  Thanks again everyone!

Matt Giammanco ‘13

China: A Tale of Two Cities

Just because you haven’t heard from us here in China doesn’t mean we haven’t been busy.  In fact, we’ve met with over 10 real estate related companies in both Shanghai and Hong Kong over the past 4 days.  It’s just that communication is slightly limited on mainland China (and it’s tough to find the time to blog with so many visits!).  Now that we are in Hong Kong though, we are free to blog once again (and check Facebook, which is all we were really looking to do).

At this point we’ve heard from developers (Shui On Land, Hong Kong Land), investors (Blackstone, CBRE Investors), banks (Standard Chartered, Citi), and a few others. We’ve heard from both bulls and bears, and now have a sense of just how vast (and complex) China is.  There is no doubting its global impact, but there are some questions about how exactly the future looks for China.  From a real estate perspective, Shanghai has a ways to go in terms of redeveloping the city from both a commercial and residential perspective, while Hong Kong has done that already but is still growing vertically.

The difference between the two cities is certainly measurable.  Shanghai’s main office district (and a good portion of the city itself) has only developed in the past 20 years, meanwhile Hong Kong has been on the global scene for a lot longer.  Shanghai wants to be where Hong Kong is, but appears to be about 15 years behind in terms of the “soft infrastructure” (legal precedents, government administrative systems, etc.) per Nicholas Brook, a Hong Kong developer who has lived and breathed Hong Kong for the past 35 years.

We’ve also had the unique opportunity to visit a number of sites, including a downtown shopping mall in Shanghai, a high end mixed-use redevelopment project, a high tech science park, and the tallest buildings in both Shanghai and Hong Kong (despite the newfound freedom of speech, we’re still having technical difficulties uploading the amazing pictures I’ve taken and the views we’ve seen.  I’ll obviously work on that, and hopefully will have a great summary for you all tomorrow). The week has both felt very long and also like a blur at times.  Nonetheless, it’s been an amazing educational experience and has opened our group’s eyes to what it means to develop, own, and manage real estate outside of the states.

Today we are off to Macau for a tour of the Venetian, which should bring some incredible pictures as well.  Fun fact: Macau has the highest gambling revenues of any city in the world, 3 times higher than Vegas!  Hopefully that might bring some luck our team’s way…but don’t hold your breath.  Thanks for reading!