Which Cities Are the World’s Most Innovative?

By , Michael Mehaffy, Bendix Anderson, and Leslie Braunstein

March 1, 2013

Photo Credit: Camilo Sanchez/Wikimedia

Photo Credit: Camilo Sanchez/Wikimedia

The Wall Street Journal and Citi have announced that Medellín, Colombia, is the winner of the “City of the Year” competition, a global program developed in partnership with the Urban Land Institute to recognize the most innovative urban centers. More than 980,000 online votes were cast during the program.

The program was launched in June 2012 with a list of 200 cities compiled by the Urban Land Institute. Cities were selected based on eight criteria: environment and land use, culture and livability, economic/investment climate, progress and potential, places of power, education and human capital, technology and research, and mobility and infrastructure.  Consumers were invited to vote online at wsj.com/ad/cityoftheyear. The three finalist cities were Medellín, Tel Aviv, and New York City.

“For over 200 years, Citi’s mission has been to enable progress,” said Francisco Aristeguieta, CEO, Citi Latin America. “We are committed to supporting the growth of Latin America, particularly vibrant and innovative cities like Medellín. We are pleased to sponsor the City of the Year competition, and congratulate Medellín on this global recognition.”

“The City of the Year program fostered dialogue among Journal readers and consumers and engaged the most powerful and influential audience in the world,” said Michael Rooney, senior vice president of the Wall Street Journal.

“Medellín stands today as an example for many cities around the world, because despite having lived very dark and difficult times 20 years ago, we have been undergoing a true metamorphosis,” said Mayor Aníbal Gaviria. “Going from pain and fear to hope, and now from hope to be a place filled with life, the city has known how to innovate in every step, both in social programs, urban developments, or the combination of both, and this has been key in the success of this process. In this sense, I would like to thank Citi, the Wall Street Journal and the Urban Land Institute for allowing us through the City of the Year to show to the world the things that are happening here and the tremendous challenges that lie ahead.”

Selection Process:

  • The initial 200 cities were selected by the Urban Land Institute (ULI).
  • The 25 semi-finalist cities were selected through weighted voting, composed of 25 percent public voting, driven by traditional and social media to the City of the Year site, and 75 percent ranking by ULI.
  • The three finalist cities were selected by 50 percent public voting, 50 percent ranking by ULI.
  • The winning city was determined 100 percent by public voting.

Camilo Sanchez/Wikimedia
Medellín’s Metrocable system connects some of the more remote areas.

The recovering capital of narcoterror has successfully employed “urban acupuncture” and other innovative tools to dramatically improve quality of life—and other cities are taking note.

By Michael Mehaffy

Among the dangerous cities of the world, few have equaled the troubled reputation of Medellín, Colombia. At its nadir, the former base of narcoterrorist Pablo Escobar recorded more than 3,000 murders per year, and many more robberies and assaults. For decades, many of the city’s public spaces were desolate and unsafe. Slum areas, swelling with refugees from political violence in the countryside, were overtaken by equally violent gangs.

But by almost all accounts, Medellín has seen one of the most remarkable urban turnarounds in modern history. Crime is markedly lower, and the city is graced with well-attended new civic spaces, libraries, and art galleries. Business is good; indeed, it is the envy of many cities across the globe. What is more remarkable is the unconventional path the city has taken to this recovery.

Part of the turnaround certainly began when Escobar was killed in 1993, the climax of a storied manhunt. A more general police crackdown followed, and the murder rate was cut by more than half. Even so, for years afterward the city languished as urban quality of life indicators remained stubbornly low. Many attribute the real transformation to a shift in urban policy that brought about a revitalization of the city’s poorest areas. That, in turn, has brought remarkable benefits for the rest of the city.

The biggest changes are generally credited to Medellín’s charismatic former mayor, Sergio Fajardo, who is now governor of Antioquia, the province in which Medellín is located. The holder of a doctoral degree in mathematics, Fajardo is also an architecture fan—his father was a noted Medellín architect—and he has long been fascinated by the capability of architectural and urban interventions to catalyze wider benefits. As mayor, Fajardo inaugurated a remarkably ambitious plan of “integral urban projects,” as they are known locally.

Such projects are typically not undertaken in the wealthiest areas of town, but rather in the poorest slums. “We are going to go to the spaces of the city where we know we have the most need, and we are going to come up with architecture as a social program,” Fajardo told Newsweek magazine in 2010. “Some people say, ‘Well, it’s just a building.’ It’s not just a building. It’s a public space, and the dignity of the space means the whole society has invested there. The whole society is present there.”

Nor are the projects simply alluring examples of international “starchitecture.” Rather, they are buildings by local firms that provide educational and recreational opportunities, like libraries, parks, and schools. One notable example is the Parque Biblioteca España, a library formed by a striking group of rustic black cubes set in a verdant hilltop of the once-notorious Santo Domingo neighborhood. Designed by Bogotá architect Giancarlo Mazzanti, the project is representative of Fajardo’s “architecture as a social program.”

