Bruce Oreck’s Transfluent Day talk
Bruce Oreck, former U.S. Ambassador to Finland, talking at the Transfluent Day Seminar, May 9, 2018 in Helsinki.
We had the privilege to welcome Bruce Oreck on stage at the Transfluent Day, and to hear his vision on how the real estate business is shaping our life. Bruce also talks about what really happened with the Train Factory project (which, at least at the time of writing this, still has hope!) This is, overall, a really fascinating subject, so sit down and listen! Or, read the transcript below the video.
Bruce: So, this is an interesting story and actually it’s not about the bureaucracy, surprisingly enough, but it is a bigger story and let me start at a higher level…
I love being in Finland and I love Helsinki. The world has changed, and there is no such thing as the island state anymore. Fortress Finland doesn’t exist – it cannot exist, it won’t in the 21st century.
We also know that the urban environment, cities, is where the population has moved. A hundred years ago seven out of ten people lived in the countryside. Today seven out of ten people live in cities and that number is actually going up.
Helsinki competes with other cities. It doesn’t compete with New York or Tokyo or Beijing. It competes with cities of about the same size, so let’s say approximately 600,000 for the center of the metro area and a million as the larger metro area, Espoo, Vantaa included.
That’s important to understand because the challenge for Finland, as it is for all smaller states, is you need to hold on to your talent, and you need to attract talent.
It’s a competitive environment. No longer can you just pretend that you’re here and it’s okay. You’re competing against all these other places now. There are challenges for states to compete having to do with tax laws, corporation laws, bankruptcy laws and that’s a conversation that is beyond today’s brief discussion, so let’s just talk about urbanism.
The urban environment. What do people need? What do they want? And have to acknowledge that the young people, people who are the Millennials, under 35 and the generation Z, also called the iGen, now they want something very different than my generation or even the the x-gen it’s different.
They want cities that are vibrant and dynamic, things that are creative, things that are changing, things that are hip, things that are on the street.
I don’t know if you’ve been to San Francisco lately for example but they’re building apartment buildings for younger people where the kitchen is basically a microwave, because they don’t eat at home. They eat out. They spend more money eating out than any generation in the past. It’s all about connecting — even if it’s sitting across the table and messing with your smartphone — than it has ever been.
So for Helsinki to compete, you have to look at the global environment of other cities and see what’s happening there that is holding the innovators, the entrepreneurs, this next generation of creators — what’s holding them and what is attracting them — and if you don’t do that you’re going to lose out. You will suffer brain drain. People will go.
I grew up in New York City. I’m an urbanist. I love the countryside, but when I’m in the city I want a city that’s exciting and dynamic.
I think Helsinki has all of the potential for that. It has all the building blocks for that, but it needs
sort of get into gear. Three years ago, I looked at the most visited place in Finland. Anybody have any idea what the most visited place in Finland is?
I’ll tell you it’s not the Sibelius monument. The most visited place in Finland is the Market Square at the foot of Esplanadi. If you walked around the Market Square you went “Really?” That’s the best the Finland has to wake and demonstrate its design and it’s full of cheap Chinese plastic objects. Really? Not even Finnish, in horrible orange tents.
So, I spent about a hundred thousand euros of my own money to run a competition just to invite Finnish designers to design a different market place, different stalls, a different way of
doing business. There was no profit motive. It was simply to get the city thinking differently about what was possible for the Market Square.
We learned a lot and we turned over all of our findings to the city. We actually — the team I assembled — Karoliina Kuusi who works for me is in the back there. They know more about the Market Square in Helsinki than anybody else in Finland. We gave all that stuff to the city because we want the city to be more dynamic.
Which leads me to bigger projects in town. Now this is important and it’s going to impact your lives in a way that you don’t quite necessarily focus on yet. What’s happened with real estate is that it’s become a commodity. It’s traded like a stock or a bond, and that’s death to cities. In the old days the great buildings were built by civic leaders, people who live in the city who made money — made their fortune — and they gave back.
They built libraries, they built artists residence, they built museums, they built the big buildings that still today stand and are the real monuments in cities, the real symbols. But today real estate has become just buy it, flip it, get a permit, sell it to somebody else without any care from the people who own it about the city that they’re trading in.
There’s Blackstone, the big venture capital firm out in New York, that just bought almost three billion dollars worth of real estate in Helsinki and there’s not a single person on their team who will ever have any intention of living here.
They don’t care about it, it’s just an investment. That doesn’t make them evil. They’ll own it, they’ll sell it, they’ll rent it, they’ll flip it and they don’t care about Finland. They don’t care about Helsinki. I see it over and over again.
There’s a project I tried to get going earlier this year, different one, and it got sold to a pension fund out of out of the country and their only development plan is to file a permit to add stories of the building at some point in the future.
Once they get the permit, they’ll flip it to some other fund and so it will go. Nobody’s investing in that dynamism and creativity in the city. And if you don’t do that, Helsinki will suffer, and if Helsinki suffers, Finland suffers. Right, so it is.
Which brought me to the potential of the Konepaja buildings built in 1903 owned by VR, a train assembly factory. Let me talk about that opportunity. These are beautiful buildings. They are one-of-a-kind buildings in Finland. They are in fact covered by the state antiquities laws — not the city, the state — and they’re also in terrible shape. They are really on the margin of falling down.
The foundations have failed and the roof — which is the most complicated roof in all of Finland — is 50 years past it’s useful life. 50 years past it’s useful life. It is 28,000 square meters of the most complicated roof in Finland. The roof contains 1.7 kilometers of glass in individual panes.
