Real estate development is a cross-disciplinary field where you need to orchestrate various professionals to build infrastructure and buildings. This book provides strategic advice for becoming an effective real estate developer.
The author, John McNellis, founded and led a commercial development firm focused on retail and shopping centers since the 1980s.
This book has two parts. The first has 40 chapters and focuses on lessons learned in real estate development. The second, chapters 41 to 46, are about philosophy and life decisions. The second part was nice, but it seems out of context. I rather read Alain de Botton or Seneca instead if I want life advice.
The following is John’s advice I liked most:
New developers typically need to pull off their first deal playing every instrument in the orchestra: investment broker, contractor, day laborer, property manager, janitor, lawyer, accountant, leasing, mortgage broker, etc. There is a benefit to this extra effort: just as a conductor of an orchestra must know how all his musicians should sound, a developer should understand what your service providers do, and doing it yourself is a quick way to get it.
New developers should ask themselves where they want to be in 20 years. Would you want to be a media darling running a big company and doing the splashiest deals in town? Or would you prefer smaller projects that help you slowly build assets and increase free cash flow?
You’re better off deciding the big picture question before your first deal because you might be unable to make the right decisions without a defined strategy to guide you. In other words, unless you plan ahead, the sell or hold decision may be a luxury you cannot afford. The fastest projects take at least two years before you can cash in and more likely three to five years from when you saw a property to the day you sell.
If we oversimplify, there are two types of real estate developers: investment builders and merchant builders. Investment builders build to hold assets for the long term as a portfolio investment, while merchant builders build to sell; they do more deals and profit much sooner.
If you want to run a giant development firm, become a merchant builder. If you want the luxury of deciding which deals to keep and slowly building your cash flow, consider investment building. If you go the investor route, choose the properties you keep carefully: many have their finest hour when inaugurated.
The best, but uninspiring strategy, might be the build to hold approach.
Choosing a Focus
If you don’t specialize, your specialty will be failure.
“We started in apartments like almost all new developers, but they didn’t work for us. Richer in experience but little else, we decided we had no wish to own buildings where anyone slept. Since, we have developed neighborhood shopping centers in cities that fight new developments, thus limiting supply.”
John’s development projects are “necessity retail” (supermarkets, drugstores, and discount department stores); they range from 25,000 ft² (2,300 m²) to 150,000 ft² (14,000 m²), located within a two-hour drive of San Francisco.
John’s firm’s strategy: accumulate fewer but higher-quality properties with lower debt rather than amassing a portfolio that requires a big overhead.
Grow your deal size slowly.
The big-picture risk management for developers is the classic tactic of using other people’s money, taking fees upfront, and never signing recourse (personal guarantees).
The long-term investment approach is investing enough equity to survive any recession and avoid building speculative projects. Spec buildings are those with a build it, and they will come mentality—without having sold to a customer.
It’s hard to hit a home run paying all cash, but it’s also impossible to strike out, and since even the best in our business lose money, you might seriously consider being conservative. Slow and steady wins the race.
What you do doesn’t matter as much as where you do it.
As Warren Buffett said, “I’d rather be a mediocre developer in a high-growth city than a brilliant developer in a mediocre city.”
Market timing is a scarce talent. Buying in a down market requires a cast-iron stomach and a prophet’s certainty of the future, and the ability to raise patient money when few others can. It might be easier to buy and sell on an established pattern, say, two to three deals a year, and then stick with it like a farmer with his annual plantings.
Challenges of Retail
According to Forbes, the United States have roughly 50 ft² (4.6 m²) of retail space per capita, while Europe has just 2.5 ft² (0.23 m²).
Inexperienced developers often talk themselves out of acknowledging market conditions.
The internet has driven some merchants and retail categories out of business. Its most significant effect has been to reduce retailers’ overall profitability and shrink their store sizes. They’re doing so to pursue a combination of physical and online strategies. This is a major concern for commercial developers because their clients need less space.
Until e-commerce and bricks&mortar finally merge, retail will be suffering from a debilitating, but not deadly, internet-spawned flu.
“Since the end of the Great Recession, retailer after retailer has been similarly killed. Payless Shoes, Toys’ R’ Us, PetSmart, Gymboree, Sears, Mattress Firm, and Radio Shack—all companies owned by private equity—have gone bankrupt since 2012. Debtwire, a financial news service, calculates that about 40% of all U.S. retail bankruptcies in recent years were private-equity backed.”
How do private equity firms do it? Simple: the Leveraged Buyout (LBO). An LBO is the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the acquiring company’s assets.