There are five such library projects, and Fajardo sees them as key catalysts for the improvement of the city. These are a major example of his strategy for the city, he says—“public space of the highest quality at the site where the libraries belong, at the heart of the community,” where each community is “enriched by the library, where all citizens have access to books, technology, entrepreneurship centers—all the tools needed for full development.”

Another project, the renovation of the popular Jardín Botánico and Orquideorama—a botanical garden featuring exotic orchid varieties —features a distinctive pavilion of geometric wooden hexagons and helixes by Medellín architects Plan:B Arquitectos and JPRCR Arquitectos. Other projects include schools and community centers, also with striking architecture. Fajardo has made education a priority, but has used architecture as a tool in that process. “People who say that a beautiful building doesn’t improve education don’t understand something critical,” he told Newsweek. “The first step toward quality education is the quality of the space. When the poorest kid in Medellín arrives in the best classroom in the city, there is a powerful message of social inclusion.”

Fajardo, along with his former director of urban projects, Alejandro Echeverri, initiated not just building projects, but also an innovative series of micro-lending and community-led investment programs. Some of the biggest investments were in transportation and public space infrastructure. For example, Fajardo’s administration completed the Metrocable system—a series of aerial trams into the steep hillsides begun by the previous administration—and added extensions.

One of the most dramatic aerial trams, and now a big tourist draw, takes visitors to the stunning Parque Arvi, an ecological park whose new wooden buildings complement the natural setting. Tourists ride the tram alongside local slum residents, some of whom might be enjoying the park from their nearby neighborhood. Visitors can canoe on the creeks, ride a zip-line through the tree canopy, or go horseback riding through the forest.


Medellín’s outdoor escalator system was introduced into one of the poorest and most dangerous favelas, or shanty towns, Comuna 13.

One of the most attention-getting projects was the outdoor escalator system introduced into one of the poorest and most dangerous favelas, or shanty towns, Comuna 13. The escalators, stretching a quarter mile (0.4 km) up a steep hillside, were requested by the residents themselves through a citizen-led appropriation process, and cost 12 billion Colombian pesos (about US$6.7 million). Extensive media coverage brought out the skeptics: how could such an unconventional, expensive system help improve a notorious slum? But today, few can deny the remarkable changes that have come to the area since the escalators were installed.

Where once residents trudged up a dangerous, sewage-laden path—a hike the equivalent of scaling a 28-story building—they now pass uniformed attendants as they step onto covered escalators, taking them up a steep, visually stunning axis through the neighborhood. Between and around the six escalator segments is a series of new small public plazas extending outward with steps and walkways. Around these plazas, new homegrown businesses have sprung up, and many nearby homes have been improved. A new series of concrete pathways has been extended from these spaces, too, accompanied by more new businesses, remodeled homes, and well-tended landscaping.

Visitors frequently marvel at the livable appeal of the public spaces. Where once it might have been unthinkable, lush plants and public art remain undamaged. There is graffiti, but it is largely confined to key walls where its colorful patterns seem to animate the public spaces. The city’s dramatic setting, overlooking the valley below, brings a steady stream of visitors who come to shop in the stores and take in the sights.

Fajardo likens such integral urban projects to what he calls “urban acupuncture,” a term popularized by Jaime Lerner, former mayor of Curitiba, Brazil. During Lerner’s administration, Curitiba became famous for a series of innovations that greatly improved urban quality of life. One, a bus rapid transit system, made it easier for people to get around inexpensively, and a garbage-for-groceries exchange program solved the problem of waste disposal in the slums. Lerner was also an architect who was unsatisfied with architecture as a mere visual amenity; like Fajardo, he sought to use architectural and urban projects to catalyze wider improvements.

In the introduction to his book Urban Acupuncture (IAAC, 2005), Lerner explains the idea this way: “As with the medicine needed in the interaction between doctor and patient, in urban planning it is also necessary to make the city react; to poke an area in such a way that it is able to help heal, improve, and create positive chain reactions.” The goal, Lerner says, is to create “revitalizing interventions to make the organism work in a different way.”

Lerner, Fajardo, and others are quick to distinguish this approach from the “silver bullet” solutions that some urban planners promote, such as recruiting an international “starchitect” to create an attention-getting building as a tourist destination. The goal in that approach is what has become known as the Bilbao Effect, named after the celebrated Guggenheim museum in Bilbao, Spain, designed by American architect Frank Gehry. But some prominent planners are harshly critical of the strategy. American urban planner Andrés Duany pointed out in an interview that such a new element is supposed to bring wonderful results for the city all by itself, without building on the surrounding urban fabric—a phenomenon Duany decries as an example of “magical thinking.”

