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The Harvard Business School Working Knowledge publication has a very interesting article with Professor Arthur Segel today. He discusses the upcoming trends in real estate for 2007 and beyond.

His discussion of the securitization of mortgages is fairly well known now as that industry is in the midst of its shake out. The enviromentalism part I feel is an outlier until it makes economic sense for developers to impliment (but he is on a college campus so it is an obligatory statement to make). His discussion of globalization is very intriguing to me especially if the United States goes through a period of slow growth appreciation in real estate assets over the next few years.

Q: What do you see as the most important trends in the real estate business today?
A: I see three trends: institutionalization, environmentalism, and globalization.
Over the last decade or so, the real estate business has become increasingly institutionalized, securitized, and professionalized. There are over $5.5 trillion of securitized home mortgages, $500 billion of commercial mortgage-backed securities (CMBS) and $200 billion of real estate investment trusts (REITs), much of which did not exist prior to the early 1990s. Most would argue that securitization has brought greater transparency and more discipline and efficiency to an undisciplined, inefficient market. Unfortunately, there’s no doubt that more and better information means it will be harder to be the alpha, as Professor Andre Perold calls it, in the market. You have to dig deeper and work harder. It also means the day-to-day business may be less fun. Further, as in all evolving industries, the risks are not apparently clear in this new world of securitization.
The second main trend has been in the environmental arena from greenfields, grayfields, and brownfields to green construction. Debates on urban sprawl and so-called new urbanism are the rage among developers and academics. Grayfield debates concern what to do with all of those old shopping malls and parking lots in infill locations. (One friend told me the problem with shopping centers in the United States is not that they are overbuilt as much as they are under-demolished.) Regarding green construction, we don’t have to look very far from here in Boston to witness a wonderful example, the new Genzyme Building down the Charles River in Kendall Square. It is the most “green” building built in the United States east of the Mississippi. Green construction and green operations are the wave of the future and the United Sates is far behind Europe in this regard.
Finally, American real estate investors have traditionally been pretty parochial compared to their foreign counterparts because the U.S. market is so big and diverse. Today, however, American investors are buying distressed mortgages in Japan, industrial buildings in Mexico, and developing shopping centers in Eastern Europe. Globalization has hit the real estate industry big time. A serious impediment for investors, however, is corruption, which in economic terms is a certain kind of transaction cost or tax or another one of those market imperfections. via HBS Working Knowledge.

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