The LBO is a highly effective play that is difficult to counter. In short, the private equity firm pays top dollar for a given retailer, often even overpaying, but using little equity and a lot of debt using the retailer’s assets as collateral. The private equity then improves the company’s profitability through excessive cost-cutting and rewards itself with a significant dividend, often recovering their entire initial investment and a substantial profit. Then they let the companies drown in debt.
Private equity has a toxic effect on retail. An episode of The Sopranos is a perfect illustration of how private equity destroys retailers.
“Bust Out” (season 2, episode 10)
Mobster Tony’s boyhood friend, Davey, borrows money from him to pay gambling losses. He didn’t repay Tony. In retaliation, Tony takes over Davey’s sporting goods store. Knowing he will never pay a single bill, Tony orders ten times the store’s inventory and then sells it all at a discount for cash–which he keeps. Consequently destroying Davey’s credit and forcing him into bankruptcy.
Wall street force retailers to grow or die. When a company has slow growth, private equity goes for the jugular. The company will be bought and chopped up for parts, the CEO and his management team will lose their jobs, and the new real estate managers will receive big bonuses.
You can do everything right in retail and still lose because of conditions beyond your control. How do you mitigate the risk of a tenant’s bankruptcy or being killed by private equity? You diversify: develop multitenant properties in which the loss of a single-tenant is merely painful, not lethal.
Retail is a tricky business. The threats from e-commerce, changing tastes, and ever-more-nimble competitors are real.
Retail’s safe harbor against those headwinds is what we now call essential retail—goods and services people cannot do without, even during a societal shutdown.
Should you consider retail development? Only if you start with an established company that knows the business and devote yourself full time to it. It is a highly specialized area of development that punishes those who merely wet their feet.
Finding great deals among existing buildings is much more complicated than starting with undeveloped land.
“The bad deals came early in our career, the good deals came late. Why? Because great deals usually start with a great purchase. And how do you pull that off? You pay cash and use an escrow account—a tactic beyond a beginner’s reach.”
Veteran developers advise you to build in good times because you can’t find decently priced existing buildings and buy in bad when projects sell for less than replacement cost.
There’s no such thing as bad real estate, only bad pricing. Maybe it works for you at some number.
Manage risk by investing a lot of equity and little debt, growing your portfolio slowly, and using the classic structure for developments: use other people’s money, take fees upfront and never give a personal guarantee to a bank (non-recourse loans).
Suppose your partner invests 90% of the equity (the usual arrangement) into a partnership in which you have no personal liability and that partnership’s external borrowing is also non-recourse. In that case, you can make real money while having minimal risk.
For example, you will develop a project that costs $10 million and will be worth $13 million on completion. It requires $4 million in equity. A bank will lend your partnership the remaining $6 million on a non-recourse basis. Your partner puts up $3.6 million, and you write a check for $400,000, a mere 4% of the total project cost. If the project tanks—some do—your loss is only $400,000, but truth be told, you probably charged that much in development fees during construction. Even as a loser, you’re home free.
Why would you develop with your own money? Because with no outside partners, you control your decisions. You can personally decide to keep a property as long as you like or sell it overnight on a hunch. You also avoid quarterly reports and explanations to investors.
“No Partners, fewer problems, more control.”
It is reasonable to forgo the glamour of owning a little equity in a high-rise and instead buy a corner store of your own. Having control over your life might outweigh the benefits of financial partners.
“We left the financial partner world in the early 1990s, moving from large deals in joint ventures to projects one-10th the size without financial partners, using our limited capital. That decision has worked out.”
“Over time, we have averaged a couple of projects a year. We have typically sold two out of three completed properties to generate capital for our next project. To our surprise, we found we had netted as much from these small, 100% owned projects as from joint ventures. But with much fewer headaches.”
Always calculate every deal’s “Net To Me” (NTM). An entrepreneur, someone who risks what little capital they have and years of their life on a project, should know what they earn if the deal works out.
In considering your NTM, solve for your hourly rate. How long is this going to take? How much of my life must I devote to this project? In doing so, ponder the advice a sage contractor gave a homeowner about her idea to remodel: “It will cost twice as much and take three times as long as you initially believe.”
We have heard many times easily anticipated disappointments in career-launching projects. The typical problem is that the profit share was not well structured from the beginning. You can mitigate this risk by calculating the NTM before making the deal. Make sure the prize is worth the effort.
If you desire to tackle big projects, you will need help with the skills you lack. The question is, should your help come from consultants, employees, or partners?
