Sep 4, 201301:18 PMPoint of View
Q&A: John D. Macomber
Professor John D. Macomber, faculty co-chair of the Real Estate Seminar and the Real Estate Management Program.
Courtesy Harvard Business School
When news came that the Harvard Business School was introducing two executive education programs I was especially intrigued by the one called Investing in Sustainable, Competitive Cities (March 5-8, 2014). Short, but rigorous, the course promises to create the necessary—and very timely—connection between the earth, its processes and its inhabitants, and the powerful business community.
To learn more, I turned to John D. Macomber, senior lecturer and Gloria A. Dauten Real Estate Fellow, and faculty co-chair of the Real Estate Seminar and the Real Estate Management Program. In addition to these credentials, the professor has a background in design and construction. What a great and useful combination of fields! In the course of our e-mail conversation we covered, among other things, the need for new connections and well as the necessity for combining fields of expertise around the complex, often daunting questions of today.
Susan S. Szenasy: I am very interested in learning about the new course, Investing in Sustainable, Competitive Cities, with its aim to educate executives about growing real estate opportunities. From a business point of view, could you describe the opportunities you see in infusing real estate development with the growing knowledge of sustainability? Architects still complain that developers don't get it.
John D. Macomber: The aim of Investing in Sustainable, Competitive Cities is to educate executives about opportunities to invest in the components that make up sustainable, competitive cities around the world. These components include commercial real estate, of course, but increasingly also involve roads, electricity, water, transit, and other (non-investment) buildings.
The opportunity – some would say obligation – arises in coping with three global mega-trends. First, rapid urbanization: hundreds of millions of people are moving to cities to seek better lives. Second, resource scarcity: there is already not enough clean air, clean water, energy, land and too much traffic and air pollution. Rapid urbanization only makes this worse. And third, for the most part governments are stuck (politically or financially or both) and unable to invest in the forward thinking, evidence based, community oriented infrastructure and buildings that one might otherwise hope for.
So, the private sector needs to step up – and can step up – to do far more than just build office buildings, malls, and apartment blocks. An element of the step-up is in uncovering and understanding a shared concept of sustainability upon which architects, developers, and finance people can agree. I’m a finance professor with a background in design and construction; my role is to help shape that common ground.
SSS: Where will your students come from? What areas of the world? What do you hope participants take back to their communities and/or businesses from the program? How do developers get on the same page with the best practices of architects?
JDM: Participants in Executive Education at Harvard Business School come from all around the world. My last several programs, as an illustration, had good representation from six continents.
Investing in Sustainable, Competitive Cities starts by laying out a common set of frameworks including urban economics, real estate development, and infrastructure finance coupled with public private partnerships. It concludes with topics like adaptation and resilience due to climate change, and with evaluation of new concepts like smart cities, personal mobility, big data, and collaborative consumption.
One of the take-home learnings is around how to apply different tactics for different situations. Emerging economies are different than developed economies; new cities and new construction are different than renovation and renewal.
The other foundational concept is around the supply chain. The world looks different from the point of view of local governments, architects, urban planners, developers, commercial property investors, building products manufacturers, information technology companies, manufacturers of trains and cars and turbines, or financiers and installers of water and electricity and waste facilities. All of these firms, however, make up the built environment and all of them have different roles – and opportunities – and obligations in creating sustainable, competitive cities. In the emerging economies, for example, many of these roles blur, as builders also need to bring infrastructure to their projects. The cost/benefit of an energy retrofit investment is different than the cost benefit of enhanced energy efficiency in new construction. We work through all of those scenarios.
SSS: It's no secret that large-scale development is going on all over the developing world, where so much of what has been built recently is based on the unsustainable practices the US developed in the massive skyscraper era, where every city is looking like Miami Beach, regardless of climate and culture. How can this deadly trend (both environmentally and humanly) be challenged by the people who attend your course at the Harvard Business School?
JDM: Best practices going forward will, in my view, be driven by a couple of important concepts. First, thinking about multiples of buildings (instead of one at a time) will have multiple levels of impact. For example, a minor innovation might be exterior sun- screens on a Houston office tower. But the tower stands alone without benefit of shade from other buildings, and everyone drives miles to and from the tower. The big opportunity for multiple layers of energy savings and impact thus lies in situating buildings where they shield each other from solar gain, they benefit from breezes, and where they are close enough together to allow for comfortable walking or mass transit. Some of the most successful cities in the world are very dense and efficient in this way; for example Hong Kong, Singapore, Tokyo, London, and New York.
