The Experiential Real Estate of Shanghai

Strike up a conversation with any real estate professional and soon enough the “death of retail” topic will come up. Slightly exaggerated, perhaps, but retailers and the real estate they occupy are facing significant challenges as e-commerce continues to evolve. One message that we received again and again from the real estate experts that we met in China was that bricks and mortar retailers have already gone through many of the growing pains associated with e-commerce and learned the importance of “experiential retail” years before it became a buzzword in the US.

One of our first meetings in Shanghai was with Value Retail at their newly opened Shanghai Village. Located near the Shanghai Disney Resort, the luxury outlet mall is well positioned to attract nearby tourists. Meeting with Caleb Perrin, a Columbia MSRED graduate, and Lillian Cheng, it was clear that value proposition of Shanghai Village was hospitality and experience, rather than just providing a retail offering.

Our hosts began our tour with a discussion in the VIP hospitality room where shopping guest can relax, enjoy refreshments and have a concierge assist them with anything. Shoppers could also register so their purchases will be sent to concierge to be picked up at the end of the day or shipped directly to their home, staving off fatigue from hauling around heavy shopping bags. Boutiques were spacious and uncluttered, reminding us more of 5th Avenue retailers rather than a typical US outlet mall. The one design challenge that our group noticed was the open-air concept. While common in US and European outlet shopping centers, poor weather and air quality keeps customers away. We visited Shanghai Village on a rainy weekday and noticed very few shoppers around.

We built on our experiential retail tour with a tour of Swire’s HKRI Taikoo Hui, a mixed-use development in Shanghai’s vibrant Jing’an District with two office buildings, a retail mall, and three hotels / serviced apartments. The luxury boutiques are well-suited to the high-end neighborhood and contains the world’s largest Starbucks (29,000 square feet). The Starbucks Reserve Roastery is a highly experiential concept. The spaces doubles as a coffee factory and guests can learn about the roasting and brewing process while tasting coffees from all over the world. While coffee shops are not as vulnerable as fashion retailers to e-commerce, the Starbucks Reserve serves as a major draw to both locals and tourists for the shopping center.

Robin Lore ’19

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The group touring Shanghai Village

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The group touring Shanghai Village

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World’s largest Starbucks in Taikoo Hui

Hong Kong Real Estate Development, Transit-Oriented by Nature

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Above: Real Estate students meeting with MTR outside of the International Commerce Centre at Kowloon Station, Hong Kong

Coming from New York City, we know what it is like to live in a highly populated and dense city. Fitting its 7.4 million residents into just over 1,100 square kilometers is remarkable and this stat becomes mind-boggling when you realize that three-quarters of Hong Kong’s land is green. Of course this results in extremely high rents and prices (even by New York standards) and it also results in innovative developments to cope with the severe lack of developable land.

One of the most innovative development models that we have encountered on our real estate focused trek has been the Rail + Property model implemented by the MTR (Hong Kong’s mass transit railway). With the expressed purpose of capturing the value creation that a new railway line will have on the surrounding land, the publicly-traded MTR is able to operate at a profit. When the MTR develops a new line, they obtain land development rights from the Hong Kong government. They then work with a development partner to build on top of the station site and share in a portion of the development profits, usually by receiving a % of profits, a fixed lump sum, or a portion of the properties built on the station. In fact, the vast majority of profits earned by the MTR is from the management of assets developed as part of the Rail + Property model. While many cities have been focused on transit-oriented development over the past few years, Hong Kong and the MTR have been building on and around transportation centers for decades. Approximately half of all subway stations have a development on top. As we learned from MTR (and experienced as we moved around the city on our own) the MTR is exceptionally well-run and clean with over 99.9% of trains running on time.

Following our discussion with Kelson Chan, Strategy and Planning Manager, and Steve Yiu, Principal Advisor, Property Planning, we toured a prime example of the Rail + Property model at Kowloon Station, one of Hong Kong’s most busy subway stations. The station is complete with underground retail and is the site of the International Commerce Centre, Hong Kong’s tallest tower.

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Above: Kowloon Station, Hong Kong

The MTR is a relatively new public transportation system and was established in the 1970s. Building an extensive subway system like Hong Kong’s is a daunting task especially when you consider the financial challenges that many public transportation systems face (MTA riders – sound familiar?) The Rail + Property model efficiently allows for the capture of value increase resulting form investments made in infrastructure. Hong Kong’s highly dense population and low car-ownership makes this city the perfect location for this type of model. It will be interesting to see how this model can be adapted in other cities.

CBS Chazen South Africa 4.0

The last two days in Capetown were filled with memorable moments, great people, and we all wish they lasted a bit longer. We toured the V&A Waterfront with members from the Green Building Council, discussed sustainability with Allan Gray Investment Management, visited a local development firm, hiked a 3,600-ft peak, enjoyed wine tastings in Constantia & Steenberg and took plenty of advantage of the coastal night life.