As long as you can rent any profession—legal, architectural, engineering, etc.—and still get first-rate work on the day you need it, you will be better off renting rather than buying. Outsource everything you can. Nothing runs up a tab like employees.
To get the highest-quality output from consultants, hire the most experienced person you can afford who will do the work themselves. Remember, you are always hiring an individual, not their company or firm. Hiring the fanciest firm in town does you no good if a junior associate is assigned your work. A fantastic hack is to hire well-seasoned solo practitioners.
You need two at least two providers for each service—two contractors, two architects, two engineers, etc. And they should know about one another. Why? Because you want them to compete, and it is healthy to have a backup plan. Eventually, your favorite consultant will be unavailable to you.
We hire an independent consultant to act as our owner’s representative for our construction. But here’s the point: he’s paid by the hour, and should we ever cease building, we would have no ongoing financial obligation to him.
The partnership of a skilled developer and a top architect may prove wonderful, often producing glorious offspring: a building, an entire neighborhood that fits well with its surroundings, is embraced by its community, and is profitable from the beginning.
You can handle construction in three different ways:
Bid to three contractors: If you decide to bid out your project to multiple general contractors, be careful of low outlier bids. Dishonest contractors will bid low intending to make it up in change orders (especially if you are perceived as inexperienced). If three bids are close to one another at $10 million while a fourth is $8 million, and you accept the lower bid, you will likely be buying yourself more than $2 million’s worth of trouble.
Build yourself: Once developers reach a certain size, they are tempted to align vertically and take construction in-house. Fee-driven merchant builders have a higher incentive to control the entire construction process to keep the contractor’s fees. Developers ignore a thousand ways a contractor can go broke and ask themselves, “How hard can it be?” And jump into the construction business. Developers that do everything in-house—from entitlements to architecture to construction—are often successful in bull markets. In a recession, they can’t keep up with overhead, consequently forced to lay off workers or go broke.
Work from the start with one contractor: This means choosing a contractor from the moment a deal seems real and sticking with them to the end. Having a practical contractor early helps prevent your architect from designing a monument for themselves. The contractor is the yin to the architect’s yang: they will point to what part of your architect’s vision can be optimized. For example, that curved lines in buildings are more expensive than right angles or that there can be such a thing as too much glass in a building. In short, the value engineering—the reality check—a contractor provides to your design early on can be invaluable, especially if you’re new to the game. The downside to this approach is losing the ability to bid out the project. If this is a concern, you can still select your preferred contractor at the outset but agree that you will pay him a fair “walk away” fee if they don’t win.
Thick contracts won’t help with a crooked or inept general contractor. A handshake suffices 90% of the time with an honest, competent one. The contract is just a reminder of everyone’s responsibilities.
We stopped bidding out our projects nearly 20 years ago, relying on a couple of top contractors with whom we do business almost every year, making them part of our team.
Our general contractors work with us from day one—before anyone knows if a project will be built. They provide us with value engineering and cost estimating on one plan iteration after another, all without charge, because they know that if the project proceeds, the work is theirs. This is the right way to relate with general contractors.
Consider not issuing insurance construction bonds. They are expensive, and you will learn that insurance companies pay off infrequently if you ever do claim them. It is better just to verify that your contractor is “bondable.”
Whenever someone pitches you a deal, an excellent question is: “Why are they selling?” Be extra skeptical if the answer doesn’t involve a compelling need to sell (e.g., death, disaster, dissolution, or divorce).
The best time to find a motivated and realistic seller is when no one else is buying. “Buy when there’s blood in the streets.”
When confronted with an unrealistic seller, we usually advise the broker that teaching market values to a seller is not our business. Thus, we lose deals.
Try to meet the seller and become their new best friend. You will learn a lot only by visiting them at their office.
Vast land and easy approvals lead to overbuilding. The doom formula is:
easy zoning + easy money + many developers = death spiral of overbuilding
Smart money loves core properties because developers are more likely to generate cash in central locations where all the land is already built out. The best defense is to own properties where the zoning and approval process is challenging.
Sellers tend to be smart enough, and when they are dumb, their stupidity more often lies in overvaluing their holdings than in wanting to give them away.
Never buy unzoned property.
Actual off-market property may be a worthy prize, but brokers are seldom involved because principals deal directly with other principals.
A great deal is rarely great on the first day it is offered to you; no one consciously gives anything away in business.
If a property stays on the market for a long time, a frustrated seller may become reasonable. You don’t want a building at a $10 million asking price, but at $6 million, the property might work. And then you wait…and wait. The seller will pull his property off the market, or someone will outbid you. But if you bait enough hooks, a fish will come along.