Duany argues that most subsequent “Bilbaos” have not lived up to their reputations. “Their effects on their cities are roughly equivalent to the effects of ancient cave paintings of antelopes on the next day’s hunt,” he says. By contrast, he notes, “Wherever planning has succeeded, it has relied upon the patient reweaving of the urban fabric into whole cloth, socially, physically, and economically.” Medellín’s success, he thinks, has come from its successful repair and reconnection of the most damaged parts of the city’s urban fabric. Handsome architecture is only a tool in that process—a signal that the surrounding neighborhood and its people have value and are worthy of development opportunities.

As Fajardo points out, the transformation in Medellín is not simply a matter of physical changes. The residents themselves have become involved in the planning and operation of these projects and in the activity they have generated. This creates a very different relationship between the planning bureaucracy and the residents. Fajardo is known for the “civic pacts” he made with different constituencies, not merely giving them a say, but giving them what he terms “co-responsibility”—transparent responsibility for success or failure. He found that allowing constituents to take full credit for success was a powerful incentive for cooperation.

Fajardo’s skill at making things happen in spite of the bureaucracy has become legendary, and his popularity rating when leaving office was at a historic high approaching 90 percent. While in office, he seemed to combine a mathematician’s mastery of game theory—the art of understanding and managing rules, incentives, and likely outcomes—with a humanist’s sense of open collaboration and trust. That winning formula has earned him admirers far beyond Medellín. Although he was focused on improving the well-being of the least well-off citizens, he earned the trust of the local business establishment, too, demonstrating that his strategy offered big wins for rich and poor alike.

Fajardo is quick to point out that the successes were not his alone. He came to office with an alliance of leaders with expertise in a broad range of relevant fields, including finance, education, and urban development—the so-called Group of 50, which later grew to about 200, becoming Fajardo’s brain trust. The group created a series of intensive work groups to tackle specific problems in the city and develop effective strategies and tactics to address them.

Fajardo’s team replaced the old crony reward system with an emphasis on more transparent metrics. That immediately shifted the dynamic of rewards, says Federico Restrepo, Fajardo’s director for planning. As Restrepo told researchers from Princeton University’s Institute for Successful Societies in 2010, “Discussion became objective and perfectly justifiable in terms of numbers and data. The level of subjectivity, which is usually associated with political negotiations, went down drastically.”

Fajardo has been active in the International Association of Educating Cities, a network of cities begun in 1990 that fosters collaboration “on projects and activities for improving the quality of life of their inhabitants on the basis of their active involvement in the use and evolution of the city itself,” as the association’s website puts it. This is clearly very close to Fajardo’s thinking.

“A city is an educator,” Fajardo told the association in an interview in 2007. “An educating city is one that understands education in a broad sense, as a tool of social transformation that makes its citizens participants in the world and makes them equivalent in knowledge and development opportunities.” Fajardo, the former university professor, came to see “the educated city” as the unifying theme of all his work. “Whatever we did, we explained it around this narrative about education understood in the broad sense,” he told the association. That means giving people lifelong learning opportunities from hands-on involvement with improvement projects in their own neighborhoods.

“We must close the gap between the public administration and the citizen,” Fajardo continued. This is not a nebulous goal, but a concrete plan of action, he said. “For us, it is basic to recognize and encourage new leadership; use our person-to-person interventions directly to reach the communities; share the processes of transformation step by step; generate working groups on projects; encourage and respect the work of the citizens’ groups; emphasize clarity in the processes; and hand over to the community the responsibility for caring for everything that has been achieved.”

Duany calls this principle “subsidiarity”—the capability to work on neighborhood-scale projects, originating with the neighborhoods themselves, but with the capacity-building assistance and collaboration of the city as a whole. Duany and his colleagues offered a similar strategy for the recovery planning of New Orleans following Hurricane Katrina in 2005, using “neighborhood resource centers” to bring the tools and resources necessary for building to neighborhoods across the city. Similar trends, variously known as tactical urbanism, pragmatic urbanism, and peer-to-peer urbanism, are underway in other cities. In this global movement for urban innovation, Medellín’s successes are gaining fame.

It is not just livable public space that is the goal, Fajardo says, but also the reduction of violent crime—the ultimate threat to well-being and to urban vitality. Toward that essential goal, the conventional tools must be supplemented by the new tools of urban intervention. “You need the police, the justice system, the military, and all these things,” he told Newsweek. “And we have done those in Colombia. But we have to close that entrance door [to a life of crime]. It’s a door that is very wide open in Medellín.”

Integrated urban projects can open an alternative door, he thinks, by creating urban environments that offer opportunity and real participation.

A decade after Fajardo’s term began, not all is rosy in Medellín, certainly. Crime has risen again and remains stubbornly high: in 2012, the city of 2.7 million saw more than 1,000 murders, though that is less than half the 1990s peak. The new crimes are those now common across much of Latin America—largely exchanges between small gangs of narcotics traffickers. By most accounts, the city does feel much safer and more appealing than it did. Tourists are coming in surging numbers, and once-desolate public spaces now thrive with nightlife. But much remains to be done.