At the same time, it is a great space. And it has the potential to represent what’s happening in cities, the way people are eating and shopping, the way they’re getting together to be creative.
So the vision for the space was there’s some sort of non-conventional office, but to take the big Assembly Hall which is a wonderful looking thing and turn it into a market place much like Camden Lock in London or Borough Market in London or Chelsea Market in New York, LX in Portugal.
If you go around the globe you’ll find these over and over again and that’s the place where cities are doing business, where you get dynamic, creative, inventive new businesses started.
And the way you do that is to stop thinking about real estate in old-fashioned terms. It’s not about how much rent you can make per square meter. That is someone who’s treating real estate like a stock or a bond.
Rather it’s about how do you effectively say to the startup, to the entrepreneur, whether in business, food, products, “okay, come here, show us your inventiveness and we won’t charge you any rent”.
I don’t have time now to explain how that business model works, but it does. If you think about amazon.com, they grew to be the biggest company in the world in retail by not making money. Seems counter-productive, but it is true. That’s the vision.
I had a deal with VR. VR gave me a price. They set the terms, we did that last fall. We did our due diligence, which took months and months. I have 35 years experience in dealing with historic old buildings. When the city of New Orleans, a city of a million people, a much older city than Helsinki I was the head of what’s the same thing as the State Antiquities Board.
Anybody who had a historic building in New Orleans had to come before my agency to get approval to do work. I know how to do this. I’ve been doing it for a long time. My last project was the project here in Helsinki at the U.S. Embassy. We restored two old buildings in a project that cost $125 million dollars. So, I know what I’m doing.
I know how to do this and I’m also in the retail business, I have 500 retail stores in the US. I know how to get there. At the end of the day, at the very last VR decided – or seems to have decided – that they want to in fact sell it to a real estate developer who simply wants – as far as I can tell – to rent the space to the person would pay the highest rent.
And because they are simply looking to milk the revenue stream, and because they have no experience in historic buildings, and they don’t know how much it’s going to cost to fix the buildings, they offered VR a higher price, even though VR had agreed to sell me at a somewhat lower price.
The point of this is not to get into dispute between me and VR, whether they did the right thing or whether they did the wrong thing. I think you know where I stand on that.
Rather the big picture is as citizens in the state, with the state asset. These rare and precious assets. They should not be treated as just another “I can sell it for a euro more or a euro less”. These are the things that are going to be the drivers of the success of the city. And the drivers therefore for the success of the economy inside Finland.
When you just sell something, and you say, oh I’ll sell this to you because you’re gonna pay a euro more versus that guy, it’s going to be as opposed to looking at the use and the investment and how it’s going to be utilized.
You are selling your future and I can assure you that the difference in price between what I was offering and what the other guys offering is a pittance compared to the value of your future. I can promise you there’s nobody else in Finland who’s crazy enough to come and say I want to
take the first 4 or 5 thousand square meters of an assembly hall and effectively provide to the startups for free rent. The food entrepreneur startups, the restaurant startups, the retail startups, the product startups and give them a great space to meet in and effectively charge them no rent.
Again, I won’t tell you I don’t have a profit motive — I do — but it’s a long-term game. Because I’m willing to invest in the future of the city.
And the idea that I want to leave you all with is, this is your responsibility, not mine. It’s partly mine, I live here too, but you all need to make demands from your city, from your government about the things that are going to change your future. It’s no longer the same old game. They’re not just piles of bricks. How you develop these critical properties really have huge import in the success of Finland in the future.
Whether you stay, whether your kids stay, whether people who are creative come. All the things that Finland has committed to as it has changed to this entrepreneurial innovative culture. So it’s an interesting challenge, and it’s a battle that I hope you all will take on every day as you look around your own city and your own neighborhood and see how can it be done different. How do you demand a higher level of performance from those who own real estate. What are they giving to the city, as opposed to what are they taking. And that’s the story. Thank you very much.
Jani: Well thank you so much for coming Bruce. So where are we now? Like, is there still hope? Are we all done, do you have to look for something else to do? Are you gonna look for a house in the Caribbean, do you know what’s going to happen next?
Bruce: Okay, so I have other projects, I’ve got a project in Mexico, a project in Canada, I’m working on a project in California, but the one I want to do is the one that’s here. The battle goes on but we’re getting close to the end game.
The challenge is getting the citizens and the political leaders to simply say — instead of saying, oh it’s VR and rolling their eyes — is to say, oh I forgot I own them!
That’s you. You’re the shareholder. It’s your property. It’s your business and simply say, no that’s not how we want to use that asset. I really don’t want you think it’s about me. There are other things I can do.
If VR doesn’t want to do the deal with me, then I would say they should stand back and say, okay we’re gonna take the property off the market. We’re gonna do a global competition for people to submit ideas. Listen to the neighborhood. I’ve got 10,000 neighbors who all support me. But you know, whatever. Listen to the neighborhood and then we’ll make a decision on what’s best for the city and for the neighborhood and the long-term future, and not get bogged down on this developer versus that developer. They should back off. Once it’s gone, once it’s been sold, you don’t get to make that choice again.
Jani: All right, that makes sense. Thank you so much for coming and we wish you luck and if there’s anything we can do, we’ll do it.
Bruce: Call your political leaders! All right, thank you!
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Transfluent wishes you Happy Holidays and an excellent New Year 2018!