Maximizing brain power

Brain Rules: 12 Principles for Surviving and Thriving at Work, Home, and School by John Medina (Pear Press, 2008) won’t tell you anything about real estate, pension funds or infrastructure. What it will tell you is how to maximize your brain’s potential, so you can thrive in your area of expertise — say, real estate, pension funds or infrastructure.

John Medina, author of the book, delivers an imaginative, yet informative narrative that serves as a tour guide through the human brain. Each of the 12 chapters, or “brain rules,” explains how the brain functions and how certain environmental factors either enhance or limit the brain’s operating potential, such as sleep, stress, exercise and gender. Each chapter has a brief summary at the end that highlights the key points of each brain rule.

The book is both fun to read and intellectually stimulating. Medina weaves modern psychology and neuroscience into vivid, thought-provoking anecdotes that make you wish you had actually paid attention in your Psychology 101 class. On top of the latest research, Medina offers his own ideas of how to utilize each brain rule (i.e. Rule #3: Every brain is wired differently) in either school or, more appropriately, the workplace. His ideas range from taking a short nap instead of drinking coffee in the middle of the afternoon, to forming the most productive work teams by utilizing (not eliminating) gender biases, to explaining why multitasking is why you’re not getting as much done as you’d like.

You don’t need to have any prior knowledge about psychology or neuroscience to be able to understand and enjoy Brain Rules. Since its 2008 publication, a website has been launched to offer further information about each brain rule, with videos, articles and blogs.

Medina is a developmental molecular biologist and research consultant. He lives in Seattle and holds major positions at both Seattle Pacific University and the Department of Bioengineering at the University of Washington School of Medicine.

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Ross Dohrmann is a summer intern at Institutional Real Estate, Inc.

A farm in the city

7-29 Vertical-Farm-ArtUrban farming’s time may have come. It’s an exciting though nascent movement that promises to ameliorate several pressing land use, climatic and nutritional issues.

There is even talk of skyscraper farming (see illustration).

With so many burned out and abandoned warehouses in American cities (did somebody say Detroit?) in need of renovation, retrofitting and utilization, space for urban farming is plentiful and relatively inexpensive at this stage. By localizing food production and reducing time-to-market, consumers get fresher, more nutritious food. It should also be less expensive because it doesn’t require long-distance shipping at great expense and high fuel prices from the Midwest or California’s central valley.

Drought and other forms of extreme weather caused by climate change and desertification would become non-factors, thanks to the controlled climate of warehouse farms. Temperature, lighting, soil quality and precipitation are all carefully monitored and protected from the elements. Plant life can be showered with light around the clock, much as indoor marijuana growers have long done — to speed along the plants rush to full maturity.

Pesticides — along with the costs they incur and health concerns they pose — could be eliminated by the hermetically sealed environment of urban farms.

This would allow cities to be largely responsible for their own food supplies. Nationally, the United States would have a highly distributed agriculture system resistant to pestilence and natural disasters.

Just as factory farms — as horrific and controversial as they are — created enormous efficiencies in meat production, urban farming could do the same for plant life.

Unfortunately, institutional investors don’t have a pitchfork in this fight, even though they have been exhibiting an increased appetite for agricultural investments. The urban farming business is still far too small to warrant the time, attention and capital from pension funds and other institutional investors.

Maybe some day this will change. The seeds are being planted.

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MikeCfinalwebMike Consol is editor of The Institutional Real Estate Letter – Americas.

Slowly, surely and deliberately

The market for private investment in U.S. infrastructure is both alluring and frustrating. It is the greatest emerging infrastructure market opportunity, and yet for all its promise, it remains a paradox. As the epicenter of global capitalism, many expected private investment in U.S. infrastructure would be a no-brainer.

What global infrastructure investors have learned is that the United States’ political and governing institutions and traditions — state, local and federal governments; transportation authorities; regional oversight bodies; environmental regulations; and so on — are quite different than what they are used to.