Nor are all the urban interventions popular with everyone. Some comuna residents criticize the Metrocables, arguing that they are much more expensive than the buses they replaced. Others say Fajardo should have spent more time ending corruption in the police force. Observers also caution against giving too much credit to the urban interventions for reducing crime: Fajardo’s term happened to coincide with a truce negotiated by the national government and the city’s violent paramilitary gangs.

But Fajardo is a strong advocate for the benefits of the participatory principles used in the city’s urban interventions. “This formula, apparently simple but with a very deep sense of what participating democracy should be like, functions in Medellín, and anywhere in the world for that matter, because it rescues the true sense of politics,” he told the International Association of Educating Cities.

How does he define this “true sense of politics?” It is “nothing more than working with people for people,” he says, “where the general interest always prevails over private interest, where everyone is invited to get involved in the changes, where no favors are negotiated for bureaucratic office or contracts, and dignity and differences are respected.”

This is not just an equitable policy; it is an economic development strategy. In a region of the world where the population of informal settlements is exploding—as it is in much of the developing world—there is a lot at stake. Cities with greater opportunity for all will be more competitive and will be more successful in protecting and enhancing their natural resources, their economies, and their quality of life.

Michael Mehaffy is a researcher, consultant, and executive director of the Portland, Oregon–based Sustasis Foundation.

With its innovative High Line, a pedestrian Broadway, and efforts to clean air and water, the city never sleeps. 

By Bendix Anderson

In New York City, visitors to Times Square can sit surrounded by neon lights at café tables in the middle of Broadway, watching tourists spill into streets not long ago filled with cars, while cyclists cruise the new bike lanes.

“It’s a place where people want to linger,” says Ilana Preuss, chief of staff for advocacy group Smart Growth America. It is also a place where many of New York’s sustainability initiatives are on display at the same time—¬from new street trees to the increasingly energy-efficient towers surrounding the square.


In just the past five years, New York City has further distinguished itself as one of the most innovative and environmentally conscious cities in the world. Its PlaNYC 2030, released in 2007, aims to reduce the city’s total greenhouse gas emissions by 30 percent by 2030 and includes a long list of commitments to expand mass transit, restore natural habitats, and make the city’s air the cleanest of any U.S. metropolis.

“It’s a bolder plan than any other city has tried,” says Preuss. The latest update of the almost obsessively data-driven PlaNYC has 132 separate initiatives and sets more than 400 milestones for the end of this year.

New York City already has a large head start on other American cities in sustainable development. “New York is one of the most sustainable regions in North America just by its efficient use of land and infrastructure,” says Chris Jones, vice president for research for the Regional Plan Association (RPA), based in New York City. The activities of New Yorkers emit far less carbon per capita than those of residents of comparable American cities and about a third as much carbon as the average U.S. resident, according to the city’s Inventory of New York City Greenhouse Gas Emissions.

Because three-quarters of New York City’s greenhouse gas emissions come from the energy needed to light and heat buildings, PlaNYC starts with these structures. In 2009, the city enacted a suite of laws, known as the Greener Greater Buildings Plan, to help make these buildings more energy efficient.

“Greener Greater Buildings does more in one sweep than all other initiatives in the country put together,” says Russell Unger, executive director of the Urban Green Council, the local chapter of the U.S. Green Building Council (USGBC). “No one else has put together what New York City has.”

The plan focuses on the biggest buildings in the city. Though there are nearly 1 million structures in the city, about 15,000 giant buildings with more than 50,000 square feet (4,600 sq m) of space apiece account for half of New York City’s square footage and 45 percent of its greenhouse gas emissions, according to PlaNYC.

The new laws include a new energy conservation code and require upgraded energy-efficient lighting, energy audits, and energy submetering for large commercial tenants. These large buildings are also required to submit a report every year to the city on their energy performance measurements.

Together, the suite of laws are expected to cut the city’s greenhouse gas emissions by almost 5 percent and create a net savings over ten years of $7 billion, largely for the owners and operators of the building, according to PlaNYC.

The Empire State Building is undergoing a window retrofit that will make it one of the greenest structures in New York

Over the past two decades, New York City has been one of the centers of learning for high-performance, environmentally friendly construction. “The top firms for green are here,” says Unger. Since 2005, all new public buildings have been designed to earn certification under the USGBC’s Leadership in Energy and Environmental Design (LEED) program. LEED standards are pervasive in private development, as well. “LEED is the de facto standard for Class A [real estate]. It’s expected,” says Unger.

In New York, as in many American cities, if too much stormwater hits the combined sewer system at once, the sewers overflow, spilling a toxic mix of rainwater and untreated sewage into local bodies of water—New York Harbor in New York City’s case.