If you develop or invest in property, you’re in the business of borrowing money.
The Family & Friends (F&F) profit-sharing formula: The equity gets a preferred return a few percentage points higher than Treasury bills from the project’s free cash flow. Once that’s paid, any remaining cash is split 50/50 between equity holders and the developer.
Two basic loans predominate in real estate:
Permanent loans: They are for stabilized assets like a leased office building. They have a lower risk and usually have a long-term duration (> 10 years).
Construction loans: They are for constructions like building a new high-rise. They have a higher risk and usually have a low-term duration (~ 2 years).
It is impossible to predict real estate prices ten years from now. Be careful with those long-term proformas.
High-end sales brochures and investment committee reports routinely contain impressive Argus (commercial real estate software) spreadsheets that magically produce the IRR the buyer or investment committee desires. The magic is easy; keep raising the anticipated 10th-year sales price until you hit the desired IRR. Who will be around in 10 years to tell the analyst they were wrong?
Alternative interpretations of the Internal Rate of Return (IRR) are “Inflated Rate of Return” or “I Rationalize Risk” should come to the mind of anyone confronted with spreadsheets predicting rising rents, falling expenses, and zero vacancies.
There are two kinds of lenders: those who’ll admit they’re not lending a dime and those who pretend they are.
A banker is a successful developer’s best friend. But beware because your banker will want a committed, monogamous relationship.
Despite the best intentions, your banker is only as good as the last loan she committed to you. She may even become a friend. Eventually, she will be on vacation, quit, retires, or be in the hospital the week you need a loan commitment. Or, her bank will be merged out of existence (this has happened to us three times), be taken over by the feds, or stop making real estate loans.
The solution? You need an open relationship with three bankers at three different banks. That way, the lights are always on somewhere.
Valuing property is subjective. Think about it: appraisers use three different approaches to evaluate a commercial property:
Appraising is still as much art as science.
We sell if:
Our return on cost is too low either because our construction costs went over budget or we failed to achieve anticipated rents.
The barriers to entry for our project’s future competitors are low.
We have concerns about our tenants’ longevity or the quality of our location.
We keep our high-yielding properties in competition-constrained environments.
Wise principals spend quality time with their favorite brokers. Why? Because they are genuinely friends, and it doesn’t hurt when it comes to getting the “first call, last look” on deals.
Beyond treating agents with respect, choosing the right one matters because the best agents are as specialized as the best principals.
This book is written under the Urban Land Institute (ULI) umbrella in the U.S. The ULI comprises real estate developers and related professionals who share best practices.
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Henry: Hi, Devon! Welcome to the podcast. How are you?
Devon: I’m great. Thank you for having me on.
Henry: Thank you. This podcast explores the intersection between personal growth, urbanism, technology, and real estate development. I have a giant Venn diagram with your interests. Could you talk about your history, past, and interests?
Devon: Sure. I’m a little bit all over the map, but some threads tie it all together.
I studied computer science in college, and at the same time, I was the editor in chief of the Stanford Review, an economics-focused paper on campus. And then, after that, I became a software engineer. And after that, I became very involved in housing policy in San Francisco.
San Francisco doesn’t build enough housing, and I tried to fix that. I’ve also done some work in some crypto companies. And my most recent job was as a product manager at GitHub, where I built financial systems for open source developers to make money. I recently quit my job at GitHub, and I’ve been exploring the space of charter cities and startup cities.
And so I’m excited about Porta Norte. There’s a lot of potential in Latin America for charter cities. The thread that runs through all the things that I’ve worked on in my career is considerable interest in social organization and innovating on social organization. Many institutions have gotten us far, but we don’t have any reason to believe the institutions we have are the best form they could be.
People talk a lot about conventional technology, electrical engineering, software, airplanes, and medicine. All those things are crucial. Still, social technology is just as important as all other technologies but very understudied. I’ve been exploring that space and thinking about what I want to do next concerning that.
Henry: So the common thread is the designer’s dilemma. When you are a designer, you’re looking to improve everything. Therefore you see problems in everything. Then you get a little bit irritated when things are not right. Unfortunately, some designs of our cities are cringeworthy, and it’s impossible not to pay attention to them.
Many people in the startup community are focused on software engineering and are also interested in urbanism. That’s quite a recent insight for me. You recently tweeted that the urge to do your own home versus programming your language came from the same place.
The Venn diagram of interests is intertwined. What patterns have you seen?