Firstly, our group received a presentation of the V&A waterfront from Colin Devenish, Executive Manager of Operations and a member of the Green Building Council. The Victoria & Alfred (V&A) waterfront is a mixed-use complex located on the Atlantic Shore, in Table Bay Harbor. Designed in the late 19th century, the complex is situated in South Africa’s oldest working harbor and comprises over 300 acres developed for both residential and commercial use. In light of the size and high utilization rate (over 23 million of annual visitors), we were pleased to learn the steps that management has been taking to reduce its footprint since 2008. To-date, the waterfront has invested R45 Million into energy efficiency, water savings and waste recycling across the 300-acre property, as well as introduced a number of other greening initiatives across the area. Efforts such as these have allowed the waterfront to nearly halve its waste going to landfills, significantly reduce electricity and water consumption and increased recycling and lower carbon emissions due to increased use of bicycles and public transportation.

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On the note of sustainability, our group had the pleasure of touring the headquarters of Allan Gray with Michael Smith, Department Head of Infrastructure and Security at the company. Headquartered in Silo One at the V&A Waterfront, Allan Gray’s office was built in 2014 and achieved the first ever six-star green rating in South Africa. We were delighted to hear that the modern building incorporates features such as high-performance, fully-glazed, double skin glass façade to optimize the use of natural lighting and advanced cooling system that rely on cold Atlantic seawater. Furthermore, the heat from the IT server room provides floor heating in the reception area while waste water from hand wash basins and showers is collected, treated within the grey water system, and reused for flushing water. A beautiful anchor to the waterfront, this visionary project has stunning views of Cape Town and of the surrounding harbor.

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Having witnessed the remarkable success of the Allan Gray headquarters development at V&A, our team headed to Devmark Property Group, a development firm in the Western Cape specializing in mixed-use projects across all asset classes. The firm owns all aspects of the development process from land acquisition to entitlement, development, construction and marketing. The firm’s pipeline encompasses investments such as a 1,000-unit integrated housing project, 111 luxury home and 54 assisted living facilities as well as a full-scale R3bn retail development in the Western Cape. Playing off its 30-year old local advantage, Devmark analyzes opportunities in the region with an eye toward demographic trends in urbanization and capital migration.

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Last, but not least, we had a lot of fun in Cape Town. Hiking up Table Mountain at 7 AM after a night of successive pub crawls gave each of us the opportunity to test our limits physically while enjoying the pristine views of the Cape Town skyline. Fittingly, our trip concluded driving along the coast right before the dawn. We stopped the bus to watch the sunset, gathered around, reminisced the memorable times we had had over the past few days and celebrated being in the moment with yet another standing ovation to Africa, a land of stunning natural beauty and fascination for all things (not just Real Estate). Good bye, South Africa and see you soon!DJI_0010.jpg

CBS Chazen South Africa 3.0 (Good Bye Jo’Burg, Hello Cape Town)

Our last day in Johannesburg represented an opportunity to hear a practitioner’s perspective on capital flows and the strength of the South African mortgage market as well as get in on a very interesting student housing project in the center of Johannesburg. Our team heard from Manie Annandale, Nedbank head of Affordable Housing Finance who was gracious with his time and provided a brief review of the banking regulatory environment, current players in the marketplace and opportunities for growth. After the Nedbank tour, we headed to the Braamfontein area of Johannesburg where IHS owns and manages Studentdigz, a 948-unit portfolio of student housing projects with access to University of Johannesburg and Witts University.

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When the Studentdigz tour concluded, our bus headed to the airport where we hopped on a 3 hour-long flight to Cape Town and the excitement of getting to discover another city in this wonderful country. The same night, we dined at Sevruga on the V&A waterfront, one of the premier coastal destinations in the world that we toured the following day (& discussed at length in our next article). It had only been a few days in South Africa for all of us, but we were each feeling very much invested in trying to find solutions to the problems of housing affordability we noted.

CBS Chazen South Africa 2.0

Our 2nd day in Johannesburg started with a visit to the Apartheid Museum, which provided all of us with a way to better understand and experience what apartheid South Africa was really like. Through the help of the museum’s various individual exhibits, we were drawn into an emotional journey of the now defunct state-sanctioned racial segregation system and the struggle of the majority to overthrow this injustice. Carefully assembled in chronological order, the exhibits showed a clear depiction of the rise and fall of apartheid, from the race classification journeys, the turn to violence, through the rise of black consciousness which culminated in the National Peace Accord and the historic 1994 elections which represented one of the few times a colonizing force had relinquished control without large scale external intervention or civil war.

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Touring the museum was such an emotional journey through horrors, injustice, sacrifice, liberation and healing that we could not help but note the harsh beauty of this country and how remarkable its progress has been in spite of staggering odds. We left the museum and headed to Sakhumzi restaurant for an authentic culinary experience in the heart of Soweto and within walking distance to the Nelson Mandela house museum.

