2001

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2001
THE INSTITUTIONAL
REAL ESTATE
Trends
lrnutry,200L
Pillars of Regional Prosperity
A rising economic tide tends to raise
prosperity rn all regions, but not evenly.
Between1996 and 1998, personalincome in
the U.S. rose 5.9 percent, 6.2 percent in
metropolitan areasand 4.4 percent in nonmetropolitan areas. But this measure of
regionalprosperity grew 9.1 percent in the
consolidated metropolitan statistjcal area
(CMSA) of Seatde-Tacoma-Bremerton,WA
and 4.5 percent in the Cleveland-Alron, OH
CMSA. Among metropolitan statisdcalareas
$zISA's),the region whe re personal incomes
grew the most was the Austin-San Marcos,
TX regron with a 15.1. percent iulnp.
Boulder-Longmont, CO and Kenkosha,Wf
gtew at 10 percent. Among larger MSA's,
Odando, FL grew at 8.6 percent and
Phoenix-Mesa,.LZ grew 9.5 percent.Slower
grcwlng MSA's included New LondonNorwick, CT Lt 1.9 percent, DaytonSpringfield,OH at 3.1 percent and St. I-ouis,
MO at 4.2 petcent.
compeuuve apply also to regions whose
economic basedoesnot include the high tech
or "knowledge" industries.
Consider the Las Vegas CMSA, with one of
the country's fastest growing populations,
which in the 1996-1998penod had an 8.6
percentgrowth in total personalincome. Not
only does Las Vegas not have a strong high
tech agglomeration, but this city, whose
strongest local business is the
entertainment/visitor/gaming industry, does
not even show deferenceto computer nerds
and tycoonswhen theycome to visit. Mylong
ume friend Larrd Durham, who attended the
Comdex convendon in Las Vegas, reported
that when this largest computer-oriented
show comesto L,asVegas,tJrehotel ratesare
increasedbecausethe word is out- Comdex
attendeesdon't spendon gaming. He thinks
that may be becausethey can 6gure the odds.
Las Vegas can afford to cold-shoulder dre
computer gr.rysbecausethat city builds the
pillars that provide comparativeadvantages
to their industries.
One of these pillars is an environment that
attracts labor. Affordability, parriculariy
Currently, places with high tech
agglomerationsor "cybercides" are where housing affordability, is another pillar that
holds labor and keeps costs down. Such an
fast job growth, rising wages and profits are
environmentin Las Vegasenablesthe visiting
producing prospenry-inducing income
increases.
The large exrsting agglomerations and gaming industry to retain employeesat
relativelylow costs.Per capitaincome in Las
of high tech industries in SanJose, Boston,
Chicago,lTashingon, DC and Dallas have Vegaswas $27,780in 1998,iust a litde above
the natjonal ^venge of 927,233that year.
beensustainingfast job gowth asolder 6rms
grow and new 6rms are bom faster than
Nma and I were in Las Vegasa few daysafter
recentstart ups die.
the Comdex convendon, and we did hear
complaintsfrom cabdriversand othersabout
Some smaller regions like Boise, ID and
the tipping pracdcesof the computer crowd.
Colorado Springs, CO ^re becoming
c;'bercities, and middle si"e existing On our 6rst night, we alsogot some insight
into the effect of the affordableenvironment
cybercities like Austin, TX continue to
on labor. We went to dinner in Wolfgang
demonstrate strong growth. But even within
Puck's Italian restaurantin the MandalavBav
regionshousingmajor agglomerationso f high
Hotel. We were served by a lrery gooi
tech firms, wage differencesaresignificant. In
1998,the aveta:ge
high tech wagein SanJose waitresswho, after dinner, asked where we
was$85,000,while in the Seatderegionit was were from. When we responded,"The San
$129,300. Since all high tech 6rms serve FranciscoBayArea," shetold us that shehad
lived in SanFranciscoall her life until sheand
global markets, they must be competitive in
her husband had moved to Las Vegas. We
price and innovalion if they are to rnaintain
askedif she was satisfiedwith her move. F{er
growth and eam the profits needed to
responsewas that shedid missSanFrancisco,
generateincreasesin wages, dividends and
business eamings. Regions with the most
but that she and her husbandhad bought a
nice house in Las Vegas where they kept a
competitive firms will condnue to seegrovth
rn regronalincome;prosperitywill lagin areas dog, which gave rhem happiness and the
whosefirms fall behind the competitivepace. feeling that they were building savings.She
said that given San Francisco area housing
Thesegeneralizationsabout the importance pnces, owning a house would have never
of providing an environment that enables been more than a dream for her. She had
local businesses to remain eloballv moved to where that dreamcouldbe a reality.
She is cleady not alone. A recent San
Francisco Chronicle survey found many Bay
Area residents looking outside the region for
placesthat would enablethem to lower their
housing costswhile increasingitsqualiw.The
survey found only I3oh of its respondents
very satisfied with the avarlabilityof housing.
The New York Times also reoorted that
housing prices and avarlabrliryhad been the
maior problem for Procter & Gamble when
they transferred1,000 employeesto Geneva,
Swizedand after deciding to make that city a
regronalheadquarters.
Las Vegasis alsoaplace that has done a good
fob of providing another pillar of prospenty
attracdonsthat appealto large numbers
of visitors. For the \levada ciq', that goes
beyond providing spectacularhotels u/ith a
huge number of rooms, superb convendon
facilities and entertaining shows. The City
makes an effort to ever expandits offenngs
to cater to many tastes. Plans are now afoot
to bring a branch of New York's
Guggenheim Museum to Las Vegas. While
that museum will not be as grand as the
Frank Gehry museum that Guggenheim
Foundation director Thomas Krens has
proposed for Lower Manhattan,it is likely to
be built sooner.Whether in NewYork or Las
Vegas, major cultural attractions like the
Guggenheim are strong pillars that people
and their dollars back to feed the prosperity
of their locations.
To be prosperous,no city need have all the
pillars that support comparativeadvantages
for local businesses.Another factor is the
number of compedtive businesses
in the mix
of dre economic base. San Francisco, for
avamnlp
hac c+.n-* ^*racdOns that maintair^
the strength of a vibrant visitor industry,
along with high tech and srong service
industries.
To date, this cntical mass of agglomeradons
has been strong enough to offset the missing
piilar of affordablehousing.But the future is
more than a mere proiection of the past, and
over time those places with more of the
business-plus"pillars" arelikely to pull ahead
of those that have fewer.
This will be paruculady true when the overall
prospenty that we have now enjoyed, for
longer than ever, slows down. Then those
reglons that have allowed their pillars of
prospenty to decay and farled to add new
ones will feel the pinch of economicdecline.
I drink we will avoid a recessionin 2001,but
THE INSTITUTIONALREALESTATE
it will be a good year to start planning for a
possiblerecessionin the future. *
Trends
February,2001
Ids the Conteng Not the Package
Nowis the nme forREIT stocks. Real estate
has always been cyclical, and that won't
change rvith the packagrng of real estate
assetsinto Real Estate Investrnent Trusts.
But whether or not 2001 ushers in a
recession,stocks of well managed REITs
shouid condnue to outperform stock market
averages.They are in phase with the latest
stock market trend, while real estatemarket
fundamentalsaregood relativeto most other
current rnvestrnentoppom-rnides.
LETTER
make most retail real estateobsolete,some
examples of REIT stock being used to
ovelpay for real estate and the dilution of
values that accompanied the over use of
options and new stock issuanceskept REIT
stock values low. But pension funds and
some sawy investorsstuckwith thoseREITs
that they thought understood and practiced
the fundamentals of real estateinvesting.
D^-^ o
tavc-
competitiveness,as the new economy will
eventually find that it, too, must deal wrth
good, bad and stabie times. A continuallv
growing population with new and morl
diverse lifestyles and backgrounds s'ill
demand increased amounts and differing
types and mixes of residential spaces in
localions tJratoffer comfortable, secu.earrd
enfoyable living experiences near
remunerauvework opportuniues. Finding the
locations and both building and maintaimng
the real estate that meets these needs will
require crealive responses to a carefully
attuned understanding of what tomorrow,s
users v/ant and are willing to pay for with
their money and time.
The consumer spending spree that has
buoyed up the economy in the last decade
probably will slow down this year. Thus,
unless6xed businessinvesfirentsand exoorts
offset this pillar of the greatest domesuc
economic surge in recent history, we could
seea recession.But for optimistslike me, the
combination of a declinein the value of the
While the improvcd equity packaging of
dollar and a Fed-engrneereddrop in the
REITs will help raisethe investrnentdollars
interestratewill motivate the neededbusiness needed to accomplish these creadve
Desirable stock characteristics are as rnvestrnentsand export gtowth. That would
responses,this is only a necessarynot a
changeableas fashions. During 1999 and gve real estate expanded economic sufficient condition of successfulreal estate
most of 2000, g1owth stocks were hot items opportunity in addition to the benefits investing. Going for the quick buck because
whosepopularity remainedundiminished as conferred by the RMA. If I am wrong, the
dre equity offering makes financing easieris
t h e i r p r i c e / e a r n i n g s r a t i o s b e c a m e unusual restraintin developmentduring the
sull the real estate trap it has alwaysbeen.
st(atospheric.Dunng that time, dot-com and last 6ve years will still leave REITs in the
The challenging altemative of sorting out the
Intemet stocks were more popular tha:r categoryof "defensivestocks,"which would
appropriate locations and the buildings and
be usheredinto fashionby a recession.