“The city made very, very aggressive changes in the amount of stormwater that can come off a site,” says Russell. The amount of stormwater runoff allowed at new construction and rehab projects is now just one-tenth the previous level, meaning developers have to slow the rate at which stormwater pours off their properties. Solutions like rain gardens and green roofs covered with plantings, sometimes considered too expensive to be practical, may become attractive when compared with the cost of building underground rainwater detention tanks.

As part of its effort to have the cleanest air of any U.S. city, New York City changed its rules to phase out the use among both public and private sector users of two of the dirtiest types of heating oil—number 4 and number 6. The New York City Community Air Survey found that air near buildings that burn these oils in their boilers had 30 percent more soot than that in comparable parts of the cities where these dirty types of oil were not being burned.

PlaNYC also continues other initiatives begun by New York City Mayor Michael Bloomberg. Massive changes to the city’s zoning, completed one neighborhood at a time over the past decade, create large opportunities for new development in places like Harlem’s 125th Street corridor and Brooklyn’s Fourth Avenue.

The city’s New Housing Marketplace Plan aims to produce or preserve 165,000 units of affordable housing reserved for 500,000 low- or moderate-income residents by the end of 2014. “That’s more people than live in the city of Miami,” Bloomberg said in a press release.

The individual goals of these initiatives often reinforce each other. The boiler now mandated for a new residential building is often both more energy efficient and less likely to leave a cloud of soot hanging in the air than the last generation of heating systems.

Streets, Sidewalks, Bikes, and Trees 
Likewise, improvements to streets, sidewalks, and public spaces can also work together. In Times Square, the city has created new public space without snarling traffic or hurting the businesses that depend on the Square.

“To reach out to leaders, they were incredibly strategic,” says Preuss. “They met with the taxi industry, the top user of Times Square back then.” Careful design and experimentation created a new Times Square that brings more people to the area and more customers to the businesses that depend on the traffic from cars and pedestrians.

Improvements such as new bike lanes can also accomplish multiple goals, including better safety, increased transit options, improved air and water quality, and more economic activity.

Since 2008, the city has created 90 miles (145 km) of new bike lanes, painting space reserved for bicycles onto existing streets and often separating bikes from automobile traffic with curbs, planters, or lines of parked cars. “New York was the first big-name city out in front, saying that these are shared streets for car, bike, and pedestrian,” says Preuss.

In September 2011, the city selected Alta Bike Share, a private operator of bike sharing networks, to operate the city’s first such program. Though the program’s launch has been delayed, especially after Hurricane Sandy destroyed equipment, Alta will soon operate up to 10,000 bikes, relying on user fees and sponsorships for revenues.

Bikes provide another transit option for New Yorkers, reducing their dependence on cars and fossil fuels. The number of New Yorkers who ride bicycles to work doubled between 2007 and the end of 2011, two years ahead of the goal set in PlaNYC.


Photo credit: Iwan Baan

The street improvements make New York safer for both cyclists and pedestrians. Protected bike lanes often include pedestrian islands that are shielded from traffic. Last year, the city recorded its fewest traffic fatalities, including pedestrians, bicyclists, and drivers, since 1910.

The bike lanes are also good for business. Sales are up for stores near new bike lanes and street plazas, according to “Measuring the Street,” a new report by the New York City Department of Transportation (NYTDOT). In the Chelsea neighborhood, stores next to bicycle lanes on Ninth Avenue from 23rd to 31st streets experienced a 49 percent increase in sales from the time the bike lanes opened in fall 2007 through 2012, compared with only a 3 percent increase in Manhattan overall, according to the NYCDOT report.

The bike lanes also make the city more resilient. After Hurricane Sandy shut down the city’s transit system and the electricity in the lower half of Manhattan, New Yorkers who owned bicycles had a distinct advantage¬: they could use their bikes to pick up supplies in areas that still had power and get cash from working ATMs.

These protected bikes lanes are sometimes separated from traffic by plantings, including new street trees that contribute toward the city’s goal of planting 1 million trees by 2017. By February 2013, the MillionTrees ticker on the city’s website had surpassed 662,000, putting New York a full year ahead of schedule.

The trees also contribute toward multiple PlaNYC goals. The leaves hold on to rainwater, reducing the city’s stormwater problem. Trees help also improve air quality and absorb the heat of the sun, reducing the urban heat-island effect and the need to run air conditioners.

The new public spaces created by the city also help fulfill PlaNYC’s promise to “ensure all New Yorkers live within a ten-minute walk of a park.” Once again, the parks serve multiple purposes, including supporting real estate values and new investment. Many new buildings have already grown tall along the High Line, a popular green space that opened its first phase in 2009 on an abandoned elevated rail bed in the Chelsea neighborhood.

PlaNYC also builds on efforts that were already in progress, such as the repair and expansion of New York’s subway and mass transit system, already one of the largest in the world. The city has revived projects that had been stalled for decades, such as the new Second Avenue subway line, and has repaired neglected systems and subway stations.

PlaNYC also expanded New York’s recycling system with a plan to divert 75 percent of the city’s waste from landfills by 2030. It also broadened the city’s plan to clean up contaminated land with a promise to remove the toxins from all brownfield sites within city limits.