Private investment is making its way into the market; it’s just that the hopes of massive capital flows and multibillion-dollar funds snapping up airports, roads and pipelines have yet to materialize.

Instead, that expectation has met an American procurement system that operates differently than others and public sector agencies that were not prepared to absorb the waves of private capital taking aim at its infrastructure assets.

As a result, many toll road and parking lot deals have been put on hold, airport buyouts stalled, and in the water sector — where thousands of small local authorities hold the assets — the fragmented market has so far proved too challenging to invest any substantial amounts of capital.

About the only U.S. market private infrastructure investment has found inviting is the energy sector, where most assets are in private hands and the sector has a history of private investment.

Despite the frustrations, there are signs that the market for private investment is in fact maturing. Several new entities are forging ahead in search of investment vehicles and structures suitable for public sector and private investor objectives.

Chicago has launched the Chicago Infrastructure Trust (CIT), which is fleshing out its first project — Retrofit One, the initial $51 million piece of a larger Retrofit Chicago program that is expected to invest more than $200 million in energy retrofit projects.

Retrofit One is estimated to save the city about $4.8 million annually by retooling public school buildings and other city properties. CIT issued an RFQ in January and received six responses in March. The CIT is still sorting out how to finance the project

In New York, meanwhile, the state has created the New York Works (NY Works) infrastructure fund, a $15 billion publicly and privately financed vehicle meant to invest in bridges, flood control, water systems and energy retrofit projects. Its initial investments — $1.2 billion for roads and bridges — were approved in the first quarter of 2012.

Most recently, the states of California, Oregon and Washington and the Canadian province of British Columbia banded together in November 2012 to form the West Coast Infrastructure Exchange. Similar to CIT and NY Works, the West Coast Infrastructure Exchange (WCX) is aiming to attract public and private financing and investment for infrastructure projects. In April, the exchange hired its executive director, Chris Taylor, co-founder and former head of Portland, Ore.–based Element Power, a wind and solar power company.

“It’s very early days, but we are indeed starting to screen projects and look for opportunities to engage with states and local jurisdictions,” Taylor says. “We’ve been asked to look at [water storage development] by project sponsors and agencies. It’s been a long time since new projects of that nature have been built,” he adds.

WCX also is looking at energy efficiency project out of the gate. “Oregon, Washington and California each have energy retrofit programs at various levels,” Taylor says. “There is probably a broader and more strategic way to bring that type of program to scale across the region that would accelerate those investments and achieve those savings quicker.”

Private investment in U.S. infrastructure may not have progressed as quickly as some anticipated it would, but people haven’t given up and the market is developing.

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thm_AndrewCampbellDrew Campbell is senior editor of Institutional Investing in Infrastructure.

Book it

Ah, summer vacation. The time to get away, relax, work on your tan, enjoy a fruity drink and enjoy the time away from work.

The time to book a flight, pack your suitcase, wait in the dreadful lines at security in the airport, find a seat at your assigned gate (if you can even find one), be cattle corralled into a plane with barely any arm or leg room (and possibly a very enthusiastic and talkative neighbor) … wait, this sounds oddly familiar to some peoples daily work travels, but let’s not get sidetracked … all while dreaming of your destination getaway that awaits you.

So what are you going to do to relax from the rigmarole of life and relax on that flight, whether it be long or short, to that magical destination we call vacation?

Some people read magazines, some listen to music and some people even watch the in-flight movie.

What do I do? I choose to read.

Whether the book takes you to a faraway land or informs and updates you on a subject to your liking, a book can make you forget about your journey and have you arriving at your destination that much quicker.

Now I know you are asking, what should I read? Good thing, because it just so happens you are in luck.