rweeds, leathers and the color puqple in
management strategies to gamer solid
women's clothing. But this year tweeds are
revenuesin the future has been made more
out, leatheris iust barely hanging in and the The only real danger is that REIT managers complex by rapid changes in consumer
new color is blue. Among stocks, value has will become"irrationallyeruberant" from the
tastes, businessneeds and public land use
replacedgrowth, the dot-com bubble has double bonus of economic oppornrnity and
regtrlatoryandinfrastructurepolicies.But the
popped and Intemet stocks are on the sale the RMA. Successin real estateinvestineis a
resourcesand oppornrnities for doing so are
rack.AverageREIT dividends hovered near lot like shooting pool-to make the shofyo,
available to dre REIT managers with the
9 percentlastDecember,andper sharefunds must keep your eyeon the ball.The late great creativewill to use them. *
realestatesage,JimGraaskamp,taught us a.ll
from operationhavebeenclimbing. In 2000
they grew more than the S&P index declined that the wise realestateinvestorscoopsup all
and about three times Nasdaq's decline. elementsof the value addedprocess.That is
what TRSsmakepossiblefoiRgITs. But he
Combined with the fearure that avoids the
doubletaxationassociatedwith corporations, also explained that the basic necessity of
this put them, as a class, in the currentlv successfulreal estate investing consists of
building and maintaining real properry that
fashionablestock category
Dr. Claude Gmen is a Principal with
best servesthe psychicand businessneedsof
Gruen Gruen * Associates, a research
Itprobably was fortunate for REITs that they real estateoccupants.That is the ball REIT
and consulting 6rrn wit_hoffices in
were out of fashion while the legislauvemrils managershavegot to sink in the nght pocket
San Franciscoand the Midwest.
at dre nght time. If the headyaroma of good
were grinding out the REIT Modemizadon
ww'w.ggassoc.com
times and a beneficialequitypackagrngmakes
Act of 1999 (RMA). It is doubtful that the
distnbution level would have been kicked REITs forget drat, then investorswould be
better off with bonds or oid fashioned
back to its eadier levels and taxableREIT
subsidiaries(TRS) allowed if REIT stocks colporate stocks.
were high fliers. The convendonal wisdom
said they could not finance growth. people Today's real estareplayrng field has been
stjll rememberedthe crash of the mortgage contracted by the fear of growth and
hyperacbve concern over environmental
REITs that foilowed their over-funding of
degradationthat has becomepart of the new
speculativereal estatern the cyclebefore the
lastone, and the real estatedebacleof the late religionpreachedat virnrallyeverylocal, state
and natjonal legrslativesession.Continued
80'sand eady90'swas still fresh in the minds
technological innovations and global
of many investors.
competilion ^re calling for new and
renovated spaces that faciiitate business
Further, the fear that the e-retailerswould
THE INSTITUTIONAL
REAL ESTATE LETTER_
Trends
March,2001
Social Security To Privatize or Not?
I rarely wish I were younger. But sitting
down to write this colurnn is one of those
times. That is becauseI don't want to
disappointthosewho havewritten me that,
while they don't always agree with my
position, they alwaysknow where I stand.
When I's/as yor.lnger,I was very certain
that I was 100percentfor the privaazadon
of Social Security.Now, as I contemplate
the implementation of such pdvattzztton
and is implications for U.S. tax policy, I
atn no longpr so ceftain about what I once
absolutelyknew. This is not becauseI am
very close to being a Social Security
recipient,as there is little danger that the
Social Security and Medicare trust funds
will run dry during my lifetime. Nor is it
that I have lost confidencein the principle
that SocialSecurityhas been badly flawed
sinceFDR set it up. It is critically flawed
becauseit fails to eam a retum on the
capitalit sucksout of the economy.
When I was as sophomore ^t the
University of Cincinnati, my economics
professorexplainedthat the SocialSecurity
deductions from my part-time job were
simply a tax that the govemment pur in its
coffers. Rather than being used as capital
assets to pay future benefits with the
retums eamed on that capital, the
govenunentsimply setup a "tmst fund" to
which only the Feds had access.The
govemment merely promised that when I
got old enough to qualify as a beneficiary,
they would tax funrre generationsto pay
me. He was right then and still is today.
The debt to me and millions of others that
future generationsare now stuck with has
grown with the Social Security and
Medicare tax and now makes up ^
signiFrcantpart of the projected federal
suqplus.This is the suqplusthat both the
administration, and most recentll, Alan
Greenspan,want to tap for a big tax cut on
a 'glide path to zero federaldebt." After
the year2011,when the Boomersstart to
become eligible for Social Security, the
excessof taxespaid in over benefits paid
out will likely shrink and will eventually
disappearunless the Social Securityta-xis
raisedor the benefitslowered.
The privatizationof SocialSecuriryand a
big tax cut haveone advantagein common.
They would take money out of the hands
of govemment and retum it to the private
sector. But tuming the old age benefit
program into a real insurance program
through privzizaaon has the extta
advantageof more surely adding to the
stockof capital.An accessible
and low cost
stock of investrnentcapital is needed to
fund the productiviry increases,without
which there will be no surplus. Adding
what we now pay in SocialSecurityand
Medicare ta-xes(and because I have no
intention of retiring I will be paying those
taxesalong with you) to the nation's pool
of capital will do more to lower the real
interest rate than even the wisest Federal
ReseryeBank policies.
prcp I
the time the Medicare and SocialSecuriry
funds becomethe wodd's largestpension
fund. The political power and resulting
temptationsof thosewho decidehow such
a pool of capitalis to be investedwould tax
the capabilities of the most honest
Solomon. Secondly,such an option would
eventually accomplish the dream of Karl
Manr by controlling interestin virnrally all
businessesbeing owned by the people's
trustees.
Alice Rivlin, the former director of the
Office of Managementand Budget and a
highly respectedeconomist,suggestedan
answerto theseproblemsn zJan.30 Neu
York Timetarticle. She suggeststhe Social
Security and Medicare funds be restricted
to holding index funds that, "by law could
be well-insulatedfrom politicalinfluence."
But as is the casewith most real estate The equity brokerage and investrnent
development and investment decisions, banking community might like sucha longhow well SocialSecuritl privaazationwill
run, peffnaltent floor under the market for
work dependson how it is done.When I
stocks. If you like rhe way our farm
consider the details of implementing subsidy program has effected farming you
pdvaazaaonl becomeconflicted. As is the might like the way sucha massivepool of
case with most land use policy and broad investrnentsin listedsecuritieswould
investrnentdecisions,this is becauseany effect our czpitalmarkets.I think such an
privattzaaon systemwill have major long approach could be counteqproductiveby
run social and political, as well as raising the real cost of capitd and taking
economic,ramifications.
competition out of a market that already
has its shareof rigidities.
One privatizatton option that has been
suggested
gives the individualworker rhe We arenot surefootedenoughabouteither
right to decide how his or her Social privaization or the tax cut to move ahead
Securiry payments are to be invested. quickly and far on either path. We should
Before you rush to set up a real estate make the tax cut small enough to leave
investrnentfund that marketsits oroducts slackin the presentSocialSecuritysystem.
to the resulting large pool of iivestors, At the same time we should experiment
think of the social implications for the with a hybrid systemof pnvaazattonthat is
winners and loserswithin such a system. flexible enough to make sure we do no
Those who reachretirementagewith luck harm while curing the serious economic
Md/or investrnentacumenwould certainly flaw with the presentsystem.*
be better off than today'sretiree.But some
will bet on the wrong stocks,real estateor
Dr. Claude Gruen is a Principal with
otherinvestments
and find themselves
with
Gruen Gruen * Associates,a research
lesssecuritythan promisedby the system
and consulting firrn with offices in
that was set up in the Great Depression.
San Franciscoand the Midwest.
Exacerbating the number of haves and
www.ggassoc.com
havenots amongseniorcitizenswould not
be sociallyiust or strengthenthe republic.
Another option would be to place the
responsibilityfor investingtheproceedsof
SocialSecurityandMedicareinto thehands
of a governmenrallyappointedbody or a
new bureaucracy.That option has the
potential for at least two scaryresultsby
THE INSTITUTIONAL
REAL ESTATE LETTER
Trends
April2001
Listen to the Customers
to Pre-Test Technology
to ascertainwhether enough consurners
would buy their groceriesover the Intemet
to makesucha ventureprofitable. Instead,
investors including Benchmark Capital
Partners,SequoiaCapital,Goldman Sachs
Group Inc. and CBS Inc. funded Louis
Borders (of BordersBooks)with the cash
used to build a complex mechanical
delivery systemto put food on the kitchen
countersof peoplewho would order over
*re Intemet.
Page2
require us to changewhat we have long
done. It simply pennitsus to leam what wi
have alwaysneededto know in a cheaper
and more efficient manner. It merely
subst-itutesfast cyber communication for
As I read about the troubles of Intemet
slowpaper-basedcommunication.Because
grocer Webvan.com, I remembered a
of this, the spacewe use in the future will
market study we did many yearsago for a
needmore broadbandhookups to facilitate
hospital that wanted to build a medical
the expansionof suchefficiencies.Offices
office building.The hospitaladministrators
and factories will need the flexibility of
saw the vacantlot next to the hospital as a
beingable to add to the copper,opticaland
resourcethat could be used to increasethe
wirelessnetworks that tie the office andthe
competitiveatrractionofthe hospital.They Unfornrnately for the now cash-short tzctory
floor to information about what is
knew physiciansare alwaysin a rush and profidessgrocerycompany,that systemdid
happening within firms and the markets
thereforewould be likely to send their not conform to dre behaviorof grocery
they sell to, buy from or need to monitor.
patientsto the hospial closestto their own shoppers.Somemight havebeenwilling to
offices.The proposednew office building skip their regular trips to the supermarket
Questions about whether and to what
would havetargetedlocal ph)'siciansv,,hose if the groceriescouid havebeendeiivered
degree we purchase real estate, borrow
specialities the hospital handled. In
to their workplace, but few employers capitaland transactrelatedbusinessdirectly
addition to the real estate, the hospital wantedtheirbusinessinterruptedwith such over
the Intemet are harder to answer.
proposedto provide a rurge of servicesto deliveries.While many people do enjoy
Some would say the only way to answer
the occupants th"y sought, including planning ahead, most seem to prefer
them is to set up the systemsand then try
centralized billing, accounting and cash strolling through the aislesof a brick and to
sell such transactionsover the Intemet.
management. Besides the standard moftar store, at least some of the time, For
a while, capital markets encouraged
consultant task of forecasting rents and ratherthanbrowsingthroughcyberspace
to such try-it-out approachesby rewarding
occupancylevels,ourwork includedtesting selectgroceries.
start ups when they held their IPOs rather
*re potential of the central services the
than when th"y made contact with
hospitalwas offering.