Climate Change and the Resilient City 
Nearly all the interlocking goals of PlaNYC would help the city fulfill its promise to reduce its greenhouse gas emissions by 30 percent by 2030. After just five years, New York City’s carbon footprint has already shrunk 16 percent below 2005 levels, according to PlaNYC.

But New York’s success has limits. “You had committed, sustained leaders in a jurisdiction with one boss,” says Jones. “The places where the city has been most successful [are the ones] the city had under complete control.”

New York City had less success when it needed other jurisdictions to approve its plan for congestion pricing—a system of fees on cars entering central business areas at peak traffic times. Congestion pricing, now implemented in London, would have raised hundreds of millions of dollars in new revenue to help pay for transit improvements; the federal government had offered matching funds. The fees also might have led drivers to leave their cars at home and ride mass transit, easing congestion in Manhattan

But congestion pricing never went into effect. The system needed the state legislature to pass new laws, but the fees were unpopular with suburban voters, who would have had to pay for driving into the city at peak times.

Officials worry about New York’s 520 miles (837 km) of coastline, sea levels that have already risen a foot (0.3 m) in the past 100 years and the potential for more flooding. “We have a 100-year flood every two years now,” New York Governor BraunsteinSpaces_2_351Andrew Cuomo said in a conversation with President Barack Obama after Hurricane Sandy. Days after Hurricane Sandy sent a wall of water into lower Manhattan in October, Bloomberg wrote in statement released to newspapers, “Our climate is changing. This week’s devastation . . . should compel all elected leaders to take immediate action.”

PlaNYC’s goals may also help make the city more resilient, and city officials are now working with advocates like RPA to include resilience in the PlaNYC. “We created a study of how to make New York City more climate resilient,” says Jones. The study is now being applied to the metro area from Long Island to New Jersey. “There is a whole menu of actions,” says Jones. For example, upgraded heating systems can be located above flood levels.

Also, reclaiming wetlands along the coastline can create a buffer that could help absorb a storm surge. PlaNYC calls for just this kind of rehabilitation for the 10,000 acres (4,000 ha) of threatened habitat at Jamaica Bay.

“The restoration of Jamaica Bay provides an incredible opportunity to build our understanding of resilience in urban coastal areas,” Judith Rodin, president of the Rockefeller Foundation, said in a press statement.

Bendix Anderson has written about commercial real estate, sustainable development, and affordable housing for more than a dozen years.  

The ”Silicon Wadi” is drawing tech startups, commercial investment—and people looking to buy an apartment of their own.

By Leslie Braunstein

Tel Aviv—Israel’s seaside metropolis—has emerged as a global hub of technological innovation. Home to thousands of homegrown startups as well as outposts of American giants such as Google and Microsoft, Tel Aviv’s technology corridor, dubbed the “Silicon Wadi” (employing the Arabic word for valley), is ranked just behind California’s Silicon Valley in worldwide importance.

Tel Aviv’s Sea One, a 23-story beachside tower that combines a five-star hotel, scheduled to open in May 2013, with luxury apartments that are 95 percent presold.

Established in 1909, Tel Aviv attracts millions of international visitors each year who come for its history, beaches, and thriving 24-hour culture. Many visit the “White City,” a collection of more than 4,000 Bauhaus-style buildings developed by German Jews fleeing the Nazi regime in the 1930s and named a UNESCO World Cultural Heritage Site in 2003. Efforts are now underway to renovate and preserve more than 1,500 of these structures, says Israeli-born architect Esther Simon of Washington, D.C. Over the last three decades, she notes, the city also has restored Neve Tzedek, the first Jewish neighborhood built outside of Jaffa, the ancient port city that was incorporated into the municipality of Tel Aviv in 1950. After years of neglect, it is now a trendy residential area with a vibrant arts and café scene.

These and other older Tel Aviv neighborhoods contrast sharply with new high-rise construction. The last two decades have seen the planning and construction of dozens of skyscrapers, from 30 to 75 floors high, reflecting scarcity of land and high demand for both housing and commercial space in Tel Aviv.

In its commercial real estate market, office vacancy rates are less than 2 percent, compared with an average of about 10 percent in the rest of the country, says Daniel Baraz, cofounder of the Tel Aviv–based research firm Bregman-Baraz Real Estate (B-BRE). About 5.9 million square feet (550,000 sq m) of new office space is in the pipeline for delivery over the next five years, he notes, and that represents about 30 percent of the current office building stock.