Devon: Yeah, I think you’re spot on. Many people in the software, Silicon Valley, San Francisco, the tech world, and beyond are interested in urbanism because it mirrors many of the types of problems that we run into in our workday today.
So imagine that you work at Twitter or Facebook or any of these social networks. How I like to think of it is you’re building a city that doesn’t have buildings, but a website is like a building. A website has a lot of similarities to architecture. This may sound like a strange concept when you think about it because it’s not three-dimensional. You can’t walk in it, but your avatar can be in it. There is a sense of space and how people relate.
Fundamentally, what these platforms are doing, just like any architect would do, is to design how people interact with each other. But they’re more like cities than buildings because cities are all about the sort of organic interactions that people have.
The mayor of New York City doesn’t know everything that’s happening in New York, just like how Mark Zuckerberg doesn’t know everything that’s happening on Facebook. And, they can’t even imagine what all the things are happening both for good and bad.
Cities are just a rich source of metaphors for the kinds of work that many tech companies are doing. I could go into many other similarities, but I think that’s the major hook that pulls people in.
His book became famous in the computer science community because the structure of patterns that he laid out is the same structure or type of thinking for design in computer science. He uncovered this correlation in design patterns between designers of the physical and the digital world.
That book is fantastic, and I recommend it to everybody. It is excellent if you want to build your own home. One of the core concepts is that you don’t need architects; you can design everything yourself.
In the past, people and cities didn’t rely on architects. They did it on their own. If you go to historical towns, they are the ones who have charming streets where everything is romantic, walkable, and everything works in harmony. Everybody built their own home, and it was a community thing. It was built in an open-sourced way.
Devon: So there’s another connection between programmers and architecture that I never really explained before. The types of people who go into software are often pretty impatient people, myself included, who want to build things fast. They don’t want to ask for permission. And software, in a lot of cases, is excellent for that because you can pull up your text editor and start writing code that runs today. You don’t need to have a piece of land to do it or anything like that. You just need to have your laptop.
Many software engineers have fantasies of building things in the physical world but feel it’s more challenging because you deal with atoms instead of bits. You’re fundamentally dealing with real costs and with neighbors who may or may not like what you’re doing. You’re dealing with things that break. Then you have to fix it as opposed to just rerunning the code.
I’ll speak for myself, but this extends to many other programmers. It’s this feeling that we want to build things in the real world, but we don’t have the patience for it.
What you think is very unfortunate because the most important things that can happen in the real world, like your life, are more based on the real world than the connections that happened to you made, which are very important. But software can only go so far in improving your quality of life.
Henry: That will to change things fast permeates the physical world, but it takes much longer. Rearranging atoms is much more complicated than rearranging bits. There are so many people from software engineering who want to do urban experiments.
I’ve talked to many who have wanted to do towns or build a community with their friends. And it is challenging. There are so many experiments digitally, but very few physical experiments get executed in the real world.
I want to do a slight shift.
You wrote a blog post called: What are startup cities for? I found it because Balaji re-tweeted your post. I read your blog post, and Porta Norte fell into one of the categories you defined in your post.
I wanted to connect with you, so I sent you the link to a blog post I wrote on Startup Cities, and then you said you had already read my blog post. Then we started talking about our interest in urbanism and startups, et cetera. But mainly startup cities.
A few weeks later, I sent you a link about other people who had done a compendium of all the startup cities worldwide, and they used your categories. Your categories permeated the internet.
I wanted to go into the framework and categories you listed in your blog post: economic opportunity, competitive governance, lifestyle, community, and technological experimentation. Can you go into detail on each, please?
Devon: Sure. I should have a disclaimer that these are simplifications of motivations. Indeed, other things are probably not covered here. And a lot of detail that it’s not perfect, but they’re like rough groupings of the types of motivations I’ve seen for startup city founders.
The first of the five is economic opportunity, and it’s really about unleashing economic development, reducing poverty, and reducing unemployment.
People here in the U.S. don’t appreciate how screwed up certain primary institutions are in most of the world. And that’s not to say that U.S. institutions are perfect or great either, but we solve specific problems that other places haven’t entirely solved.
So, for example, China in the 1970s was super communist, and they didn’t have any private property whatsoever. You couldn’t leave your job if you wanted to, because you were assigned your job and you’d do it for your whole life.
Many things like that resulted in massive misallocation of capital and labor in the market and land. In the 1980s, China created a special economic zone in Shenzen where they changed a lot of those things, they’re still technically communists, but they made it so that people could lease land for 99 years, which is similar to ownership.