Now I know getting away from work on vacation is a good thing, but you wouldn’t be doing what you like for work if it didn’t somewhat interest you, so here is a list of the top five business and investing books, according to Amazon, that may spur some interest:

  1. Lean In: Women, Work, and the Will to Lead by Sheryl Sandberg
    In Lean In, Sandberg, the CEO of Facebook, examines why women’s progress in achieving leadership roles has stalled, explains the root causes, and offers compelling, commonsense solutions that can empower women to achieve their full potential.
  2. StrengthsFinder 2.0 by Tom Rath
    In the first version of its online assessment, StrengthsFinder, Gallup ignited a global conversation and helped millions to discover their top five talents. In StrengthsFinder 2.0, Gallup unveils the new and improved version of its popular assessment, language of 34 themes and much more.
  3. The 7 Habits of Highly Effective People by Stephen R. Covey
    In this book, which has been a bestseller for some time now, Covey presents a holistic, integrated, principle-centered approach for solving personal and professional problems. With penetrating insights and pointed anecdotes, Covey reveals a step-by-step pathway for living with fairness, integrity, service and human dignity — principles that give us the security to adapt to change and the wisdom and power to take advantage of the opportunities that change creates.
  4. Thinking, Fast and Slow by Daniel Kahneman
    In the book, Kahneman, the renowned psychologist and winner of the Nobel Memorial Prize in Economics, takes us on a groundbreaking tour of the mind and explains the two systems that drive the way we think. He reveals where we can and cannot trust our intuitions and how we can tap into the benefits of slow thinking. He also offers practical and enlightening insights into how choices are made in both our business and our personal lives — and how we can use different techniques to guard against the mental glitches that often get us into trouble.
  5. Daring Greatly: How the Courage to Be Vulnerable Transforms the Way We Live, Love, Parent, and Lead by Brené Brown, Ph.D., LMSW
    In Daring Greatly, Brown challenges everything we think we know about vulnerability. Based on 12 years of research, she argues that vulnerability is not weakness but rather our clearest path to courage, engagement and meaningful connection.

So kick back, relax and enjoy your summer reading!

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DenisefinalwebDenise DeChaine is special projects editor at Institutional Real Estate, Inc.

Developing Asia

Developing Asia is the theme of the upcoming issue of The Institutional Real Estate Letter – Asia Pacific. We’ll be using the word “developing” to cover a number of different article topics for the September issue, including:

  • How the transformation from emerging to developing and developed Asian economies will affect the world’s financial system;
  • More Asian investors developing portfolio strategies to include domestic and global real estate investment;
  • Infrastructure investment and development in Southeast Asia; and
  • Issues China faces in developing and reforming the country’s banking system and property markets.

With respect to the last item, Jack Rodman, a senior advisor of Crosswater Realty Advisors, explores in his market perspective the 10 things China must work to reform to “help prevent another — and far worse — global financial crisis.”

According to Rodman, when the interbank lending rate in China spiked in June, it “sent global markets reeling, signaling Chinese banks did not want to lend to each other.” This event put a spotlight on challenges within China’s banking system and real estate markets, which Rodman argues have been in desperate need of reform for quite some time.

Here’s a sneak peek at a few items from Rodman’s top 10 list of things China must stop doing:

  1. Gross misallocation of capital, especially to real estate and infrastructure projects
    Valuations for many real estate assets are “unsustainable”. A large portion of real estate assets is owned by speculators for investment purposes. Valuations are often not grounded in a discounted cash flow analysis or comparable process and instead rely on unbridled speculation and the assumption of asset appreciation in perpetuity.
  2. Mismatched maturities
    Most real estate lending came in the form of short-term loans used to fund long-term infrastructure and real estate projects. This mismatch of maturities has caused problems around the world. With Chinese local government debt at 25 percent of China’s GDP, and the majority of this debt tied to real estate and infrastructure projects, mismatched maturities may spiral into substantial problems for China’s economy.
  3. Unbridled bank lending and credit exposure to the real estate sector
    Lending and credit exposure increased from 8 percent of lending a decade ago to somewhere between 40 percent and 50 percent of total outstanding bank loans today collateralized by real estate with “questionable,” if any, appraisals.

We hope you’ll enjoy this special Developing Asia edition of the publication.