As could have been predictedby anyone customers. This ceasedto be true when
who took the time to posequestionsabout the dot-com bubbleburst.Now thereis no
To augmentthe inferenceswe drew from grocerybuying behaviorand then listen to
reasonfor jumping into a new technology
historicaldataon the medicaloffice market the answerswith the third ear of a trained
until we have thoroughly researchedthe
and to test the effect of the accompanying researcher,most people would have to relevant
behaviorof potentialcustomers.
marketing techniques, including the switchfrom preferredbehaviorif theywere
*
servicesthe hospital proposed to provide, to eliminate the role of the grocery store
we found a sample of doctors in the from their food buying pattems.We have
appropriate medical specialties and leamed the sarne about other more
interviewedthem.
successful rypes of Interner shopping:
People still use multi-channels when
Few wanted the centralized billing and buying;for manyitemstheIntemetis used
accounting service. One rather cmsl-v more to get information about prices,
Dr. Claude Gruen is a Principal with
physician was partrcularly forthcoming quality and product featuresthan it is to
Gruen Gruen * Associates,a research
aboutwhycentralizedbillingwould not be placeorders.
and consulting firm with offices in
an attraction. "Firs! I don't want those
San Franciscoand the Midwest.
damn hospital adminisuatorsto know my I suspectthe sameis true of the real estatewwtil/.ggassoc.com
business."Then he took a key out of his relateduse of cyberspace;inter- and intrapocket and unlocked a drawer that was compariy information-providing systerns
stuffedwith money."Every oncein a while are more likely to be successful than
a patient pays me in cash,which goes in systemsthat relyon usersto buy,sell,lend,
this drawer to ply for my daughter's leaseor borrow overthe Intemet.As peter
wedding" explained the doctor. "I don't Pike explained in his Pikenet DiEatclt,
think there is anything in the hospital,s digitizing the workflow to keep track of
accounting system that will replace this mortgages in the pipeline and getring
drawer," he added.
information about what is available in
capital marketsare tasks that can be most
Unlike the hospital administrators, the efficiendydoneover Web sites.
prestigiousfirms and formerly successful
individualswho put up more than g1.5 But buying d^t^ and more complex
billion for Webvanhad not done research informationthrough broadbanddoesnot
THE INSTITUTIONAL
REAL ESTATE LETTER
"There is rr ticle irr the affairs of rnen,
\Vhrch, ral<errat the il;ocl, leacls ctrr to
fornnc;
Ornitted, all the vovageof dreir Iif-e
is bound ir.rshallorvsartd in miseries.
On strch zrftrll seirare we norv afloat;
Choppyteconomic seasare being chunred
Ancl
tve ntLlst take the current rvhen it
trp by dre winds of tI temporary slor',,c1orvn
s
nres,
e
in dena:rd and the leakage of rvater fi<trn
dre equitiesof dre high-tech sector.These O r l o s e o n r v e n f u r e s . "
winds rnay also bring ur a firll-tleclgecl
The oppornrnitieslikelyto surfhceFromthe
recession.
currently troubled econorlic seas include
the sirleoIproperties by inclustriesseeking
T h e p o s s i b i l i r y o f a r e c e s s i o n ,o r n v o
ro rrlse clsh b1' jettisoning tssets l-rot
quzrrtersof no grorvdr in gtoss nationrll
rrssociated rvith theil core activities.
product (GNP), is alreadycausins a ripple
Pessimistsrvho see the storm intensifving
in my orvn dornestic tranquilirv. Thet is
because Nina, my wif-e a:rd business rn?rv wilnt to bail ollt before drings get
worse.\\4r en evalr,rating such oppo rrun i t.ies,
p'artner,obiectecl to one section of our
learn
ti'on.rtlie mistakesof those high tech
zurnual forecast, which I rvrote in
sfock
buvers rvho thor-rghtdrese ecluities
Decemberof last year. She felt fure rvitlr
jr.rstl;ecausethey rvere selling
rvere
cheap
the section o[ dre forecast for 20(]1 dtat
filr u'ell ltelorv their previous high.
predicted a volatile stock n-rarker and
irgreecl that gerrerally real estate was in
fbr' reltl est2rte
czutnotbe reacl
good shape"but she did not agreervirJrrnr, The <ttrtlr:<tli
b1' krokirrg ar dre pasr, bur orlly by
predictron of a smooth lanciing firr the
corrsiclerirrgtJre likell, realities of tunrre
high-flying economy.
bLrsinesslrncl r'esiciential
demancls.Given
..rnc1
the
clernogruph
ic
local potitical
She countered rny ar'qunlents thnr il
rveakeningdollar worrld spllr exports lirlcl realities,soureoFthe bestoppornuritiesrvill
in fil I si tes.
lorver interestratesrvoulci burckuo btrsiness iu cltrcleapprop rirrrelv cievelopec-l
In miluv crses the best of theservill not l)e
investmenls rvidr a kinclly, "It's the
consumer, stupicl." She notecl it ..rlreacly v : r c l u r t s i r e s l t r r t p t o p e r r i e s d r a t c r r r n o r
respcrnc'lto the ciernancisr:f tire tufLrre
appeared tlrat December retail sales rvere
alrc'lmixes of
not going to be r-rpin re,.ildollar terms aucl becatrsethev house str.l.rcrllres
uses
th?rt
cilnltot
cirtef
nerv
to
dernands.
that the fiequendy prescrentUniversin' ctf
E,ranrples
includc
once-r'iirltle
shopping
r\tichigan Survev rvas sigrirling a c'lrop in
centefs that off-er orrlv cctmnoditv goocls
collsuffler confidence.
ancl sen'ices burt uot the benetlcial
expeflenceor cortveniences
rvidiourtr,vhich
While Nina is, of course,too kincl to sav "J
custonlerssirnply rvill not malie shopping
told vou so" if this qLl,rrtellncl the next
trips.
tufl"rin a GNP drop, such .trl event u'oulcl
Trends
May,200L
Afloat on a Full Sea Opportunities Strrface
cost me zrdinner for t'"voat Gary Dunlio's.
The lursteroIc]er-rrancl
also rvill tamish on
once
desiraltle
fi'ee-stzurdirrg
offlces md
Fortunately, except for lt ferv hot spr:rs
stores unless they crxj Lle recontigr.rredto
where real estate investors belier.-ec'l
the
hvpe of a dot-com per:peru:rJgro\r.rll provicletire multi-pLrrposerrip potential oI
machine,most real estate continues t<ts:ril creatively brrilt and teltiltfed mixed uses.
in financially sound ships clriven bv rhe Conrprrct clevelopments drat push the
floor/area ratir.lenr,'elopes
rvith uses thzrt
gerrde winds of a stabJe rlrarket. Tliis
conrplenrent
each
other
rvill
rvin out o\rer
positions investors to follorv dre zrdviceoI
r
s
ntl
e-p
rp<.rs
rr
e,
lrtrv-den
i
rvo
s
lli, pl zryancl
n'
tltat gr-eat rezrl estate sage, William
s
h
o
p
p
i
n
g
p
l
a
c
e
s
.
Slrakespearc,rvho, in his pltryJl/ius Cae-tar,
had Brunrs opine:
Sourrd re'.il estate strategies rvill not be
fooleci bv dre current slowdorvn in the
aclaptionoI technoloEry.
The glob.aldigrtal
revolution has not beerr put dorvn; it is
merely restin€i urp for a lor-rg and steldy
climb to a ubiquitous reigrr.
The rea.lproperry asserstl.ratwill do rvell in
the furr-rremust fit lvidritr the strategy of
the digrtal communications activities dtar
rerrt artcl lttrv space. But this necessan
elemeltt for the programming of real estate
that will eanr high risk-adjusted rerunrs
cannot be successful if carried our
sirnplemindedly. Nlerely equipping
apartmellts r.vith all manlter of optical and
o drer conrrnunicationsI inks al-rdin teractive
con'rputersdoes not grve dre units rvhat it
takes to attract demiurd. Today's small ancl
r.rsuallvchrldlesshouseholclswant to be as
close to clesirableactivities as t.hev can
rrfford.