Henry: Also in England, I think.
Devon: Yeah. Several places have done that as well. But, I’m not sure about England. I think Singapore has a similar system. They’re all slightly different, though. China did all these things to bring more market competitive pressures to their economy.
GDP in Shenzhen multiplied like ten times within just a few years. It was swift. There are other places in the world. China is doing a lot better because it adopted many of the same reforms that Shenzhen experimented with in the 1980s.
There are a lot of other countries in the world that have different but backward policies that hold back economic development. They might have people who are incredibly talented and energetic. However, they have labor laws where you can’t fire ineffective employees at all.
So that’s a long way of describing it, but that’s what the economic opportunity perspective is for startup cities. This is also very well aligned with business models because if you create a lot of economic development and increase people’s productivity in your city, there are probably hundreds, thousands, internet ways to capture some of that value back to yourself. And if you own the land where this is happening, you can benefit a lot. So that’s the economic opportunity reason.
Devon: Yes. The second one. These are not in any particular order, by the way. The second one is around competitive governance.
Someone I’m very close to is currently going through their green card process to get permanent residency in the United States. And this process is a complete mess. He had to send this medical paperwork to show that he didn’t have certain diseases.
The first time he sent it in, they got back to him and said, oh, sorry, you filled out the form in blue pen and not a black pen, so you have to send it again. So he did. They got back to him again and said, you sent it in on A4 paper instead of a letter-sized paper, so you have to send it in again. And there’s this back and forth until finally a few days ago they were like, okay, you’ve got the paperwork done correctly. Thank you.
This process is backward. It is a complete waste of time and money. He had to resend these letters many times at a very high cost cause he had to send them in on high-speed shipping. So it was like $50 per letter that he had to send. He had to take time out of his workday to go to the post office and mail it by hand.
By contrast, Dubai, Singapore, and Estonia have a ton of their government services online. You just submit a form in 10 seconds, and you are done. And that’s that. These government agencies are held accountable for the quality of their services.
I mean by competitive governance that there are some governments in the world, very few sadly, but hopefully, a growing number treats governance as a product. They say, how do we make governance as good as possible for our citizens? So we’re not wasting their time and making them spend useless money. We’re not putting them in situations where they live in jeopardy just because they filled out some paper wrong.
Unfortunately, most countries, states, and cities don’t act that way. Instead, they are comfortable knowing that they have a captive audience.
I’m talking about this guy. He’s not going to just leave the United States just because of this one paperwork, but they know that they have a captive audience. And so they don’t have to have good services, just like any monopoly.
One thing that’s exciting to me about startup cities is that once more and more come online, there will be more competitive pressure, and people will leave if they don’t feel like their government is serving them. So that’s number two.
Number three is lifestyle.
Lifestyle sounds like a superficial thing. And maybe in some cases it is, but in other cases, it’s purely about safety.
Some places in Latin America are unsafe to live in, although many different places in the world either, but I’m most familiar with Latin America. If you live in Sao Paulo or Buenos Aires, your kid might get mugged, your house might get broken into, people might carjack you, you might get kidnapped, and stuff like that. Therefore, startup cities have an opportunity to offer safer places.
This is not going to be true in every single place in the world? Luckily not every country is dangerous like Brazil. But in the places where that is the case, startup cities will provide essential options for people to live a life where they’re not worried their children will get kidnapped.
Lifestyle can also include other things that are not as serious as physical safety. It might be that you want to live on a Caribbean island. Maybe that’s important for you and your lifestyle because you’re into scuba diving or something like that. I think that scuba diving communities might pop up, and there might be a startup city that serves them. That’s a random one. I don’t know if that’s a good business idea, but that’s one version.
Henry: New ski towns might also be startup communities.
Devon: I have not looked into the numbers, but I would bet that Aspen in Colorado and many other ski towns have seen a lot more people move there during COVID because now more people can work remotely. Startup cities enable people to live where they can do their hobbies, think it’s beautiful, and have a beautiful house. Yeah, ski towns.
Henry: And to serve them all year round, now they’re adapting the mountains for mountain bikes when they have no snow. With this, they can have an active community all year long. That’s an instance of them improving their product.
Devon: I did not know of that. But that makes a lot of sense, and it’s probably almost as fun as skiing. Probably even more fun for some people.
So the fourth category that I have is the idea of community, where like-minded people can live together.
