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The Bay Area Office Market and The Tech Slowdown
Kenneth T. Rosen, Amanda L. Howard

The San Francisco and Silicon Valley real estate markets have experienced unparalleled growth in rents and values during the last five years as venture funding has escalated and Internet and high-tech firms have multiplied. A survey indicates that a substantial portion of recent demand has come from high-risk on-line and medium-risk high-tech companies; in excess of 50 percent of leases signed have involved web firms. Traditional off-line businesses are slowing their growth in the region, even planning to relocate because of high costs and difficulties in attracting and retaining employees. An infusion of billions of dollars of both venture and IPO capital, juxtaposed against nearly no new construction had created a rush-for-real-estate environment. Growth in rents will slow and potentially reverse direction as the tolerance for risk and lack of profits diminishes and new supply satiates demand. These conditions are not sustainable, and it appears that there will be a steady correction in which rents decline 15-20 percent and vacancy rates rise 6-7 percent in Silicon Valley and 7-8 percent in San Francisco by 2005.

Financing New Urbanism
Joseph Gyourko, Witold Rybczynski

Over the last two decades, only a few New Urbanism projects have been built. These include Laguna West in California, Kentlands in Maryland, and Celebration in Florida. The question that arises is whether current lending and investment practices constrain NU developments. Leading developers, equity investors and lenders agree that NU projects are more costly and complex (therefore riskier) than conventional planned communities. Unless a project can generate sufficiently high cash flows in the early years it will not be perceived as financially viable. Neither Fannie Mae nor Freddie Mac currently plays a significant role in financing or securitization of mortgage debt on NU projects. NU developers could ease their financial burden by creating relationships with long-term equity players, such as pension funds and endowments. Documenting NU development over a full real estate cycle should help lower the level of perceived risk.

Joint Ventures With Public Operators
Robert J. Plumb, Joseph F. Azrack

The REIT market experienced a dramatic turnaround this year but despite this, REITs are wary of secondary equity issuance. Institutional private capital is becoming more important in real estate as public operating companies increase in size. One positive development has been that joint ventures have continued to offer longer-term capital relationships with institutional investors. The joint venture partners have allowed the REITs to pursue acquisition and development opportunities while attending to the needs of the shareholders portfolios. Joint ventures between REITs and institutional investors, if structured correctly, can critically benefit the sector and it's many categories of investors.

Executive Summary: Clicks and Bricks
John Bucksbaum

Real estate firms need to embrace the new electronic future and it is at the regional mall that traditional retailers and the Internet marketplace converge. Technological changes adopted by the shopping mall should aim to increase traffic and sales for retailers and give customers greater choice and convenience. Technology increases understanding of the consumer's purchasing profile. Retailers need to establish on-line operations that will combine brand recognition, inventory management, and distribution channels. Broadband services represent the single biggest opportunity for greater productivity and efficiency. These services offer high-speed Internet access, credit card and check approval, marketing chips and inventory information. The modern mall network can boost efficiency as a primary distribution center for e-commerce retailers and will bring e-commerce to individual stores.

International Real Estate Investing
Peter Linneman
Tenant base and capital markets are globalizing and up to 60 percent of investment -quality real estate lies outside the U.S. In spite of this, most efforts to create global quality investment portfolios have fallen short. In major foreign markets, outsiders must possess either significant value-added operating ability, or access to "hidden" deals in order to realize above-average returns. Japan remains insular and changes are too slow to attract foreign real estate investment. Many countries in Latin America, Asia and Africa pose high political and economic risk and lack markets with meaningful exit opportunities. Protectionism and local regulations may create a barrier to potential growth in Europe. Most global real estate investors must initially choose local partners and then build their own infrastructure as they generate business. Despite these obstacles, capital markets create a demand for global real estate operators who best service customers and yield the highest returns.

Corporate Real Estate Management
Peter J. M. M. Krumm, Peter Linneman
Space is one of the largest expenses within an organization; land and buildings are a considerable item on corporate balance sheets. European corporations have been slow to realize that real estate assets contribute to their financial performance. European managers of corporate real estate should be aware of the impact of corporate real estate on shareholder value. The fact is that corporate real estate in Europe is greater than the total European real estate investment portfolio. Further, the average return on a real estate investment portfolio is notably lower than the return of corporations at large. A great deal of capital is locked-up in corporate real estate assets. But because it is not part of the core business, corporate real estate contributions are mostly considered to be of little interest. Most real estate managers, investors and consultants still focus on financial and operational issues unless a corporation is in financial distress. Linking real estate and corporate finance, on an on-going basis, is essential in determining the overall performance and success of managing corporate real estate.

Their Cities, and Ours
Witold Rybczynski
The global city is a misnomer. Cities are shaped by local forces and national policies. For example, American cities, unlike their European counterparts, have experienced rapid growth as a result of national population growth. U.S. population grew by 74 percent compared with only 15 percent in the U.K and America has experienced internal mobility on a scale unknown in Europe Government transportation policies and technological initiatives have affected urban growth. More than half of American families owned a car by the mid-1920's anticipating European ownership levels by forty years. The high rates of car ownership and plentiful vacant land have favored far-flung suburbs. The resemblances between American cities and cities around the globe are, and will remain, superficial.

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