The need t<.runclersranclzrnclrelzrteto local
dif-ferencesin tlrstesand trttirudescontir.rues
to be necessary The most critic.alpart of
the opportunrry screeningprocessis not to
do rvhat I did when I igrrored Nina's
insights about dre economy in 2001. in
odrer words, it is imperative to stay tunecl
in to tlreao,ltll-"rr'ocorities. *
Dr. Clar"rdeGruerr is a Principal rvith
G r u e n G r u e n * A s s o c i a t e s ,a r e s e a r c h
ancl corrsultirtg flrm widr offices ir-r
Sa:r Franciscoand dre Midwest.
wavw.ggassoc.com
THE INSTITUTIONAL REAL ESTATE LETTER
Trends
Pase2
If -\llen succeecls in stoppirrg rhe p o l i c i e s .
construction o I mr-rchso r-rgh
t zrflte
r hous11rg
in his backyard,he m.avbe extolled bv his
Less rvell recosr.rized
is dre need for public
neighbors zurclwin tl.rehearts of all rvho
policies to courtter dre adverse eft-ectof
In recent testimorly before the Nerv York
w'.lnt to presen'e the trrl.:zurstatus quo. But
Nit\tBYism
ancl other sources of
Ciry Lardmarks PreservzrtionCommission,
over tilne dre rrrarlieref fect of hrs rvitr rvill
constrailtts in order ro preservethe abilin,
Woody, Allen comparecl a proposec-l causelossesForconsurnersarrd dre abiliry of
cities, towns, villages a:rd regiorrs to
c'levelopmentin his Upper East Side o i
c i t i e s r o a d a p t t o c h a n g i n g adapt to t.l'rechanging times and avoid the
neighbodroodto d-repainting of rrdclirionrrl c il c t r n r st : u r c e s .
cirlcificirtion dtar eventua.llysaps urban
sunflorvers on a Vincent v?u1 Gordt
strengths. This calls fbr opening lrp new
masterpiece.
-\llen rnadethe conrprrrisonin
\\hrle the rtegativeef'fectsof coltstraillts on
cleveloprnent op tiorls rvithin bu ii t-up areas
an argumerlt againsta scaled-dorvnrrersior.r the hor-rsingmurket c1onot seeln to be rvell
near t]te urban core as well as in the
oIa previouslyrejectedapartmentlluilding
runderstood,
the effectsof such restraintsin
suburbs. Brorvnfields and obsolete infill
that was suggestedfor his neighborhood. other rnarltets aiz rvell understood and are
areasare obvior,rs.Publiclyowned landsno
While the zu'ra.logybetr.veenchangir.rg a
rzal sarrctioned.Irr the sarne ciry rvhere longer needed for dreir previous uses
panting by a great artist, who has been Allen macie his impassionedplea against shotrld also
be consideredfor re-usesother
dead more dran one hundred vears. irnd
developn-rent, Alfrecl Taurbmiur, a well
than pirrks rurc'lpublic open sp?]ce.
rJlowing the co'rstrlrcrion ni :r rlew
knorvn real estate elttreprelleuf lrnd irrt
residential developrrrent rnrty be rirt.her connorsselr, is on triirl for allegecllv Ir is politically
ivise for electeclofficials to
stretcl.red,
if rrot cornic,no one objectecltcr restrlliniltgc()rnpctitlortrrncltixirrg
c2rterto dre clerrrirnds
of existing residents
1:ricesin
Nlen's right to ar-gr.-re
against change in his
t h e l r t : l u c t i o l ll ' l t r s i r r e s s .
arrcl the ircti\rists rvho, rvhile ofterr not
neighborhoocl.
representr-rtive,
flll hearings such as dtose
'flnrbntlrrr,
the charrrwtn ltncl controlling adc'lressecl
by Woodv Nlerr. But urrless
As prof-essorWilliiul Fischel poinred oLrt s t o c l < h r : l c l er >r [ S o t h e b v ' sa u c t i o r . h
r o n s e , concenr is alsr: shorvn for dre next
ln A recenrarticle,NIlVIBYires;rreircti|lgi11 lias alreacly paicl rnillions irr fures fbr
Eeneratlot'r and drose who may wartt to
their own il'lterests,at leastin dre near ternt,
clrtnragesimposed on rvelrlthy art bLlvers corne to dre communiff in dre fuilre, the
because the value of what thev orvrr rvill
cfue to collr.rsiorr
betu'eenauction houses. vigor drat cre?lteddte vibrant urban places
rncreasezurd dre infrastmcture ancl odrer
H e i s r l o w o n t r i a l f o r h a v i n g we trezlsure today rvill slowlv be
:rmenities rvill be more accessit:le if
mlrsfeunirrclecl
tlre crlnsrr:lintson 2l.uctioll extinguished. The furure belongs to dre
competingdevelopmentis constrainecl.
tltcle thar cirrtverrp corr-unissions.
If for_urc1 people in urban placeswho can drink and
Eriltv he rr,orrlcllre sullject to [r-rrtherfines 2lct beyoltcl the irnmediate demands oI
It is no surprisethat W:odv Nlerr is a herc: anc'lLrpt() threc vearsin jail.
those rvho seeli to retain dte st2lfusquo. *
to his neighbors ard presen/itti()nists
evet'pvhere. iVhile his perfbmrance at dre
C)bviorrslr',the larv pforectsart collector.s
a
hearingarrracted sorrreltewsp..rpe
r'aften f i () rl
lot ltettcr thirn it cioeshc,lusiug
consrrmer.s,
fbr its cornedic rlspects, there rvirs no
anclfhe r.iebilitvoI t.hehish-enclnrt marliet
discussionof the effect thirt develclprnent seenrs rnrrch ltetter protected than the
col'lstraints, sucl'l as those A,llen wAs lrousrng nrrrrket.The importance o[ free
supporturghave or1the price anclclutrlirvof
; r n c l t r r r c r . r r r s t r : r i rcr e
od
l n p e t i t i o r rb e n v e e n
Dr. ClaucleGruen is a Princioal rvidr
housingzrvailable
to other consumers.The
thoses,lro sell to collectorsis protectedltv
G r u e n G r u e n * A s s o c i a t e s ,, Lr e s e e r c h
prernium drat dre existirrgowners of Elst
tecleral anrl stafe larvs. Prosecutc)rsact
anc'lconsr,rltingfirm rvitli offices in
Side property iurd rent-cortrrolled r,rnifs v i t t o r rL r s l vt ( ) p f o t e c t d t e i r t t e f e s tos I d t o s e
San lrrar.rciscozrrrdthe Nlidwest.
ertloy but don't p?ryfor lavs lr blrrc]enorr t,ho :tre scn.ecl[tt' drc' ltrt market zurd to
\\\\ry.gq.issoc.com
ltew entrzllttsinto the Nerv York ltoLrsirtg l<eeptlrirrrnarlter clvnirrnicand responsive.
'l-he
rnarket.
sume is trrre of nrost ctther rnarkets.
Unti>rtluutelv, dre rnzrrket for urban
Mrat Allerr advocates increases the cler.'eloprnent is ltot graritec'l ecltrzrJ
pressurefor more new housing elservhere prcrtectiori.
in dre region.If thesepressuresare not met
to offset dre constraints imoosec] in the
Tlrc llrcl< oI rlr:rt prorecriorr creiltes
U p p e r E l s r S i c l em d i n s i n i i l a r N I \ l B Y
oppornruities for prirrate profit ancl
strongholds, a.llconsumers r.vill see prices inrposes cNtr,.tl)rlrclens()n urban policv
escalate.Furdrer, collsumers rvlto clurnot nrakers.()lx'iotrslv, rhe r.alr-re
of existing
afford increued housing pricesrvliererjrev p r o p e r t i e si s s u p p o r t e di t v c o n s t r a i n t sr > n
itre 'dlorved or rvitl'rinthe strorrglrr>lcls
oi
con.rpctition.
T'hisis rvellrecoglizeclltv rell
constraineclupper class neighbo rh<.r<
;cls u,ilI
crstafeluvest()rs, r'niutallersrrltcl [ttrilc'lers
h'.rveto crorvd into older areasr','hereonlv
s,ho cifc pr:ef-ererrces
frtr locations rvith
code cn [c.r
rcement rvilI lrvoic]sIrrnritlc:rtir)rt. q | r , \ \ , r lC
l (' n s r f i i i l l t s: l s
l ) : l f t, l i t l r e i rs f r x t e { i C
June,2001"
Preservation Puts Cities in a Pickle
THE INSTITUTIONAL REAL ESTATE LETTER
Trends
July,200L
larrcl uses keeps the larrd rnarliet frorn
o p c r a t i l r gb e n e 6 c i a l l v .
Forced Donations Counterproductive
activitiesarrclthe
Tony Soprano'sbr.rsiness
mturicipalcouncilsthat imposeincltrsionarv
zoningald otl-rerllon-lrexusbascclexaclittrts
clisnrpt
for land trseapprovzils
ziscor'rditions
marketsand divert tax dollars.Tlie cffect t]rat
tl.ren-ra6aboss in the FBO serieshas ctn
rnarketsis pretw easvto follorv.Frlr exarrplc,
if the contractorsrvorllrtgon dte Nerv.lerscv
project don't irrcltrclepa.v-offsFor Tonv's
tamilv in their constnrctionbids, he ltrealis
their legs or cuts dtem trp irr his lrutcher
shop. When it comesto pavingtaxes,Tony
launders money drrotrgl.r his Rtrssriur
]ike tite tnotel Irc
iurcilrusinesses
corrrrection
extorteda pieceof, but fcrrthe llost part lle
seenlsto operatea casholllv, lloll-ta\pavills;
operation.Tony mtrffles the abilitv oI dre
miirketsystemto rvork e[ficientlvanclevaclcs
payingtaxesor) his ill-gotteng:Lirrs.
Let's consider inclusionarl zoning [or
r e s i d c r r t i alla n c l t r s e s .I r r c l l r s i o n a n 'z o n i n g i s
r.rsrrallvan attempt to increase the supplv oi
affor:clablehotrsing. It rvorks as e targeted
incorrre ::edistribrrtionp rogritnl that benefi ts
thosc t ho obtairr the lrelorv rlarlie t horrsing.
