Commercial Real Estate Blog

A federal judge today gave the ok for an IRS investigation to move forward against UBS, a swiss bank. The summons is fairly unprecedented as Swiss banks pride themselves on privacy. In a tax-evasion investigation, IRS is seeking information about US citizens who have not disclosed swiss bank records to the IRS.

UBS is currently battling mounting losses stemming from the subprime financial shenanigans, and the IRS may be seeking to take advantage of UBS’s wobbly condition to bring them to their knees on this issue.What is happening at UBS, if it proceeds, likely would pave the way for further action against Swiss Banks. It should be noted that it is not clear whether UBS will in fact release any information. If they do, the trust in Swiss Banking will fall dramatically, possibly spurring a flight of capital.

This brings me to Singapore. Singapore is growing quickly as a rival to Switzerland as a banking haven. By cutting personal income taxes to 20% and tightening account privacy, Singapore is quickly becoming a go-to haven for Asia’s growing number of millionaires.

Other features of Singapore banking are that any authority seeking information from a Singapore bank must prove that the customer violated tax laws; a tough thing to do if they’re looking for information in the first place. Trust accounts in Singapore are much more flexible than those in Europe as well; and as a result; the amount of assets in trust accounts in Singapore is now over $100B.

Singapore has also revised its laws allowing foreigners with enough assets to acquire property. Given what is happening with UBS and the wealth creation in Singapore; it is an office space market and economy to keep a very close eye on.

A conspiracy is nothing but a secret agreement of a number of men for the pursuance of policies which they dare not admit in public.” - Mark Twain

Normally I don’t get to engrossed in conspiracy theories and the such, but what is happening with oil and the financials and the dollar is becoming so gross that it is difficult to ignore. We talk about here the impact, whether directly or indirectly, all these forces have on the commercial real estate market and the general situation we find ourselves in today, but I felt compelled to write a post about what I believe is happening with the economy, financials, and the bailout underway at the hands of the populace.

First, a graph showing the Dow Jones Financial Services Index vs an ETF tracking the price of crude oil since the credit freeze began in earnest last summer (click for full-size).

I am of the camp that is fascinated by Wall Street. The ability with which Wall Street has managed to screw up, only to find a creative solution to the problem has been one which amazes me. They’ve managed to do this time and time again. This time, it goes without saying, they’ve managed to dig a giant hole. One where losses are into the hundreds of billions, with some estimates pegging total losses to be at over a TRILLION dollars when this is all said and done. That’s a lot of cheddar.

It seems Wall Street has again found a cure. Over the past few years, we’ve started to hear the term Sovereign Wealth Funds (SWF). These are funds which are state-owned investing in assets, projects, and securities worldwide. Over the past year, since the credit meltdown hit Wall Street, SWF have been running around Wall Street investing in everything from Citigroup, Morgan Stanley, Merrill Lynch, and real estate as well to the tune of billions and billions of dollars.

The SWF of Kuwait, UAE, and Saudi Arabia seem to me to be working in concert with the investment banks to bail them out. The same investment banks who are blaimed for “speculating” the oil price to where it is right now are benefitting from huge cash infusions from the very same SWF benefitting from high oil prices.

Thus it is easy to see that Wall Street has once again managed to find a cure by getting the public to bail them out at the gas pump. The investment banks drive the price of crude up (and thus gas prices). The money flows into the oil producing countries and their sovereign wealth funds, which in turn reinvest the premium the investment banks created for them back into our financial institutions, with all of this financed by the public without having to mess with a tax increase or a congressional bailout replete with lobbying, hearings, public scrutiny or outcry. Absolutely Genius.

In another sign that rampant drug-use is becoming an epidemic amongst architects working in Dubai, Dr. Fisher is proposing a rotating skyscraper in Dubai, and another in Moscow, and eventually one in New York City. This building will supposedly have its floors pre-fabbed in Italy, and assembled on-site in Dubai. Estimated selling prices are about $3,000 per square foot, and the estimate is that the building will be delivered in 2010.

If there is one thing money has shown us, it is that with enough of it, nearly anything is possible. Architects, engineers, financiers, and contractors all over the world have proven this. But this 80-story dream is a bit far-fetched, particularly when it is supposed to be delivered in two years and is brought to us by an architect whose education is in question, admits he hasn’t practiced architecture regularly in years, and has never built a skyscraper before.

Interesting concept for sure, and it’ll be fantastic if it works, but I’m a bit skeptical if of this one. But who can blame them for trying? After all financing is plentiful when you can sell the black gold beneath your feet for $130/barrel oil.



The WSJ is reporting in their commercial real estate section today on office space in Moscow. The numbers are staggering compared with almost anything we have in the US. The average cost of “prime” space in Moscow is $223 psf per year, up 92% from the first quarter of last year when the average was $121. Adjusting for exchange rates, the rate in 2001 was $61 a square foot.

Some sites near the Kremlin are reported to be asking north of $300 per year ($25 psf/month!).  By contrast, the most expensive space in California comes in at about $192 psf/year, and the highest end space in San Francisco is about $100 psf.

In response to these sky high rents and robust demand, developers are planning on increasing the available inventory of space by 25% by delivering approximately 21.5M square feet of space to the market by 2011.

Amongst the projects being delivered is RussiaLand’s Russia Tower, a massive 600m tall mixed-use project featuring what will be the tallest building in Europe. The project video is featured above. 

Kuwait’s Al Hamra Tower is the world’s first (and tallest) “Sculputred” Skyscraper. It will soar about 412M (1350 Feet) up to make it Kuwait’s tallest tower. The project was designed by Skidmore, Owings, and Merrill, and is being constructed by Turner Construction. The building encompasses 77 stories at a cost of roughly $400M to build and is estimated to be delivered Q1 of 2010.

Most skyscrapers are built symmetrically, that is everything is equidistant off the core, but the Al Hamra project, as can be seen from the picture actually has two walls which vary in distance off the core .

South China Mall, a 7 million square feet monstrosity (the largest mall in the world), sprawled over 200 acres and built in 2005 in the southern Pearl River Delta city of Dongguan sits nearly empty. The mall was originally designed to house 1,500 tenants. There are less than a dozen. The mall was featured a few years ago in the New York Times to demonstrate the development and shift in socio-economic behavior in the world’s most populous country. Unfortunately, it seems the developers didn’t bother to look at demographics as the neighborhood it is built is in the suburbs where average incomes don’t justify such a giant mall and the location is only convenient by car. Oops.

The mall was developed by a noodle billionaire (really), and took design cues from all over the world. Yet after all this, it’s a huge failure. You can read more about the mall here.

The lesson here is that if you’re making billions of dollars selling noodles, keep doing it.