Rents in new Tel Aviv office buildings range from about NIS (New Israeli Shekels) 70 to 120 per square meter per month, equivalent to about US$21 to US$36 per square foot per year. Tel Aviv’s commercial property prices are about 50 percent higher than the Israeli average. Office capitalization rates are higher than the country average, however, unlike other world metropolitan centers such as New York or London. Also unlike the U.S. office market, Tel Aviv’s office cap rate has remained relatively stable over the last three years at just over 7 percent. In comparison, according to Eileen Marrinan, the research director for Grosvenor Americas, overall U.S. office cap rates peaked in 2009 at 8 percent, declining to just over 7 percent in 2012. U.S. central business district cap rates, more comparable to those of Tel Aviv,  declined from 8.2 percent to just 6 percent during this same time period, she adds.

More than half of the new buildings are being developed by publicly listed companies, Baraz says. Some new office development is created by “acquisition groups.” In this model, a developer buys an option for a lot and then organizes a group of companies or individuals, each of whom prepurchases a floor, a half-floor, or more than one floor of the new building.

One of the most impressive office developments under construction is the 1.3 million-square-foot (120,774 sq m) Azrieli Center Sarona, with a total estimated development cost exceeding NIS 1.5 billion (US$405 million). The Azrieli Group, which built the landmark Azrieli Towers in Tel Aviv, is an Israeli publicly listed company. With so much Tel Aviv office development in the pipeline, absorption will depend on future macroeconomic conditions, notes B-BRE cofounder Nirit Bregman.

Meier-on-Rothschild under construction.

In addition to the healthy office market, Tel Aviv’s residential real estate market is booming with new construction. One striking example is Meier-on-Rothschild, a 42-story tower in the heart of the city’s commercial, financial, and cultural center, designed by Pritzker Prize winner Richard Meier and developed by Tel Aviv–based Berggruen Residential. Scheduled for completion in 2014, it will be the tallest residential tower in the city. Its 147 ultra-luxury apartments average 8,450 square feet (785 sq m) and are priced from US$1,100 per square foot (NIS 44,122 per sq m). Buyers reportedly include the great-grandson of Baron Edmond de Rothschild, namesake of the Tel Aviv boulevard. The building’s two-story penthouse with 16,145 square feet (1,500 sq m) of living space) and two spacious balconies is priced at a whopping NIS 170 million (US$50 million).

A similar example is Sea One, a 23-story beachside tower that combines a five-star hotel, scheduled to open in May 2013, with luxury apartments that are 95 percent presold. Prices for the remaining apartments begin at about NIS 100,000 per square meter (US$2,500 per sq ft), says Shira Oren-Nahmias of the development firm Oranim Projects Ltd., located just north of Tel Aviv in Herzliya.

These and other ultra-modern residences under construction in and around Tel Aviv appeal to both wealthy Israeli citizens and foreigners—although, according to anecdotal reports, inquiries from foreign buyers dropped sharply after the November 2012 attacks from Gaza. The incremental cost of providing a fortified “safe room” in every new apartment represents an almost negligible factor in the sky-high pricing for these dwellings. The real price drivers, say local housing experts, include record-low interest rates, high demand, taxes, scarce land, and the difficulty of carrying out almost any type of new development in Tel Aviv’s urban neighborhoods. Add to those factors the price of top-of-the-line design, materials, systems, and finishes.

Soaring housing prices may not be an obstacle for the international elite, but these prices are adding angst to the already stressed lives of many middle-class Israelis, especially young technology workers and entrepreneurs who want to live in Tel Aviv’s dynamic urban environment. “Housing prices have increased so dramatically that we now have a housing crisis,” says Efrat Tolkowsky, head of real estate studies at the Interdisciplinary Center (IDC), a private university in Herzliya. “The average apartment costs over 120 times the typical buyer’s monthly salary, compared to about 60 to 70 times monthly salary in the U.S. and OECD [Organization for Economic Cooperation and Development] countries.”

While for-sale multifamily apartments—the predominant housing type—continue to increase in price, Tel Aviv does not offer the type of housing now being built throughout the major markets of North America: multifamily rental. Virtually all housing in Israel’s cities, including Tel Aviv, is in multifamily buildings, with each apartment or floor under separate ownership. About 70 percent of Israelis own their homes, Tolkowsky notes, while others rent homes from individual owners who may be investors. Renters cannot count on staying in their apartments for long periods, and Israel’s zoning currently does not cover multifamily rental development.

Development financing in Israel works against the concept of speculative rental housing, Tolkowsky says. When a building is planned, individual units are presold to buyers, who typically take out mortgages to buy their apartments. The purchase contract is a recourse obligation; buyers are protected by a special type of insurance from a bank that provides some of the project financing. A single bank aggregates apartment purchasers’ payments and makes disbursements to the developer as construction progresses. The bank also makes construction loans, but these loans typically cover only about 30 percent of development costs.

Urban regeneration is especially difficult, says Tolkowsky, due to the fragmented structure of land and property ownership. “If you want to redevelop an existing building, you have to get 100 percent of the owners to agree to your plan, and there is always someone who will not cooperate,” she says.