It docs rlot incfease the toral stocii oI
lrr>trsirrq,
e\ccpt in citsesrvhere it corles rvith
clensin'bt'rntrse
s that increase the iurotrnt oI
hclr.rsiugthat rvould Itave been allorved irr the
a b s e r r c ec l I s u c h p r o g r a r r s . I f d e n s i t i e s a r e
recluced onlv to sr.rl:secl,rentlvpenrrit sorre
densitv borrr.rses,dris one poterltial supplv
incr:easirrgeffect rvould be artificial, if not
Paee3
\\,tat trstrallyhappensin the short nur ald
iilrvavshappens ilr the lor.rgr:r.rnis drat dre
valr.re
oFthe lar.rdis decreased,
ald irr manv
casesverr s,.rbstiurtiallr,.
You rnayask,'\Mro
cares?"\'ou arepalticularlylilielvto rr,.kdris
iIvotr ltelievetl.rzrt
lzurdproEts or rentsare
r.rneanred.
-\nr,oneinterestedin theprovisionof public
infrastrtrcnrrezrrrd services sl'rould care.
.\'rvone \vho wants to increase the total
p roduchon of housing shotrld care.
Lorveringlanclvaluesmearlswe lorver dre
tirx base drat supportspublic servicesand
inFrastr-r.rcnrre.
Lorvering land valtres also
I i n i i t sd r e ; L b i l i n ' o lfa r r do w r l e r st o i m p r o v e
t h e i rp r o p e r t i e s .
frar.icl'.ileri t.
Oue exampleis a Strperfi.rrrd
site that rnrr
finl is remediatirrg
with drelandproFt frorrr
l.rorrsing
devckrl:ment on dratpo rtion o I t]re
site that can be clcaned tcl residerrtlal
zorritrg
standiirds.If dre qpe of inclusionan,
thirt is fotrnd in marr\/ Ca.litbrrria
courrlr,rnitiesis inrposed,dre reducdorrirr
land value rvould drive revenr.reto rvell
belorv rvh;rt is rreeded to pa)' for
Fet'cr choices irr the available srrppll,6f
it
rernediahon.
To spurhousingprodtrcdon,
" m a rk c t h o rrsi n E." Ll rr fo rtrrniite l v, th at b c rreEt
rl,)cs llot cr)rne ircc t() .gor,ertrrncrrr;tl r s l l e c e s s a n 't o i n c r e a s e ,l l o t d e c r e a s e ,
t r e a s r r r i e s ,i r r c l u c l i n c t h e p t r b l i c r e v e r l u e housing land valuesso dlat dre orvnersoI
larrd that corrlclsupport horrsingrvill scek
st[c?ul oI thc iocal trovclrllncl]ftrl entiw thrrt
i r l p o s c s t l t c i r r c l t r s i o n n f l 'z o r ) u r g . I n r i r e the entitlerlcnts,rralie the irnpror,ernents
so zlsto produce
I o r t . q c rr' c l n t , i t ; t l s , l I i a r : t t r sr l i c [ r l o r l t t c r r v c anclmarlieftheirpr:operties
horrsingrather thrrnlrse dre lald [or ot]rer
pr >rvcr r.rI th c hou sirtq nr itr:ltct [:v rrrtrfflin{: th e
horrsinq clcurarrc[srclals t.har otire rrvisc rtre usesor lear.eit \rrlcAnt.
Gir.crr fhe incr'easingincome dispar:iticsrve
rcglc)ns,horver,er,olle clu't
sce in ou r 151'orr'ing
ilrrrr'redrat inclrrsionaw zoning is itrstifiecl
irrcorne bv providing
bccirtrseit r:eclistril:trtes
rvith housing at
sollrc p(.)o[ei:lrorrsehr.rlcls
l
l
;
t
r
.
g
:
t
i
r
r
;
r
r
c
x
p
crtse of higltert
h
e
lrlices
Recerrtly,the mayor of eneL'gv-cortstttirted
incr>nre
hoLrscholcls,
rvho
t.here[ore have
he rvotrldlte
SanJose,Califonria.,?ulnounced
oI it
rhe develt>prllerlt
in favor of iLllorvirrg
previouslv rejected 60(.)-megarvatt
P()rver
pla.ntbecatrse
of dreporvershortageitr rentnl
for dre agreemelttof the plant'ssporlsorstc)
dorlate $5 million for parkland arrclrtpcrt
space, $1 rnilliort to irssist lorv'-irtcorle
tatepaversand $500,(l(10for cotltlttttttt'
programsfor t.heneedv.The plant sl)ons{)rs
ru]\rst
alsooffer Iong-tennellcr!5'c()llfrlcts t{)
Lr fainressto dle ntavor,tltrs
localbusinesses.
packageis cheaperfor the sprtnsolsof thc
bv ttther
plant tha.nrvhirthas beerrchaLsecl
cornrnunitiesfor the approval oI sinlilar
generatingpl?ults.
Let rne be clear: I iurr not referirtg to the
taxationoIstrch plantsso that tliev Pav their:
fair shareof ptrbliccostsor offset rttrvr.altteredrrcingproblems thev rnztv itnlt,rsc ,r'l
adjoining properties. Btrt strch taxes ancl
rnitigation fees are verv differerrt flor"r.r
crrtrccatrses.
reqtririr-rg
pawnentFortrnrelatecl
The effectof suchturrelatedcostscre,Itertortmarket based wirrrrerszurd losers in the
in dtis case
market affected pr:odr-rct
electriciry.It zrlsoincreasesthe cost baseof
tirepropetq'artcl
dreproject,rvhichdecreases
other legrtimate taxes ptrblic errtrtiesrr'ill
collectover d.relife of dreproiect.Li a strltrlc
wav even follorvers of economist FIenn'
George often fail to turclerstancl,thc
costso I entn' For ccrtitiIr
rmpositiono I specizrl
s o t n i c l e cbl v i i L n cvl a l t r c sa s h o r r s i r t gb e c o m e s
s c a f c c f a r r r la i f , r r c l a b i l i nr' v o r s e n s .
Tircre are rlarrv differencesbenveerrthe
modvations and operations of Tolt\,
Soprzrnoand strpporters of inclusionarl
In rlost crscs, rhe total p rice r:f dre
drat
zorringanclti.reimpositionsof exactions
inclrrsionarl units is ecpralto or .gteatertiran
"r l . \'L^L 'r r '! v' ' [^/ a"r "] f o r t h c s c n - i c c so r
lltrL
{rru
r h e r n i l r : t : i r r : l Jl ( ) s l s , r I c i r t i s I r t r c f i r t g t ] r c
capital needsinduced by a proposedlarrd
recprired inclrrsirlnarl'units. To the builcler,
r.rse.
one of drosedifferences
LJnFornrnately,
the constrr.rctionancl on-site infrastnrcnrre
is that, trrrlikeTonr,, nranyrvho favor troncosfs of adcling those units to the
, l e r r o l o r r r r r l r r r -l r , r r r n q g J t h c i r t c l t r s i r r n a r l nexr.rs
baseclzoning arrdfeeimpositiorrhave
of
n()t th.rusht through tire economiceFFects
tcl the
plclr,isionsis usuallv less tharr ol eclr.ral
toral salcs pricc he nrav ch^rge [or: t]rose
*
the actionsthey support.
aclcltional units. \lhile this rrrav drive dre
brrilcler'stotal p roEt dorvn, it rvill not
d c c [ c ? r s tel r : r tI r r { ) f i t l t e l o r vd r c " h t r r d l c p r o f i r
rate" the brrilcler:needs to stav in businessand
eitnr ?ulaclcclratcr-cnlnl. Ilxcept in those rare
c a s c sr v h e r e t i r e b u i l d e r b t r l ' s t h e l a n c l i r t t h c
l r c l i e Ft h a r i r r c l r r s i r l r t a n ' z o r r i n qr " ' r l l r r r t t l t e
r n r p o s c c lr r n c l t h c u c a n n o t s e l l r h e l z r r r dr t r
c ( ) r 1 \ ' e rrt f f r . rO t l r e r :u s c s , f h c b r r i l c l e rt v r l t r l c l
n o t p r o c e c d i t h i s t o t a l p r : o f i tr v e r ec u t [ ) e ] ( ) \ v
t h c h r r r c l l cr i r r c .
Dr. ClaudeGnren is a Pnncipalrvidr
Gruen Gruen + Associates,a research
firm rvith oFficesin
and corrsr.rlting
S a r rl t r r a n c i s caon d t h e \ [ i d r v e s t .
THE INSTITUTIONAL
REAL ESTATE
TRENDS
False Nostalgia Wastes Opportunities
Augusg 2001
Becauseit was the leading capitalistic power
that hamessedthe engineeringmarvelsof the
industrialera,QueenVctoria's Great Britain
became the wodd's richest nation.
conquednga vast empire. But it was never
ableto useits wealthand power to keep onethird of its citizens from being
undemourishedand living in squalor. That
possibility was crushed between two
ideologies: a mrddle-class movement so
repelledby the ugly new urban and cultural
environment of smoky mills surrounded by
slums that they fought for a retum to the
pastoralEngland of a previous era and those
who saw the underhoused and underfed
descendantsof the displacedpeasantry as a
sourceofcheap labor.
The middle-class followers of dissident
wdters such as William Blake, and John
Ruskin and utopians such as Ebenezer
Howard arguedthat the materialbenefits of
applyrngthe new capital were not worth dre
ravagesthey imposed.They and their liberal
allieswanted to replacethe satanicmills widr
the green 6elds of a simple agricultural past
they idolized more than remembered.
of TheNeaYork Rtuiewof Book: in "Genes in
the Food!" He citesthe opposition to the use
of recombinant DNA
techniques in
agricultureby the Tuming Point Proiect, a
coalitjon of over 60 political action
organizadonsirrcludingFood First, the Sierra
CIub and Greenpeace.