This has already existed in some shapes and forms, but it usually exists as vacation towns. So one place that I’m familiar with is a town called Chautauqua in upstate New York. They have this nine-week program each summer. So like June through August, where they offer sermons, lectures, ballets, theater, all sorts of things like that. It is primarily geared towards retired people. They invite their children and grandchildren to stay with them.
My grandma goes to this place every summer and hangs out with her friends interested in the same opera. They have a beautiful town where she knows she will be friends with everyone there when she walks outside. She could become friends with almost everyone there because they have similar interests.
Chautauqua has always been a summer place. It’s more of a vacation spot where you take a few weeks off of the year, and you go, but again, now with more remote work, I think there’s more space for this to become more of a year-round sort of thing.
I don’t know if Chautauqua will specifically evolve to become that, but I think a Chautauqua-like place could exist for different types of people who have other interests. People who share values want to live together instead of where they may not share values with their neighbors.
And then the fifth is around technological and social experimentation.
Right now, roughly all of the land on earth is claimed by a nation-state. There are a few exceptions. All the land that you would want is already claimed. And those nation-states tend to have laws in place about what you can and cannot do.
The menu of laws, legal systems, and social structures that exist out there is only a tiny subset of what’s possible. It’s a shame that we don’t have a frontier anymore because we can’t go out and experiment with social structures in the way we used to be able to. You used to be able to go further out.
Henry: Mars is the next frontier, right?
Devon: I think that’s literally far away, but maybe we’ll get there. Hopefully. I would love for us to open a new frontier. Cause frontiers both challenge the older places to reconsider whether what they’re doing is good or not. And they also just create space for “weirdos” to try stuff out.
And so the kinds of things that I would love to see experimentation for are things like life extension or medical tourism. If you are, towards the end of your life, and you want to try a drug that might save your life, you should be able to try it. But like in most countries in the world, you can’t do that.
Instead of trying to reform those countries, we should be able to build an alternative in the frontier. Competition might make those countries reform themselves.
You want to experiment with new technologies like flying cars or space travel. I see creating a new frontier as a valuable social addition because it’ll give us space to experiment and figure out what we’re missing in our existing communities.
Those are the five. Repeating the categories quickly, they were economic opportunity, competitive governance, lifestyle, community, and technological experimentation.
Again, there’s probably some missing. So if anyone thinks of something that doesn’t fit into those categories, I’d be super interested to hear it.
Henry: Let’s talk a bit more about examples of each of these.
So, economic opportunity. Free trade zones have a connotation of import and export, but special economic zones have a better tax structure or immigration laws that make people establish there and facilitate commercial activity.
One of the best examples of this category is Singapore. But what do you expect to see here? Is there something else rather than special economic zones and free trade zones? What do you wish to see in the future? What are the best examples today?
Devon: You’ve touched on how free trade zones and special economic zones usually have import and export connotations. I think that’s right.
I would love to see people experiment in Porta Norte around a free trade zone for knowledge workers. I don’t think that’s been tried before. The closest thing I am aware of is the Dubai International Financial Center (DIFC). But they’re narrowly focused on finance, fintech, and oil for the middle east.
Henry: Can you explain a little bit more
Devon: Dubai is a fascinating city. It’s part of the United Arab Emirates. It is one of the 7 Emirates, which is like a federal system. Each of the 7 Emiratis has a king or a Monarch.
In the 1970s, Dubai had only a few 10,000 people there or something like that. And at the time, the king decided that they would invest in import-export infrastructure, simplify the laws, lower taxes, and stuff like that. Now for anyone who knows about Dubai, it’s not that small anymore. It’s millions of people. It has some of the most modern towers in the world.
There are also many very valid critiques of Dubai that I won’t get into, but they exist. And I agree with some of them. But you can’t get around the fact that it’s awe-inspiring that they took it from this little fishing village to a global trade center.
And then in the two-thousands, around 2004, they decided they wanted to attract more financial businesses like banks because they felt that would help the region, especially Africa, access capital. But then they realized that their legal system didn’t work very well with the English common law system, which is how most finance is done around the world.
And so they decided to create this special zone inside of Dubai called the Dubai International Financial Center, governed by a common-law framework distinct from the Emirates legal system, with laws and regulations issued in English.
Henry: They can even have foreigners on their board of directors.
Devon: Exactly. Usually, the Emirates has restrictions for foreign-owned businesses. However, companies in DIFC can be 100% foreign-owned —which is excellent. This policy alone generates hundreds of millions of dollars of GDP annually that didn’t exist before.
Anyway, this is the most similar thing to a free trade zone for knowledge workers that I know of, but it’s still pretty constrained to finance.
