Here's a recent article from Forbes about all this:
http://www.forbes.com/global/2008/0107/026_print.html
On The Cover/Top Stories
Scratch Builders
Christopher Steiner 01.07.08
Gale International is betting $30 billion by building the first new city in 50 years, in South Korea.
Forty miles Southwest of central Seoul, thousands of construction workers swarm across a 1,500-acre pile of mud. Fifteen towers rise out of the dirt. A handful of paved avenues intersect the ruts of dump trucks, bulldozers and backhoes. It's work on a colossal order, the site of a planned 50 million square feet of office space, 35 million of residential, 4 million of retail, 5 million of hotels and 10 million of parks and greenswards.
Rome wasn't built in a day, and New Songdo City won't be complete until 2014, at the earliest. By then, perhaps 65,000 people will live, and 300,000 will work, in this fabricated-from-scratch URB. There will be an international school (already half-built), a hospital, museums, a convention center, a golf course overseen by Jack Nicklaus, a giant mall designed by Daniel Libeskind and a 65-story office tower. Songdo is being pitched as a digitally linked and model green city. Total estimated cost: $30 billion. That doesn't include the $10 billion the Seoul government is kicking in for infrastructure, like a 7-mile bridge (half-completed) with a suspension span to link Songdo with Incheon International Airport. "Unless you've been to Dubai or China," says Christopher Niehaus, vice chairman of Morgan Stanley Real Estate, which has an 8.75% interest in the venture, "it's hard to grasp the scale of this thing."
Hard to fathom, too, that behind this megaproject is a little-known Manhattan developer called Gale International, with a 70% stake in Songdo. Founded 22 years ago by Stanley Gale, the privately held developer has scraped out improbable deals in the past. In 2001 it spent $350 million in a frumpy Boston market to build the first office tower on spec there in more than a decade; after leasing the building for three years Gale sold the 36-story One Lincoln tower for $705 million in 2004, at the time the largest real estate deal in Boston's history. Last year it unloaded most of its portfolio to the REIT Mack-Cali Realty Corp. for $545 million. What's left: a piece of the $1 billion complex in Florham Park, New Jersey of training grounds for the New York Jets, plus residential and commercial properties, and two Boston projects, one to develop Seaport Square ($3 billion), the other to develop One Franklin Street ($700 million), site of the old downtown Filene's.
Gale has never attempted anything like Songdo. "This isn't about one building," says John Hynes III, Gale's partner and chief executive. "This is about master planning a whole new city, and that will get anyone's blood flowing."
Brazil's new city BrasÃlia was something of a flop, as was suburban Columbia, Maryland. Will it be different this time?
Since it signed on six years ago, Gale has battled intractable bureaucrats, a greedy Korean partner, hidebound ideas of urban planning and a public long wary of foreign investors. There have been commercial hurdles: Gale has so far nailed not a single blue-chip tenant. And physical challenges, too. Because the land underneath Songdo didn't exist, the government of Incheon dumped 110 million cubic yards of dredged sand and mountain rubble into the Yellow Sea. To support the skyscrapers, engineers called for 7-foot-diameter concrete piles to be drilled through 23 feet of landfill, 108 feet of seabed and 56 feet of bedrock.
Gale and Hynes arrived in South Korea serendipitously, without prior experience in Asia. Firmly planted in New York City, Gale, 57, had real estate roots going back to his paternal grandfather, Daniel, who became a broker in 1922 (the Daniel Gale Agency is now part of Sotheby's). Hynes, 49, opened Gale's Boston office in 1999 after spending 20 years brokering leases. A co-captain on Harvard's hockey team, Hynes comes from blue-blooded stock. His grandfather, John B. Hynes, was Boston's mayor from 1950 to 1960; the city's convention center bears his name. Hynes' father anchored Boston TV newscasts for decades.
The road to Songdo ran through the International Monetary Fund. As part of a $58 billion bailout, following the Asian currency crisis of the late 1990s, the bank insisted that South Korea increase its foreign reserves and seek outside investment--a requirement that collided with a longstanding law that barred non-nationals from owning Korean soil. (That law changed in 2003.) Seoul agreed to appoint a foreign developer for Songdo. In 2001 project officials selected Jay Kim, a Korean-American and former senior scientist of nuclear power plant design at Westinghouse, to approach U.S. developers. Kim, who lives in Pasadena, California, came to the U.S. 50 years ago after his family was separated in the Korean War. (If his brother is alive, he's somewhere in North Korea.) Kim found that few American companies wanted anything to do with a risky venture abroad. "Most developers were making a ton of money right here," Gale says. Kim dug up Gale when reading an Internet article about the One Lincoln tower. Hynes agreed to meet Kim for a 20-minute cup of coffee in Boston. That afternoon Hynes agreed to fly to Korea. Two days later he called from Incheon: "Stan, you've got to get over here. These guys are serious. This is for real."