These groups fight against this latest
technologyin the long history of capitalisuc
increasesrn agricuitu ral p roductivity despite
the fact that, as Lewontin's comprehensive
reviewof the sciendEcliteraturemakesclear,
there is no proof that "Frankenfoods" have
yet hurt anyone,and that, "On balance,it is
impossibleto saywhether we have achieved
greateror lessercontrol over the unintended
consequence of mucking around with
natr.rrc."
The real goal of drose who protest against
geneticchangesin seedsis not motivated as
much by a fear of future poisoning of the
food supply as it is driven by what Lewontin
calls,"a falsenostalga for an idylliclife never
experienced." If we stop all genetic
manipuladon of agricultura.lproducts and
stiunp out globaiizadon wrth high tariffs and
other trade barr-iers,we may marginally
increase food prices and stall the rate at
which agnculturaip roducdvityhasimp roved,
but we will not be able to make the small,
self-supporting farrn feasible.
The upper-ciassconsordumof old aristocrats
and newly rich capitalists scoffed at that
possibility.They focused on the expansionof
markets and power with colonial wars that
eamedthe support of a broad populace that
sang "Rule Britannia" as they were
intoxicated by nationalism and
evangelicalism. Thus, those that showed
concem for the slum dwellers that Charles
Dickens wrote about offered a solution that.
had it been implemented,would only have
retumed the urban underclassto the grinding
mral poverry portrayed by Thomas Hardy.
Until the coming of the Labor Party in the
20th century thosewho held power in B ritain
offered only a pittance of charity but no real
solutionsto the problems of the urban poor.
It is very unlikely that most of the small
English farms that tragicallyhad to kill their
iivestockdue to hoof and mouth diseasewill
ever retum to full-ume farming. Small
farming is, for the most part, an obsoleteway
of eaminga living on land that is often more
valuablefor recreadonaluses,open spaceand
housing.Similarly,wrdr or without genetically
altered seedsand accessto gioba"lmarkets,
the living that Mexican farmers can scratcl'r
out is far inferior to what they can eam by
uekking north to take low-paid urban service
jobs or to 6nd employment with large
corporateagribusinesses.
In today's America, the mande of the 19dr
century anti-technological enemies of
capitalisucindustry has been assumedby a
broad coaliuon of activists who impose
barriers against urban and technological
expansion and militandy fight against the
globalization o f markets.
The very increasein per capita and per acre
food producuon that has driven millions off
the farm and made part-time farm workers of
many that remain has made it possible for
most American and European urban
migrants to be adequatelynourished.While
we canfeedmost of them, how well they live
dependsnov/, asit did in dre 19th century,on
our abilityto provide housing and education.
One exampleof theirposition is discussedby
Richard Lewontin in the July 21, 2001 issue
If the local and national land use and
infrastmcture-fundingpoliciesthat fu eledthe
suburban gro'*th of the 50's and 60's were
still in force, one could be very optimistic
about our ability to provide adequatehousing
for our immigration-swelledpopulation.But
drat is far from the case.An invigoratedspidt
of citizen participation, in coniunction with
environmental and anti-sprawl sendments,
has crippled the ability of housingproducers
to match the immigrauon-fed population.
Clemson University Professor J. Terrence
Farris'sardcle,"T'he Barders to Using Urban
Infiil Development to Achieve Smart
Growth," in Houing Pobry Deban, 6rst
quarter of 2001, notes that housing
production l'raslaggedpopuiation gtowth in
urban areas and is unlikely to provide the
housing needed by urban workers if drc
CensusBureaupredictionoFa populationof
403 million by 2050 is correct.
The United States today is facing the same
urban development problem that Great
Bntarn faced in the 19th century.
If we fail to implement solutions that will
permit buildrng dre lTousing,acuvity centers
and educational infrastructure needed to
amelioratethe iivesof thosewho havemoved
here to escapethe dead end of subsistence
farming, then much of our technologicai
progress and capital strength will irave been
wasted. It would be ironic if the U.S. real
estate industry were to invest heavily and
successfullyin the rest of the world wrthout
fulElling the potendal it has for serving dre
needsof its own population. *
Dr. Claude Gruen is a Pnncipal with
Gruen Gruen * Associates, a researclr
and consulting firm with offices in
San Franciscoand the Midwest.
www.ggassoc.com
THE INSTITUTIONAL REAI ESTATE LETTER
D^^^ I
I
Trends
September,2001
The t6New Democracytt
Flurts Urban Areas
The workings of democracies deperrd or-r
how the electoral system is orga:rized and
on how custom and law dictate what the
electorateexpects from those it elects.
The laws passed by dre founders of our
republic and the public sentiments of that
trme were that tax dollars should be spent
on public goods that increaseddre welFare
of a.ll,or at least a majoriry of tl-repeople.
Public monies spent on projects that served
only a few, and thereby worked primarily to
redistribute income, were denigrated and
even today are referred to as "pork barrel"
spending. Decisions on what was to be
allowed and encouraged were also to be
basedon raising the general public welfare
rather dran on benefitting some groups ar
the expense of others. Voters and the
courts interpreted private properry rights
broadly and tended to allow and request
their limitations only when an exercise of
pnvate property rights rvould greatly harm
dre public welfare.
Even at dre beginning of our democrzrcy,
electedofficials did not always avoid using
ta-xdollars to fund projects drat served only
dre few or prohibit all private actions that
redistributed more income dran they
created.As professorsAlessandro Lizzeri
and Nicola Persico pointed out in a March
2001 article in TheAnerican EconomicReieu,,
elected officials a.lways face a trade-off.
"The benefits from the public goods may
be higher on average,but drey cannot be
targeted to groups of voters as easily as
pork-barrel projects or pure transfers."
Since drose in office usua.llyrva:rt to be reelected, and targetingfor ill but tl-remost
valuable and well recognized public
projects is more likely to be rervardedwirl.r
votes and campaign contributions, drere
has alwaysbeen an incentive for officials to
support what can be targeted.
Sinceat least the 1930's,if not before, the
national padr of law, custom and political
organization in this democracy has been to
push the scalesof public decision making
more toward redistributron at d-reexoense
of public good. But nowhere have those
sca.lesbeen more heavilv weishted tor.vard
redistribution than in our urban
governments and regulations. The courts
have rveakerred the corlstitutiorlal
prohibitions against "takings" to the point
where only actions that deprive property
owners of virtually all value are prohibited.
The rights of locally elected officials to
decide wl-redreror what development will
be allowed have been broadened.
Nzfostof all, redisributive actions have won
out over public good actrons by
d-re
general acceptancein law and custom of a
principle drat was unknown to our
founding fadrers or drose who elected
drem: drat every project must be accepted
by t.hosewho participate in dre process oF
public meetings referred to as "citizen
participation." Only a small proportion of
dre public rvho rvill, over time, be affected
by a project or acion are likely to linorv
about any but dre largest urban projects.
Those rvho knorv and drerefore DarticiDate
are those who are closestto the proposed
project and fleelmost strongly about it; in
oLherwords, d.roservho will see tl-reirrea_l
wea.lth a:rd income most immediately
affected by dre proposed proiect and the
changes it brings. Usually tlose whose
rvelfare will, over time, be most affected by
the pro ject rvill not attend the meetings and
oFten are not yet living ir-rdre area.
lvlost of us realize drat in dre lorrg run,
public and private projects will affect the
general welfare very differendy and more
sigrrificandy from dre way it affects t]re
welfare of a ferv.Yet dre orimacv of citizen
participation appearsbeyond quesrion. A
friend rvho is a professor at a major
unrverslry wrote regarding dre June Trunds
about "pickling cities," in which l argr:ed
aganst the NII/IBY
who stops ^
neighboring project and drerebyraisesthe
price of housing.He wrote, "Claude, that's
democracy." Arot.her reader who agreed
wit.h me about dre need for more higl-r
clensity infill pro jects respor-rcledto tl're
same column widr some oersonal
experiencesin which her company had
faced unreasonable barriers to such
proiects,but she assuredme drat, "the best
pla:-rs er"rtail a negotiated process where
everyone'svoice is heard."
I am not suggesting drat urban projects
rvould ahvavs be built to best serve the
rvelfareof dre marry if it rvere not for the
J v C
I
selfish dictatesof those who shout out the
lnterests of the others, whose welfare will
be affected, but who are more distant from
the planning process. We have alwavs had
urban "pork barrei projects" drat resulted
from
plain old-fashioned political
corruptiol-r. A recent and blatant example
of this was the decision bv dre San
Francisco Port Commission to Erant
exclusive negotiaring rights for a pieJe of
Sa:r Francisco waterfront to a shopping
center developer with close ties to lvlayor
Willie Brown. Another proposer clearlyiid
a better job of responding to the criteria the
Port had delineated.
Decisions about what will be built in urban
places drat are informed by the demandsof
perspective users and dre manner in rvhich
dre local economy will be aFfected are
much more likely to improve the general
welFare dran pla-ns bought by political
contributions or
negotiated rvith
"stakeholders," whose primacy at the
bargaining table is based on proximiw to
dre project.
Projects drat serve d-regeneral welfare are
the great developments that make great
places. If we want to be a generation that
fosters great urban places, we must
rebalance dre laws and customs that
influence
trade-offs between actions
serving dre public welfare versus those
redistributins income. *
Dr. Claude Gruen is a Princioal widr
G r u e n G r u e n * A s s o c i a t e s ,a r e s e a r c h
and consulting firm with offices rn
San Francisco and the Midrvest.
