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Eco-disaster may spawn eco-city

Just off sprawling, smoggy Shanghai, Chongming Island will soon become home to what its backers describe as the world's first eco-city. While there are hints that the project is in some ways a political move — the first apartments are scheduled to open in time for the Shanghai World Expo in 2010 — even skeptics say it's a sign that the city that used to build everything may now be more likely to give the green light to developers who think green.

Shanghai has grown so quickly that it looks like “a concrete forest,” says Lin Bo Qiang, a professor of energy economics at Xiamen University. The Dongtan eco-city project is a departure from the treeless norm — plans call for the preservation of 60% of the land as open space.

The first phase of the city-financed project, which is to begin construction this year, is designed to house up to 10,000 people by 2010, rising eventually to a population of 500,000 by 2050. Shanghai Industrial Investment Corp. (SIIC) is financing the 33-square-mile project, which has been on the drawing boards of UK design and engineering firm ARUP for the past two years.

Eco-friendly features include a plan to generate energy entirely by renewable means, principally wind power and heat from rice husks, a waste product produced by local rice mills. Buildings will be up to 70% more energy efficient than conventional buildings, according to ARUP. Financial details about the project were unavailable.

For Lin, the takeaway for investors is that the Shanghai municipal government, the controlling shareholder of the SIIC, is becoming serious about green space.

Whether the government will actually be able to maintain 60% open space at Dongtan, however, may ultimately depend on how much the city weighs its value against another kind of green.

RREEF's wurst deal

Infrastructure deals may be moving into the fast lane in Europe following the high price paid for 50% of the company that owns all the rest stops along the German Autobahn.

Terra Firma, the U.K. private equity giant, recently sold roughly 50% of Autobahn Tank & Rast Holdings to RREEF, a unit of Deutsche Bank. Some analysts have estimated the sale value of Tank & Rast, which owns 390 rest stops, to be as much as $1.3 billion, nearly what Terra Firma is reported to have paid for the entire company in 2004.

The price reflects in part the growing enthusiasm in Europe for infrastructure assets, according to Hendrik Broeker, an analyst at Jones Lang La Salle in Frankfurt. Institutional investors like the stable cash flows that monopolies such as toll road rest stops can generate. Tank & Rast, for instance, holds 15 to 20-year leases with the government and long-term leases with service stations and fast food franchises.

Other infrastructure deals may be on the way as well. Broeker says he's heard headhunters are recruiting for teams with expertise in infrastructure management.

Empire strikes back

Before the British gave Hong Kong back to China in 1997, many observers speculated the end of colonial rule would be the end of a world financial capital. But it hasn't worked out that way. Prime rents are $150 per sq. ft. a month in Hong Kong dollars — about $19.17 in American dollars — and rents are forecast to climb by 30% this year, reports Vigers International Property Consultants.

In the past 10 years, more companies set up regional headquarters in Hong Kong than at any other time, drawn by easy access to China and most of Asia, says David Lindsay, deputy managing director at Vigers' Hong Kong office. In some respects, the city remains a largely separate enclave with more business-friendly regulations and lower, simpler taxes.

For real estate investors, Hong Kong has maintained a similar appeal. “You know what you're dealing with when you're in Hong Kong. Everything is very transparent,” says Lindsay.

New building is almost impossible in the dense downtown, but more than 11 million sq. ft. will soon be completed outside the central city, where rents on average are less than one-third of the prime downtown rents.

One major element in that growth is the International Commerce Centre building now under construction in west Kowloon, a 118-story building. A number of leading banks and accounting firms are expected to move their back-office operations to the 2.5 million sq. ft. of office space in the building. Similar moves of back offices are also expected when other new Class-A office space located outside the downtown is complete.

Bennett Voyles is a veteran commercial real estate reporter and National Real Estate Investor's Paris correspondent. For questions or comments, e-mail [email protected].

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