This problem, of course, doesn’t exist on greenfields. But the Israeli government controls more than 90 percent of the country’s undeveloped land, and relinquishes this limited resource infrequently. Following a spate of protests about housing costs and other issues, the Israeli Land Authority recently started auctioning land parcels to developers who promise to build product that will remain rental for 25 years. The government also can authorize development of for-sale homes on previously undeveloped land. Currently, a number of upscale neighborhoods are under development north of the Yarkon River on the site of a decommissioned military air base. Tel Aviv’s master plan calls for adding 50,000 residential units by 2020, mostly in this northern area.

In 2005, the Israeli government instituted Tama (an acronym for National Outline Plan) 38, and has amended it since then. Under this policy, a developer—in exchange for making structural and other improvements—is allowed to build 2.5 additional floors above an existing pre-1980 residential building. The developer needs approval only from two-thirds of the residents to proceed, as opposed to the 100 percent occupant approval needed to demolish and rebuild. While the renovations must improve buildings’ resistance to earthquakes, they also can include a variety of other upgrades, including the addition of safe rooms.

“Tama 38 provides a win-win situation for both developers and residents,” says Elchanan Rosenheim, founder of the real estate investment firm Profimex, based in Ra’anana. Rosenheim, whose company invests in U.S. and other foreign real estate for Israeli investors, believes the idea of homeownership is ingrained in Israeli culture, with parents typically buying apartments for their grown children. He comments that young, single workers would probably love to live in the type of amenity-rich one- or two-bedroom apartments similar to the multifamily asset class so popular in the United States. “For this, we would need to see a change in the acceptance of this type of living environment, a willingness of the institutional investors to invest in this asset class in Israel, and a combined effort of our government and local municipalities to establish multifamily rental housing,” he says.

So what is stopping U.S. multifamily developers from setting up shop in Tel Aviv along with American technology firms? Plenty, say the experts whose feet are on Israeli ground. Fragmented property ownership, inflexible zoning, strict bank lending regulations, and a lack of transparency in the real estate market combine to create major barriers to market entry for foreign developers.

Most large developments in Tel Aviv involve both the public and private sectors. One example is Tel Aviv’s first lifestyle center, called Sarona, now under development on the 47-acre (19 ha) site of a former German Templer colony. The Templers (not to be confused with the Crusader-era Templars) were a German Protestant sect that aimed to rebuild the Temple in Jerusalem to promote the second coming of Christ. In the mid-1800s, a Templer group acquired agricultural land near the Yarkon River from a Greek monastery and established a colony that became a model for future Israeli agricultural settlements. For the last six decades, these European-style structures were used as office space by the Israeli government and defense forces. Saved from proposed demolition by preservationists, 37 Templer buildings are now being rehabilitated and incorporated into a parklike retail, educational, and entertainment center inspired by the Grove in Los Angeles. Surrounding the park, tens of thousands of square meters of mixed-use space are planned, including the Azrieli Center.

Another ambitious development is planned for Tel Aviv’s old commercial district, on the site of the former Shuk Sitonai wholesale food market: Gindi Tel Aviv, named for the Gindi Group, master developer of the 592,000-square-foot (55,000 sq m) site owned by the city of Tel Aviv. The developer has an 89-year ground lease with a possible extension. Plans call for ten 14-story residential towers, each with its first floor elevated 26 feet (8 m) above street level, facing a spacious neighborhood park. The complex is planned to include a school, nine kindergarten and daycare facilities, a private playground, a health club with several indoor swimming pools, a gym, a museum, shops, restaurants, and cafés.

In Tel Aviv, government land control does not always work in favor of developers. The historic Tel Aviv Port Compound, for example, was shut down by the government in 1965, the year by which most shipping business had shifted to the more modern Port of Ashdod, and eventually the compound became a crime-ridden open-air market. In recent years, the joint municipal and governmental corporation that owns the port compound examined a number of high-density urban regeneration proposals, but decided instead to transform the area into a public recreational destination. Completed in 2008, the renovated port area now has more than 100 restaurants, boutiques, and specialty shops operating in former warehouses. The project’s key attraction is a 150,000-square-foot (14,000 sq m) wooden boardwalk with an undulating shape inspired by sand dunes and dotted with shaded seating areas, play areas, and public art. This promenade is now a popular weekend destination.

To ameliorate the traffic congestion caused by Tel Aviv’s ever-growing built environment, business activity, and population, a long-planned light-rail system is now in preconstruction. The city planned a subway system in the 1960s but abandoned the idea after opening just one station. In 2000, the focus shifted to light rail with approval of the 14-mile (22 km) Red Line running from Bat Yam south of Tel Aviv through the city center and eastward to Petach Tikvah, a municipality in Israel’s Center District. Although this first phase of a planned multiline system is scheduled for completion in 2017, many Tel Avivians view the schedule with characteristic skepticism. In other words, they will believe it when they see it.

Leslie Braunstein heads the Washington, D.C., public relations firm LHB Communications, Inc., and is a frequent contributor to Urban Land.  

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