To capture the upside of public commercial assets, cities can create urban wealth funds to professionally manage their assets to the greater benefit of the entire community, Dag Detter, co-author of the highly regarded The Public Wealth of Cities, tells trustees.
“Every city is sitting on a goldmine of commercial assets,” Detter told Federal City Council (FC2) trustees at a December breakfast meeting. “If we could manage these professionally, we would be able to generate a yield that would help us fund many of the social economic investments that we need. Certainly, we could double the infrastructure investments that a city like Washington or any city in the U.S. is desperately needing.”
Detter, the former Swedish investment banker, government director and president of the Swedish government holding company, said, conservatively, there is about $75 trillion in national-level commercial public assets around the globe, including both real estate and operational assets.
A community’s commercial public asset yield can generally be benchmarked against a city’s gross domestic product (GDP), with returns conservatively ranging from 1 percent to 3 percent each year.
Emeka Moneme, FC2 deputy director, estimates that the District’s GDP is $84 billion, and the region’s is about $395 billion. DC’s yield on investing its commercial public assets, based on Detter’s forecast, would be between $836 million (1 percent yield) and $2.5 billion (3 percent yield) annually.
“If it’s 1 percent [yield], we’d be replacing the spend of the DC Department of Transportation capital program,” says Moneme. “If it’s 3 percent, it would represent the entire DC capital budget.”
But will this work in Washington, D.C.? Detter says yes, if the District has the political will to overcome some obvious hurdles common in the United States. The fragmented ownership of U.S. commercial public assets is intense, which means it is difficult to combine ownership from so many public owners. Also, there are a number of federal and state laws that are legal impediments to consolidate assets. Given the politics, Detter said it is generally easier to succeed when there is a crisis prompting the need for a massive influx of funds. (To learn more, check out the TONYTalks feature in FC2’s 2017 Fall / Winter Catalyst magazine.)
To start the process in DC or other cities, “you need the treasure map to see where the real estate and operational assets are located,” said Detter. “You do the legal due diligence to find out what is possible in the U.S. legal context. You end up with a portfolio managed by a holding company, and then you segment the portfolio’s commercial assets into … an operational side which is differently managed than the real-estate side.”