\wvw.ggassoc.com
THE INSTITUTIONAL REAL ESTATE LETTER
Trends
October, 2001
Lessonsfrom 6'TheRingrt - part 1
from the pool of wodd knowledge. He
Loge adviseshis client to retum the rins to
should have drunk anotler flagon b-ecause the Rl-rine to avoid getting
o., lJr.
he missed some key sruff.
envlronmental list of drose"who will never
get anv real estate approvals in this torvn
I recendyspenta week in Seattieatter-rding Wotan got on the wrong side of
the
again." But just as Wotan failed to realjze
an excellent production of Richard envlronfilentalists very eady his career. He
one should not rake dle businessooints of
Wagner's"Der Ring Des Nibelungen." failed to ger an EIR before cutting
oFf a
a deal from one's lawyer, he also never
"The Ring Cycle" operas run about 20 branch of the wodd ash tree to fas''irion
a
learns drar one should listen to solid lesal
hours and are performedover four days. staff upon rvhich he carved the larvs.
He
advice. He does not return the ring, Jte
This wasthe seventhtime I havedone this, thought this was
iustrfied because gold and dre helmet to tl-reirowner. Instead
but beforeyou call me as a masocl-rist,
let civilization carnot exist without law. Worvl
he takes them to the closing where he
me explain.My wife is a Ringhead.The Everyone irr real estate knows that at
the
plunks drem down on the escrow officer's
compulsiveneed of Ringheadsto hear, very least staying in business means
you
table.
study and discuss the opera makes have to mitrgate every impact you have
or-r
Deadheads
look like theydon't grvea hoot nafure. Otherwise you're put on the Sierra Fasolt
and Fafner accept the stolen goods
about the Grateful Dead. More has been C l u b h i t l i s t .
as payment, and the gods toddle off to
written about Wagnerand his operastiran
Valhalla, which, I might add, they faii to
about any historic figure excepr Jesus, Next we leanr t.hatWotan has made a
deal
insure against fire. The partners in the
Buddhaand Napoleon.This is true despite wit.h dre constl-Lrctionfirm of Fasolt
and
constmction deal were good builders,but
the fact that Wagnerwas undoubtedlybne Fafirer to build the big new castle,Valhalla,
dley too screwed up when it came to
of theworst humanbeingsever.He was,.1.r rvithout eidrer a market study or a loan
business practices. They did not have a
anti-Semiticbigot who did not pay his commitment From a reliable fina:rcinE
partnership agreement. They squabble
debts ar"rdwho habituallv stole rvives. source. His real estateattorney, Loge, rvhJ
about dre paymerlt, and Fafner kills his
daughtersand sweerhearts
(altJrougl.,
ro-.
is also dre demigod of fire, let him pledge brodrer. After dre firatricide,
Fafner turns
considerdratdreinl.rerent
privilegeof great Wotan's sister-in-law,Freia,as payment to himselFinro a
dragon and mopes off to a
artrsts).
the builders,saying,"Don't *oiry, Wotan.
cave to guard dre gold, dre helmet a:rd the
I'll try ro ger you out of that pledge if it
ring. ffo be continued.) *
During my recent sojourn irr Seatde,I
really ticks off your wife, Friclia,"
attendedabout five hours oI the -{C)hours
of symposiaon Wagner,where scholars
discusseddre variedinterpretationsof tire
work. Many believe t.hai in adclition to
beinga greatstudentof Greek anclNorse
legend,Wagnerexpressedthe philosophy
of tftnt andSchopenhauer,
foreshadowed
the revelationsofJung and Freudand laicl
the foundationfor Nietzsche.But with the
possibleexceprionsof a greatparoclyby
I'nna Russell,theyhave it a.llwrong. "The
Ring" is just a simple tale about an
incompetentrealestateinvestor/developer
anda ded that went sout.h.Here'sthe real
story.
fhe first opera in tJ-recycle is "Das
Rl-reingold."Three sexy Rhine nymphs
teasedre ugly dwarf AJberich,leadinghim
ro despairof ever fir'rdinglove. L-rstead
he
;tealsdreecologically
importantRhinegold
he drreesexpotswereguarding.
Unfortunately,Wotan does rrot tell Fricka
until dre brodrers Fasolt and Fafner set the
final certificate of occupancv ancl i.e o,-,
their rvay to the closing.-Fricla is not onlv
angrv about dre prospect o[ losing her
sister to nvo big corlstruction goofs, she
points out that sister Freiahas a monooolv
on the apples the gocls must eat to ,emai,l
rmrnortal. Wota-ngets concerned, and calls
his larvyer, Loge, rvho sings on for ma:rv
billable hours about all the researchhe has
done to figure out a rlew financing plan.
Loge dren suggestsWotan visit A.lberich,s
illegalgold mine and foundry, which is not
certified by OSHA, becausethe drvarflras
fashioned a ring from the gold he swiped
fror-n the Rhine maidens. That ring allorvs
the wearer to rule the rvorlcl. He alJo macie
a gold l.relmetdrat permits the wearer to
assurneany form or to become irrvisible.
Wotan
and
Loge
trip
ol.l down
to
fo understandd-renext sceneyou must Alberich's srveatshopswhere, ratl.rer
tltan
fflow a litdeaboutthe investor/develooer reporr liirn for bad labor practices,
thev
vho is the leaderof the gocls-- Wotan. trick him out of the gold, tl-rellelmet a,,ri
this god skipped college or ar.r the rir-rg.This makes Alberich angry so he
tpprenticeshipwith an expreiencedreal places a liearryduty lien on the rirrg in the
)state practitioner and gained all his forrn of a curse drat brings deat.hto all u4ro
nformationby tradingone eve for a drir-rk wear it. Beir-rga good red estate lawyer,
Dr. ClaudeGruenis a Princioaiwith
Gruen Gruen * Associatesr'aresearcl..,
and consultir-rg
firm widr officesin
Sal Frarciscoand the Midwest.
www.ggassoc.com
THE INSTITUTIONAL REAL ESTATE LETTER
Trends
November 2001.
Lessons from 6.The Ring,-- part2
plots to grve Siegmund tjre edge and
operators who know that in real estatethe
position him to help with the re_pricingof
deal is not enforceableunless it's in rvritinq.
the long completed rea.lestatedeat.tIe ietts Wren Siegfried
pulls the armor off th-e
his favorite daughter, the Valkl,rie
buxom Brunnhilde, his teenagehormones
'Trcndi'described
Last month's
the action_ Brunnhilde, to help Siegmund in the big
krck in, and the trvo of them behave in a
qo.!.d first opera in Wagner,s ..Ring
fight drat is coming at dawn. This offend!
manner not sociallyacceptablefor nephews
Cycle" about a real estate deal tjrat werri
Wotan's rvife, Fricka, rvho, as the gocldess ano aunts.
bad. As you may recall, the remaininq
of marriage, does not approve of d-alliance
partfler of dre construction firm that bui[
berween siblings. She lays dorvn the law to
The lovers frolic for a while, but in dre
Wotan's new casde, Valhalla, had runred
Wotan, r.vho, sulking, tells Brunnhilde to
fi nal opera, "Gotterdammerung,', Siegfried
himself into a dragon to guard tJre gold,
stav out oI rJrefighr.
leaves Brunnhilde for a trip dovul the
magic helmet a:rd ring drat he collected at
Rhirre. He meets dre family of Hagan, the
dre contested closing. In the next opera, As anvone in
real estatesl-rouldhrow, vou
son of dre villain Alberich of the first
"Die Walkure," we fast-forward to t.he cturnor keep
cha,ngrngcomptury policies opera. Hagan introduces
Sieefried to his
progeny Wotan has been fatherin.qrvhen lte
wrthout creatrng dissension. Bmnhilde
hot babe of a l-ralf sister, G-utrune. and
should have been tending to busi-ness.
One
becomes confused and starts to helo
drugs Siegfried to make him foreet about
group of such progeny are the Valkyrie,
Siegmund in the fight. Like any ,enl .rtnti
his aunt. To make matters more-comole*.
nine daughters of the eart.hmother Erde,
man rvho isrows deep down it is all his
Hagan drugs Siegfried so he actuallv helps
who fly around on winged horsespicking
fault, dris makes Wotan mad. He useshis
bring Brunnhilde off the mountain,
up dead guys whom Wotan hires as thi
spear to break dre srvord Notirung. This
ostensibly to marry Hagan's half brother,
security force For Valhalla. If he had onlv
leavesSiegrnund first clefer-rseless
,id ,Il.n
King Gundrer. To put ir mildly, she is
paid attention to cost-effective properry deacl.
ticked at Siegfried, not knowing he has
management,he would have seenthat such
been doped. She is not eager to get hitched
a personnelpolicy was going to ger him irr BLunnhilde
contit-ruesto defy Wotan bv
to GuntJrer,so she lets it slip that Siegfried
trouble.
helping Sieglilrdeescapeso she car get dr;
can be killed if stabbed in the back. HoEon
pre-natal care she needs because she is
latcheson to dtat news.
Tire other offspring of Wotan are the
carrying Siegmund'schild. \\,4renhe finds
nvins, Siegmund and Sieglincle.The rwins
out, Wotan brings dris long opera to an end
Throughout all this, Wotar-r,s attornev
were separated as tots zu"ld dor.r,t get
by de-godingBrunnhildearcl purting her to
kceps repeeting t.hat the o,.,ly .uav to
togedrer again until aclulthood, ruli,r
sleepon a rock. He has his zrttorney,Loge, rrritigate dre
damage done to t.he larv, tire
Siegmund seel<srefr-rgein a fbrest hut. FIe
create a firervall covenilltt around t.herock
errvrronment and the godly psyche is to
does not lnow dris is the pacl of tr reall,,, to pre\reutanyone
but a reallycourageous, retunr dre ring to dre Rhine.