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Jennifer-Molloy91x119Jennifer Molloy is editor of The Institutional Real Estate Letter – Asia Pacific

Not-so-simple math

7-15 WC FieldsWhen asked what he did with his money, W.C. Fields, a popular comedian and actor during the first half of the 20th century, deadpanned, “I spent half my money on gambling, alcohol and wild women. The other half I wasted.”

Fields obviously could have used some advice from a qualified investment consultant. But at least he didn’t have to worry about alpha, beta, interest rates, asset allocation, portfolio diversification, risk/reward tradeoffs and inflation. And I’m sure he slept a lot better than public pension fund CIOs and state treasurers, who are faced with funding current and future liabilities in a low-interest rate environment while weighing various market and political risks.

Public pension funds, most of which are moderately to significantly underfunded, need to stretch to meet their assumed actuarial rates of return — often in the neighborhood of 7 percent plus — which typically means taking on more investment risk.

North Carolina state treasurer Janet Cowell has seen the writing on the wall. Cowell has urged state lawmakers to give the state pension fund more flexibility to increase its investments in higher yielding (also more risky) alternative assets such as real estate, hedge funds, commodities and asset-backed securities. As Cowell puts it, the new flexibility won’t guarantee the state can meet its return objectives, but “we’d have a fighting chance.”

The measure would allow the pension system to move away from publicly traded stocks and bonds and invest up to 40 percent of the state’s pension monies into alternative investments. Currently the limit is 36 percent. The North Carolina Senate approved the measure in May, but it is now stalled in the House, as some legislators question the wisdom of taking on additional risk.

Of course, Cowell is not alone. The million dollar question for all public pension fund executives is: How do we get there (fully funded) from here (underfunded)? Researchers project low yields for many asset classes in the coming years, including negative or minimal real returns for bonds. The anticipated slow economic growth and low yields present a quandary for investors.

Cowell noted in an interview that the effort to stabilize the pension is a “math problem, not a political problem.”

If only it were that simple.

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LarryFinalwebv2Larry Gray is editorial director of Institutional Real Estate, Inc.

Got any spare change, mister?

These are days of low interest rates (good for borrowers) and low savings rates (bad for savers). Savers are looking for better returns on their spare cash and increasingly they’re moving up the risk curve to find them. Sound familiar?

Here’s a couple of investment possibilities that are in the European market at present, both real estate and both higher up the risk curve, each in their own way.

The Bruntwood Group’s U.K. retail corporate bond will pay fixed interest of 6 percent per year gross, payable twice a year in arrears until 24 July 2020. So it’s a seven-year fixed-rate bond. Corporate bond launches have been a feature of the recent investment landscape in the United Kingdom, as companies unable or unwilling to raise funds from non-lending banks seek to raise them from other sources and help to satisfy retail investor demand for better returns, albeit with higher risk. Other U.K. property companies that have recently tapped the retail corporate bond market include student accommodation provider UNITE Group Plc and Helical Bar Plc. Bond launches have frequently closed early, indicative of healthy investor demand.

Interestingly, Bruntwood — a family-owned business with a diversified portfolio of 110 office buildings across Birmingham, Leeds, Liverpool and Manchester valued at £891 million ($1.3 billion) and leased to more than 2,100 occupiers — is addressing the issue of higher risk by putting its property assets up as security for the bond. Although its LTV is 63 percent, the company has never breached a banking covenant — and it can produce tenant retention statistics of twice the national average. The firm is confident of its approach. True, it’s not prime, core London, but there is life outside the British capital, as those of us who live in the provinces can attest.

And Savills recently put out a note on the sale of The Telegraph Field in County Kerry in Ireland, the historic site of the first successful transatlantic telegraph cable — as you can see from the picture, this is an original green field sight complete with girl’s-best-friend big rocks and yours for a guide price of €160,000 ($205,000). The Savills note states that “the 0.41 hectare coastal site is located on Valentia Island, with beautiful views of Foilhommerum Bay and the Skellig rocks, a UNESCO World Heritage Site. It includes the ruin of the 150-year-old Anglo American Cable House, making it an ideal site for a cultural centre with global significance.” It’s a development project, then.