Second, much discussion of sustainability revolves around “more supply:” for example, more electricity from renewable sources. The other side of the equation should be around “less demand:” or more benefit from using fewer inputs. Most of my research is around how a select group of firms makes money this way, from creating value by stretching the resources we have…not by churning out and consuming more of them. Cities, too, get more competitive with each other by improving resource efficiency: by making water and electricity cheaper and more efficient; by reducing commuting time; by using public green space to enhance quality of life. These investments can be – and are – cost justified on a regular basis.
(For more on this, see my recent post for Cityminded.org: “Making a Big Impact in a Big Hurry: Finance and Technology in Sustainable Cities”)
SSS: Your students will learn about new models for investment and entrepreneurs around resource efficiency and sustainability in emerging cities. Will you be teaching these new skills through case studies? Could you describe what these new models might look like?
JDM: Of course. Participant-centered learning is at the core of everything that Harvard Business School does. Our teaching material – HBS case studies – causes students to analyze, discuss, persuade, and decide in real time, with experienced peers. HBS case studies put students in the shoes of a decision maker with a dilemma to address. I’m delighted to describe some of the case studies we will use.
“Edward Lundberg and the Rockville Building: Energy Efficiency Finance in Commercial Real Estate” goes deep into the financial modeling, curtain wall and window considerations, engineering options, and landlord-tenant-banker relationships in an office building in Rockville, Maryland. It also considers climate modeling, energy cost modeling, and the true reliability of engineering projections.
“Water Shortage and Property Investing in Mexico City” looks at the severe and perpetual water shortage in this global capital city – from the point of view of a real estate investor doing due diligence on how exposed her fund might truly be due to water problems.
“TransMilenio” looks at the cost/benefit economics of business as usual; specifically, the difference between a bus or light rail public transit system in Bogota, Colombia. Important players include the metro and bus equipment providers, local businesses all along Avenue Septima, and of course citizens.
“Phu My Hung” is a large integrated development near Ho Chi Minh City, Vietnam. It was built by private investors following a master plan by Skidmore, Owings & Merrill LLP (SOM) and careful phasing in of central electricity, central water and sewer, an export processing zone, and three schools. This is a case study about the long view and how to analyze a multi-year investment as compared to a quick real estate flip. How much value is created?
SSS: It's interesting that Harvard Business School's offerings also include a Real Estate Management Program: Finance, Design, and Leadership, in addition to the ISCC program. Can you talk about why these need to be two separate courses? Why isn’t the growing knowledge about sustainable development at the heart of every learning opportunity? Separating the two seems like you could either be successful financially by using high-design buildings or be sustainable; I'm not sure that we have that choice. What I'd like to explore here is the Business School's vision on what's important to healthy business on a healthy planet.
JDM: Great observation. In Harvard’s MBA program, these are indeed combined in one course called Sustainable Cities: Finance, Design and Innovation. It’s a combination of prior Real Estate Development and Sustainable Urbanization courses. But it takes three months and 28 class meetings to cover the material – too long for an executive program.
Each executive program is four days. They are organized by role in the supply chain, so that attendees with common challenges and learning objectives can be with each other. The objective of the Real Estate Management Program is to educate executives about growing real estate opportunities. This includes best practices – in design and sustainability as well as in finance. Architecture elements in that program include advanced building materials, energy modeling and simulation, and the financial value of design as reflected in the typology of office buildings and retail.
Harvard Business School’s mission is to educate leaders who make a positive difference in the world. With respect to sustainability and the built environment, this means economic sustainability in terms of the future competitiveness of cities to create jobs, improve quality of life, and grow GDP. In terms of social sustainability this means not only jobs, but also electricity and water (in emerging cities), plus housing and transit (in developed economies). These all underpin the soft infrastructure of education and health care. And from an environmental point of view, it means making the scarce energy, water, clean air, and land that we have go farther, while minimizing the effects of sprawl, congestion, ineffective transit and inefficient buildings. The Harvard Business School’s Business and Environment Initiative puts this theory into practical education.
Other Items of Interest:
“Building Sustainable Cities,” Harvard Business Review, July/August 2013
“The Role of Finance and Private Investment in Developing Sustainable Cities,” Journal of Applied Corporate Finance, September 2011