Gale hired Kohn Pedersen Fox Architects to design the city. (Among its projects: the Mohegan Sun Casino and the Shanghai World Financial Center.) The plans proved to be a little difficult because the landfill didn't yet exist. "The zoning back then was high-tide, low-tide," Hynes laughs. Gale spent two years and $10 million investigating the viability of the project. By the time it submitted the master plan in 2002, Gale had persuaded Morgan Stanley to join as a minority partner for $350 million in cash. That investment has so far secured $4 billion in loans from Korean banks, which Gale has used to buy land and build. It will borrow in chunks and eventually blow through $20 billion in loans at interest rates of 7% to 8%, retiring the debt as it sells property and splitting the profits with small shareholders, like Morgan Stanley and Lehman Brothers, and large ones like 30% owner Posco, the $25 billion (sales) Korean steel and construction giant.
The Incheon government agreed to sell the initial 100-acre parcel for $50 million in cash plus a promise from Gale to build a $150 million convention center and donate it to the city. Under the original deal, the government was going to pay for the center but extracted the freebie in return for expedited condo approvals. The convention center may well become Songdo's signature for its arching, multipeaked structure that evokes Sydney's opera house. But for Gale the building would prove to be the first of many hiccups.
The developer offered to build a 100-acre park and donate it to the city--if it got permits to build an underground parking garage, a nature center and an art museum. These, Gale figured, would provide cash flow to service debt on the park buildings. But municipal officials first okayed, then backed off the deal. After a year of haggling, Gale finally got approval for its plans.
Gale has also sparred with its Korean partner. It all started after the first sale of apartments in May 2005. The application line stretched for 2 miles, as Gale drew 170,000 qualified offers for 2,200 units. They sold out in one day for $1 billion. Posco--due 30% of the construction jobs, some commercial, some residential--cheekily asserted that going forward it would build all residential projects, trying to avoid holding equity in the riskier office buildings, of which it was obliged to front 30%. Gale said no but invited Posco to be part of the competitive bidding for the remaining 70% of residential. "They should win those bids," says Hynes. "But are they happy with that? No. They wanted the sure thing." Such accommodation would have wrecked Gale's business. It depends on netting 20% on residential projects in order to have enough cash to reinvest in office space. Posco says it's abiding by all its agreements.
Add to that some hostility from the Korean press, which has pegged Gale as a slash-and-burn opportunist, a typical American capitalist. Dallas' Lone Star Capital faced government charges of stock-price manipulation after it bought 71% of Korea Exchange Bank for a cheap $1.2 billion in 2003 following unrest in Korean credit markets. The Seoul government later blocked a May 2006 sale of that stake for $7 billion. "There is a desperate effort in Korea right now to compare us to Lone Star," Hynes says, "but we couldn't be any more different."
Some Koreans view the whole project with skepticism. "I think it's too early to say whether it will be successful or not, but initial opinions here aren't favorable," says Sohn Hyun-duck, economics editor at the Maeil Business Newspaper, Korea's vanguard publication. Gale has come under fire for building lucrative residential units before commercial lease buildings. Koreans want to see commercial space built and filled with big international companies with cachet.
So does Gale, even though it has only one such potential customer, United Technologies, the industrial conglomerate. Helping with introductions was Christine Todd Whitman, the onetime New Jersey governor and chief of the Environmental Protection Agency, who sits on the Songdo International Advisory Board and is a director at United Technologies. "No decisions have been made," says a United Technologies spokesman. Hynes says Gale is in discussions with Boeing and Microsoft, as well as Samsung Life, Shinhan Bank and Korean Air, among others.
Songdo will be one of the world's greenest cities. Wastewater from sinks and showers will be recycled for irrigation and toilet flushing, requiring two sets of pressurized waterlines in each apartment and office. Gearless elevator systems from Otis will use 75% less energy than standard ones; its elevators have flat polyurethane-coated steel belts that require no lubrication. United Technologies' Otis will debut its ReGen drive, which draws energy from a fully loaded descending elevator or a lightly loaded ascending car and converts it to electricity.
Another goal: to make Songdo the largest so-called ubiquitous city, where wireless networks and radio-frequency identification will link all information systems--every laptop, stoplight, cell phone, TV and toaster. Residents, it's hoped, will be able to time their commute out the door with the changing walk signals on the street 50 stories below. The buildings' heating and air patterns will adjust as weather changes.
"Seven more years," muses Hynes. "It's a marathon, but we're hitting some milestones now." That's making a virtue of necessity. The last American who tried for a quick conquest by way of Incheon was Douglas MacArthur, in 1950.
Additional reporting by Andrew Salmon in Seoul.
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