The Telegraph Field

According to Peter O’Meara, investment director of Savills Ireland: “The Telegraph Field is the birthplace of global communications, one of history’s game-changing moments and equivalent to the invention of the Internet. The site would be ideal as a tourist destination and the island is a one-hour drive from Kerry airport, linked to the mainland by both bridge and ferry.”

Isambard Kingdom Brunel’s Great Eastern steamship carried the first successful transatlantic cable to its terminus in Heart’s Content, Newfoundland, 2,300 nautical miles (4,260 kilometers) away. The old and new worlds synched in communication in July 1866, says Savills, and New York City’s Broadway was lit up by fireworks in celebration. The occasion is commemorated on the dome of the rotunda in Capitol Hill, Washington, D.C., among five other momentous historical events.

So that’s two ways of getting real estate exposure. Neither is a recommendation; as we all know, the value of assets can go up as well as down. In winter, on Ireland’s Atlantic-facing west coast, asset depreciation and exposure of another kind are distinct possibilities. But I know what I’d do if I had €160,000 or so of risk money. Anyone for a JV or a club deal? It’s a bit radical, I know, but we could launch a fund. Oh well, it was a nice idea.

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RichardFlemingRichard Fleming is editor of The Institutional Real Estate Letter – Europe.

Thou shalt not steal

We talk a lot about fiduciary responsibility, and sometimes that means paying attention to the basics: Don’t steal money from your clients.

It seems Detroit just can’t catch a break.

Detroit was once a world-class city, and maybe it can become so again. But industry has moved away, and so have many people — shrinking its tax base. The city has debts of $17 billion and may have to file for bankruptcy.

Former Mayor Kwame Kilpatrick has been convicted of charges including racketeering and bribery. The city is now being run by an emergency manager. One-third of city council seats are empty. And investigations into corrupt city government practices have turned up a problem for the Detroit Police and Fire Retirement System.

According to the SEC, Chauncey Mayfield, CEO of MayfieldGentry, allegedly stole $3.1 million from the Detroit pension fund. That money was used to purchase shopping centers in California — which then could not be sold in order to pay the money back without anyone noticing.

A rising market can cover a lot of sins, but, as Warren Buffett noted, when the tide rolls out, you see who is swimming naked.

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LorettawebfinalLoretta Clodfelter is a contributor to Institutional Real Estate, Inc.

Central government versus free markets

In today’s blog post, I wanted to follow up on my earlier musing regarding the residential market situation in China. As you probably remember, I wrote about the administrative measures that the Chinese central government used to cool unrelenting price increases in these markets.

According to data from multiple sources, the government is losing and the free markets are winning. Prices keep on climbing, albeit at a slow pace, despite all the restrictions that the government threw at the markets. The free markets are clearly a winner in Round One.

Another bout of the battle between the government and the markets took place recently. The People’s Bank of China withdrew its periodic infusion of liquidity, which caused the system to almost shut down with the overnight interbank lending rate shooting up to around 25 percent.

Chinese banks use the overnight interbank rate to dress up the performance of their so-called Wealth Management Products, among many uses, that are often tied to loans extended to shaky deals. These products promise massive returns, much higher than people can get from their bank deposits, provided everything goes well. Too much of a good thing can be bad for you, and the government decided that it was too much of a good thing. So the People’s Bank of China engineered a short squeeze, which turned out to be successful, at least in the short term, as the issuance of Wealth Management Products has come down and the system survived, albeit with a huge jolt. But individual investors in China have few alternatives to low-paying deposit rates, so the demand for higher-yielding products has not disappeared.

It’s early days, and we have not seen all the consequences yet. It will be interesting to see how the government will proceed after causing this huge spike in the overnight interbank lending rate, which was not good for anyone but the government itself. So stay tuned, and I will update you again in my blog as soon as we see more interesting developments.

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AlexFinalv3webAlex Eidlin is managing director – Asia Pacific with Institutional Real Estate, Inc.