Sieqfreid
bad thug named Hunding, ,vho has forcei
if not necessarilvbright, hero from wakirre refuses
ro commit this act of restitutioir.He
the really hot Sieglinde ro be his rvife. up dre Valkyrie.
She is left zrsleepo,r thJ
still rvears tlre ring when Haga.nstabs him
Hunding has left Sieglinde alone in the hut
rock coveredrvrth her lrmor andit.,i.ta.
in the back. As Siegfried is being cremated
when Siegmund comes to the door tired,
on dre shore of d-re Rhine, Brunnhilde
hungry a:rd swordless. The bov arrd qrd
In dre nexroperawe meet Siegfreid,the big
redeems d-reusually unredeemablebad real
Sieges have eyes for each other. \Mien
teenageson of dre rwins. He has been estate deal
by riding her sacred horse,
Hunding arrives, he tells Siegmund t.hirthe
taken in as a foster child by the evil
Gra:re, into dre pyre, grabbing the ring and
can say the night, but in the mornins
blacksmirh Mime, who trains ti.,e l.,ero ro
drrowing it into the Rhine. When Hae-m
Hunding is going ro rurn him into sliceJ kill the dragon
and take the gooclies.Then
dives in after the ring, the Rhine ladies
meat. Sieglindeslips Hundirrga mickey a_ncl \lirne plans
to kill SiegfreiJ tor the ring. drorvn him.
explains to her brother/boyfriend thar
\Votan is still fixated on rhe deal drat rver-it
Wotan, traveling under a false name, has
bad, instead of getting on wit.h other
Unfortunately, or maybe
iustifiably, sparks
left a powerful sword called Nothuns so
profitable ventures. Siegfried tries to get
from dre pyre shoot up ro Valhalia, which
deep in a tree that no one can get it o;.
lvlime to repair dre srvord Nothung, but
had r-ro sprinkler system. It goes up in
realizesdrat if you wanr a difficult job do,re flames alorrg
with its godly tenants. In the
Now you can see what a scheming real rvell you'd
better do it yourself.
end, dre wodd is just a lot of undeveloped
estatetycoon Wotan rs.He strll wants to re_
space,and all dtat remains arc 20 hours of
price tl-redea.l long after it l-rasclosecl bv
Re-forgng -\otJrungmd kilIing rhe drrrgon singrrrg :rbout
how tlot to go about the
having someoneknock off tire contrector- are dre last smart
drings tJrekid does.After
d e v ' e l o p m e n t p r o c e s s .*
runred-dragon and give old Dad dre rins
drat, he beats the spear rvith all the
Siegmundpulls out the srvorrl,hurtirrg rhe corltrirctsln rt
out oI Wotan's hiurci,breaks
Dr. Claude Gruer-ris a princioal with
tree,which is anodrereuvironmentalblack
rt and then goes up to the rock to fincl his
G r u e n G r u e n * A s s o c i a t e s ,a , e s e a r c l . ,
mark, but Sieglindeis impressecl,and the
Aunt Brunnhilde. Without t]te corttracts
and consulting firm rvith offices in
nvo of d-remsing and play d.renight arvav. t.irat rvere irr the
spear, the real estate
San Francisco and the l/idrvest.
recordsare a rness.Ncl doubt Wotan rvill
w\vw.ggZssoc.com
Wrile drrsllnky sruff is happening,\\'otan
lirve tror-rble
rvidr dre IRS anclall the smart
THE INSTITUTIONAL REAL ESTATE LETTER
Trends
December,200L
Impressions from E,urope
one young Frencl-rwoman who exolained arrport
and on dre streets. In areasrvhere
drar she hed sought and found work in
the clear garbage bags had not yet been
Leeds because"London is too expensive.', instdled,
people ,,verepiling trashon rop oI
A one-bedroorn correge neer t}e main
the locked cans and not throwingit intot.he
After a week each in paris and London. I
airport in what is certainly not a oosh
srreer.,
Even tJrough dre population of
can report drat the overwhelmir.lg rnalo.iry
neighborhood sells for over
-are
central
Paris
d100,000.
has declined, the piople of tlre
of the people in both ciries
very
endre
regton
strll come urto the .ity ..rrt .
supportiveof the U.S. defenseof wesrern The
comFortablethree-hour train ride norv
to
enjoy
the
food, shops and culrural
civilization. In London, the Tate Britain
available befween London and paris has acdviries.
The
central city is where dre
was showing the video artrvork, ..Gamma
made it possible for Francophiles from
actlon rs; walking along its old streetsis
1959," by Jane and Louise Wilson. set in
a
Englar-rd to maintain ,pn.t^..,t, in paris
unlque pleasure.
d r e n o w a b a : r d o n e dU . S . m i s s i l e b a s e i n
drat drey use for rveekend Eetarvavs.
Greenham Commons in the Berkshire area Rentals
are available in paris -I,]", ,tlr.._
The people we spoke with rn both cities
of England. The video reminded me of the
year terms atd a requirementfor t.hefirst
were
very rvorried about dre effect of the
resolute English women protestors who
vear's reut to be paid in advance. Hotel
American
recession on their own
were aiways camped outside the base rates
irr Paris have not gone down
economies.
Starbucks rs as popular in
during the 50's and 60's. T'hese women
dramatically, but upgrades to ietter rooms
London
as
rt
is in Seattle, and while the
were much more impressive than the few
ard free champagre were easily obtained.
French
are
concerned
about America's
scraggly protestors who stood across the
"culrura_limperialism," th"y too recognize
street from dre Padiament waving signs During
dre rveek we were there, rve got a
that rve have global economy.
against the ah war over iraq ^a
taste of dre French disease tirat saos
Afghanistan. l}e newspepers indicated productiviry
a:rd weakens tl.,e econo-v.
On our retum trip from London, tl-reflight
some local Muslims protested more
Workers in dre nationa.lmuseums ,rr..,, out
attendant
announced rhat we had 53 yoilg
vrgorously and reported that five loca.l ol1
unannounced sftikes that kept dre rvorAers
from
a company in England thai
militant lvfuslims were going
ro
museums closed most oF the week. They
made
clodres
for
motorcyclists. Tl.,eyruere
Afghanistan to fight rvith the lalibar.
I
rvere striliing for a 35-hour rvork .ueek o,r
heeded
for
r.
vacation
in one of dre favorite
heard litde but agreement witl Lhe one
the fallacious dteory that reducing the places
of
European
- Las VeEas.
workers
House of Commons memberwho said thev number
of hours in the rvork *eel*,,uf,l.,out The flight
attendanr
thanked them for freir
should be chargedwitl treason
reducirrgpay,rvoulciboost tjreeconomv bv
contributiorr to dre American economv.
crerrrirtg more jobs.
Ivtar-,y ,ertaura.,.,r We were, of course, glad
to l-rarreso -al,y
The Brits I talked to in taxis, restaurarlts owners,
sewice rvorkers and salespeople of drese
big
obviously
pro-American
and at public functions were qlad to be our
that tourists meet expressed
young Englishmen on our plane. But
rve
best allies, even though r.,o.irl stated t.hat resentmeltt
"*t.a-a
at dre strikers.
never
really
felt
drreatened,
and
gven the
rve and dreir Prime Minister, Tony BIair.
announcement made on our refurn bv
mighr be naive in expectingcountiies like
A Parisiiurfriend rve spent an eveningwitJr
Govenror Gray Davis, we felt safe, o,.,our
Saudi Arabia and Egypt to provicle us rvith
said she felt dre reactior]to Sept. t 1 and the
trip
to Europe tha:r we do now rvhen rve
much aid and comfort.
Clothins
broird support for America was one of Lhe drive
over dre Golden Gate Brids.e.*
emblazoned with the American fl"e i;
first things that had pulled the French
popular on Sloane Street and o-tll..
people togetJrerirr qurte some time. A
shopping areas. The decreasein American
retrred consultant we had lunch witl-t
visitors was noted by many, the hotels had
rememberedtirat the Nazis had been able
Dr. Claude Gruen is a princioal wit.h
Delowaverageoccupancies,dre restaurants to
play on d.re anti-western and a:rti_
Gruen
Gruen * Associates, i. research
were easler to get into and tirxis more
humanism sentiment of milita:rt Muslims
and
consulting
firm witir offices in
available than usual.
W\\'II to recruir an SS division rhat foushr
San Francisco and t.l-re
Midwest.
to dre last man in France against the Alli"es.
ww\v.ggassoc.com
London is a busy, happening place,and the
He
rvorried rhat we might
be
local economy was cleady healtirier than
uncleresrimatirrg
the depth of the available
dre economy of Paris. Hotel rates rvere marlpower
that has been taught to hate dte
noticeably dor.vn,but most other property
idealsrve arrd dreFrenchholJ deer. But he
pnces were saggrngonly very slightiy irorn
rutd orhersrvespoke to were unrveveringirr
"rhe
tireir recent stratosphericheights. Workers
dreir rvillingness to srlncl fxst rvidr
are being drawn by the strorrg U.l{.
Urrited Srates.
economy from all over Europe. But as is
the casein high cosr regionsof rjre United
Securiry in Paris was tighr. The garbage
States,like San Francisco,the cost of livins
ctuls on the clear streetshad been ."rnorr"d
in London is motivating some of thesf
or locked shut, and were in the orocessoI
rvorkersto go elsewherein the British Isles. beirrg
rcplrced rvitlr cicar plasric bags.
On the train over from Frarce. we sat ne..lr Armed
police rveremuch irr evidenceat the

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