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Private Equity With A Vision: Redefining The Model

I.M. Pei, perhaps the world’s most revered architect, passed away recently. We tilt our hats to his achievements. Amongst the most recognizable ones are the design of the Bank of China Tower in Hong Kong, the Rock And Roll Hall of Fame in Cleveland and the Louvre’s Pyramid in Paris. Early in his career, I.M. Pei paired with real estate developer William Zeckendorf. Partially thanks to their association, each became arguably the most prominent figure in his respective field. Along the same lines, builder Gerald Hines lastingly paired with postmodernist architect Philip Johnson to build a world-changing portfolio of properties. These include the Galleria in Houston, Texas, one of the largest and most innovative malls in the world.

Each icon’s recipe for success included visually pleasing, bold architecture, which transforms cities and, in turn, fosters real estate returns.

Indeed, sound urbanism and sensible investments go hand-in-hand more than meets the eye, literally.

Even if we are not ground-up developers but private equity actors, we believe that quality bricks make quality transactions. Since 2009, my firm has focused on investing in historically neglected and now-emerging areas of New York City, where the neighborhood’s architecture was laying a clear path for its full rebirth. In other words, diamonds in the rough.

Take Bushwick in Brooklyn, for instance. In the late 1800s, it was the brewery capital of the United States, settled by German and Deutsch immigrants who built grandiose mansions along main corridor Bushwick Avenue. However, Bushwick fell into blight and oblivion by the 1970s, to the point that it became infamous for its 1977 riots, widespread damages and arsons.

Nevertheless, Bushwick kept its “bones.” Its turn-of-the-century bricks along with its proximity to Manhattan first attracted a large influx of artists in the early 2000s, before create-class millennials moved in. Today, Bushwick is on pace to become an economic magnet again, so much that Netflix announced in April the opening of a 160,000 square-foot production hub there. The designs of the past were not only saved, but reactivated: Given their unique zoning, former breweries have been highly sought after in order to be reopened as beer gardens and entertainment centers.

In addition, time and again, targeting appealing architecture has been a stepping stone for widely successful investors to understand the dynamics of urbanism — the formation, development and oftentimes revival of neighborhoods and cities. Bushwick is just today what Soho was in the 1980s, what Tribeca was in the 1990s and what Williamsburg was in the 2000s.

A neighborhood is indeed its own microeconomic area in which long-term real estate capital solely lays the foundations. Ultimately, real estate investing is impact investing.

Typically, real estate investors’ contributions begin with the upgrading of derelict housing units, what provides local construction jobs and roofs for professionals directly contributing to the economic growth of cities. Soon after living conditions in an area have improved, new retailers seek to move in. Given their ownership, landlords directly chose what a neighborhood’s offering will be made up of.

This responsibility needs boldness, long-term thinking and the ability to form a vision. Given their transformative power, real estate investors have a social role and a social responsibility. They are leaders who contribute judgement, expertise and good taste to what a city subset will develop into, and be, for years to come. This is why so many investors and developers with an urbanist eye have opted out of the private equity fund model, through which properties are mandated to be divested after several years.

As of 2019, we have entered the era of fluidity: All happens faster and is more virtual, safer and international. We look for housing via apps and video call with a broker from an apartment. We will soon ride to work in self-driving cars and record real estate deeds on the blockchain. International travel has almost become a right. Co-living companies are offering hostel-like services and are making the concept of a one-year lease irrelevant.

Real estate owners have a responsibility to bring cutting-edge technology and modernity to their properties — swim or sink. In this day and age, such contribution is on par with bringing the right retailer mix to a development, especially as retail moves online. In other words, it is part of urbanism.

As cities around North America and worldwide are reborn, urban renewal and the newly found fluidity of our world are pushing investors to redefine the real estate private equity model — all for the better and for the lasting sustainability of 21st-century cities.

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