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In the afternoon, we toured Jabulani, a 1,000-unit multifamily housing project owned and managed by International Housing Solutions (IHS), a South-Africa based vertically-integrated Real Estate investment management firm. Located in Soweto, the Jabulani project caters to the housing needs of middle-income individuals looking to live in close proximity to major transportation and employment centers. Accompanied by the IHS staff, we concluded the Jabulani tour and headed to Fleurhof, a 10,000-apartment commercial and residential development community west of Johannesburg in the Roodeport province.  Constructed in multiple phases, Fleurhof is expected to house over 40,000 residents when completed. The sheer size of this project is astounding and the completed phases are near 100% occupied, proving the exceptional growth of the emerging middle class in South Africa. Further, this project will include improved community infrastructure, easy access to schools, hospitals, shops and work opportunities, improving the livelihood of its residents.

We left Fleurhof inspired by IHS’ efforts to address the lack of housing affordability in the emerging South African middle class. Having been in the country for a little over 3 days, we realized that we were merely scratching the surface examining the size of the opportunity set. We concluded the evening with a walk at Melrose Arch, a modern mixed-use development in Central Johannessburg where our group dined at Moyo, a local favorite (if you are in town and up for a culinary adventure, you must try the mabosa caterpillar).

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It’s time for South Africa

Africa is where it all began and in Real Estate, the best way to know is it to become one with it, to explore the vastness of the continent and witness its story. Our school prides itself on being at the very center of business and upholding the highest standards of intellectual pursuit and cultural enrichment. When it came time to act upon this mission, we decided to look no further than South Africa, a bustling democracy 24 years in the making where changes in land use patterns, demographics and workforce automation are beginning to drive significant growth in the real estate market.

On March 13th, 36 students aimed to get to the bottom of all things Real Estate while embarking upon this journey. We started our trek in Johannesburg with a visit to Growthpoint Properties, an international Real Estate fund investing in industrial, retail and office assets in South Africa, where the firm’s management introduced us to broad investment strategies undertaken in the current market environment.

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Shortly afterwards, we visited Lillieslief Farm, the place secretly used by African National Congress (ANC) activists in the 1960s and where many prominent ANC leaders were arrested (Mandela was later arrested here, beginning his 27-year long imprisonment). It was there we received an overview on the current state of affairs in South Africa from JP Landsman, a political and economic analyst research macro trends affecting SA society and also heard from a treasury representative on the country’s fiscal situation. The presentations concluded with a presentation from Kecia Rust, director at the Centre for Affordable Housing Finance, a government think-tank examining housing affordability in South Africa. In the evening, our group had the pleasure of meeting with members of the South African Property Owners Association (SAPOA) where we heard from local Real Estate investors. Off to Day 2 and more adventures along the way.

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The Other Middle Eastern Oil Export: Discovering Tunisian Olive Oil

Moulins Mahjoub 1.jpgEarly in the fall, my study group for Global Immersion: Doing Business in North Africa made the somewhat serendipitous decision to study the Tunisian olive oil industry for our term project. We made this choice with little information — other than that olive oil is Tunisia’s largest export and that the industry is the country’s largest employer — but I couldn’t be happier that we got to spend the trip taking a deeper look at olive oil.

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On Wednesday, we spent the day at Les Moulins Mahjoub, a 70-year-old, family-owned olive oil producer about an hour outside of Tunis. Despite being a relatively small producer of 200,000 liters per year with no intention of increasing its outputs, there’s a good chance you’ve tried Les Moulins Mahjoub’s products, available in the U.S. at Whole Foods and as the house brand at Le Pain Quotidien. Now in its third generation, the business is co-owned by three brothers and seven sisters. One of the brothers, Abdel-Majid Mahjoub, who serves as the general manager, gave us a tour of the production press, explaining to us the cold press process, which still very closely resembles the ancient process.

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Les Moulins Mahjoub has no intention of increasing its production because it is happy with its position as an upscale, boutique producer.  It has no intention of competing with Bertolli, or of providing unbranded liters to European producers who will blend it with Spanish or Italian oil. Roughly 90 percent of Les Moulins Mahjoub’s oil is sold under its own brand, although the remaining 10 percent is sold under the brand (or in the case of Le Pain Quotidien, co-brand) of select partners. The company also sells Tunisia condiments, including its top product by volume, Harissa, which has recently exploded in global popularity.

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The highlight of the visit, which served as a microcosm for the industry overall, was eating lunch prepared by the family in their tasting room. We enjoyed olives and spreads, as well as numerous Tunisian dishes ranging from the familiar, shakshuka and cous cous, to the unfamiliar, breadcrumbs mixed with preserved lemons, garlic, harissa, and chickpeas prepared in broth. The third-story tasting room provided aerial views of the olive groves and farmland, which stretched into mountains in the horizon, a surprisingly beautiful setting reminiscent of Californian wine country.

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Despite its premium product, Tunisian olive oil faces two challenges in its luxury positioning: first, there’s a lot of olive oil labeled as extra virgin that isn’t in fact extra virgin; second, Tunisian olive oil lacks the brand recognition of olive oil from countries like Italy and Spain. Tunisia was featured at New York’s Fancy Food Show this year, suggesting the beginning of its improved global recognition, but there’s still a ways to go. After sampling numerous brands of Tunisian oil and spending a day at Les Moulins Mahjoub, Tunisian olive oil gained another 30 brand ambassadors in our class.

-Zoe Fox ’17

Global Immersion: Doing Business in North Africa