April 25, 2016
The boom in today’s global real estate development includes “super projects.” These are defined as developments attracting both capital in excess of $1 billion, as well as a great deal of attention due to their impacts on the communities in which they are being built.
Amy Wolff Sorter, from Connect Media, interviewed Blake Hutcheson, president of Oxford Property Group Inc. in Toronto, to find out more about these massive, community-changing developments.
Q. Does it seem as though more super projects are being built or planned these days? If so, why?
A. There was a time when we didn’t see many significant projects because banks and developers were gun shy. But in the last 15 years, we’re seeing patterns of significant development. The best example of this is in New York; Hudson Yards has been dubbed the largest private development in American history. We’re also seeing significant projects in Japan and China, and more projects on transportation nodes in London. It’s become more commonplace today in a global context.
Infrastructure can be a game-changer – when it’s in place, opportunities open that otherwise wouldn’t exist. When the 7 subway opened up at Hudson Yards, it also opened up the commercial real estate opportunity.
Q. What types of projects are you involved with and and what is their appeal?
A. We have about $42 billion (CAN) worth of assets under management, comprising 200 assets globally; approximately 55% of those are in Canada, 45% of them are elsewhere. We have $7.5 billion (CAN) worth of new development globally, about half of which is ours. We often bring in partners. For example, we’re working with Related on Hudson Yards.
As to the appeal, a big decision developers make is can you develop below replacement costs, versus buying those same assets. From a numbers standpoint, our average profit over cost is 25%. We shoot for 35%, and generally average yields of 200-300 basis points higher than if we were to buy an asset with a current income stream.
Q. What are some trends you’re seeing in the area of super project development?
A. We’re seeing more assembled teams, including integration of architects, engineers, financiers and developers; those that have the know-how to manage massive projects. These teams also use technology and innovation with much more effect than any time in recent history. Also, in many major cities of the world, we’re seeing office and retail that is functionally obsolete. So developers are culling them out and creating new, innovative places to work, play and live.
Dubai has been good at developing world-scale retail, office and housing product, but they have massive tracts of undeveloped land. There is also development in Tokyo, and it’s interesting to see urban development taking place in an extremely built-out city.