It’d be exciting to envision a zone focused on people who build internet businesses or something like that. What would that look like?
Henry: What would that look like for you?
Devon: That’s a good question. I should think about that.
Fast internet is, of course, the number one most important thing. What I touched on earlier around the government having simpler processes would be very important.
I spend more time than I would like dealing with various government interfaces. I had to get my driver’s license renewed recently and wait in line. No one should have to go through that because it’s just, I know it sounds so petty and so small.
If you think about how many people in the world have spent hours waiting in line for a driver’s license, that’s a lot of wasted time. Those humans could be doing anything else with their life and creating value by being with their family, exercising, sleeping, etc.
That’s for driver’s licenses, but that’s not even that important, let alone, I don’t know, Medicare or something life-threatening. Digitize government services and have maybe a concierge service where, if you have questions, you can call a support person, and they’ll help you navigate the bureaucracy.
Those are the first ones off the top of my head. I could probably give you better answers if I thought about it more.
Henry: If you do something for knowledge workers, you need to push the envelope in all the five categories you just mentioned. I’m trying to improve them all.
If you are a technological worker, you want economic opportunity, sound fiscal and labor laws, and an ecosystem of good businesses that generate know-how.
You also want competitive governance. You want the place to work like just to work, that’s it. That they try to attract you and give a smooth onboarding.
You want a good lifestyle for exploring your interests like skiing, mountain biking, nature immersion, etc.
You want a community with like-minded people where you can have deep conversations over coffee in public spaces.
You want technological experimentation where the government doesn’t meddle in your things or inhibit your company’s growth.
Devon: Yeah. And related to that, also just a feeling that the government is responsive to you.
If there’s something deeply wrong in the place where I live, I want to feel confident that things can change. The cities I’ve lived in don’t feel flexible and bendable.
And some of that is good because people shouldn’t be able to just change anything all the time for everyone else and hurt them or whatever. But certain things are just like really terrible inefficiencies that you can see walking around.
If you see a problem on a startup’s website, you can often email the CEO, and if they agree with you, they will send their best team to solve that problem fast. But this is not a guaranteed thing. I’m not saying that always works either. There’s a feeling of responsiveness that you just don’t usually get in an urban landscape.
Henry: Yeah. I wish urbanism were as responsive as Singapore bent to Lee Kuan Yew’s will. He had a vision and built it fast. Of course, it was an authoritarian regime. Paris was also responsive and built the Boulevards designed by Haussmann.
Few people will get trampled upon if we want to get big things done. To make an omelet, you need to break some eggs.
Devon: To clarify my position, I do not favor totalitarian governments or monarchies. But at the same time, democracy, especially consensus-driven democracy, where many people have to agree, now you have to stop the whole thing if anyone gets in your way. That also doesn’t work very well.
So what I think is an exciting alternative is startup cities. You can have tiny baby kingdoms where people can leave if they don’t like what you’re doing. What this means is no one gets trampled because they can exit. If Haussman comes and tries to take away your property, just say no, leave and sell your land.
You can refuse to live in a community like this. But you also get the benefits of some of the top-down coordination that can happen.
It is important to live in a world with many smaller cities and open borders. We don’t have that today.
My ideal world would have lots of little tiny kingdoms run by businesses. Most likely where the CEO gets to decide what happens, but you can choose any of those cities you want to go to. And you go to the one where you agree with how they approach things.
Thus resulting in the best of both worlds, where people choose and are not coerced into anything. All the choices they make or what they think matter. But at the same time, you have someone who can see the bigger picture and have a bigger design.
This could be someone who does things that I disagree with. That’s fine. Cause I can just leave. I don’t have to live there. Now I think the question is how do we get to that future? I don’t know how to do that because I believe we are very far from having anything that resembles open borders.
And culturally, we’re very far from that. So I don’t know how helpful is this image is that I’m painting, but it is the image that I would love to see.
Henry: I would say there are baby steps going that way. Current examples would be Selina. It’s a hybrid between a hotel and a hostel. It’s targeted at millennials, and you can do a lot of yoga, arts, meditation.
They started in Panama, in Casco Viejo, about seven years ago. Now they have over 60 destinations. Their business model includes helping the community and making it part of the development.
Some people go to Costa Rica, then to Panama and Colombia, while staying in Selina. If Selena had more billions of dollars, they could do not only buildings but a series of neighborhoods with public spaces. These might be the initial steps towards that future.
Devon: This looks cool. I’m poking around their website, and I have to check this out more. Yeah, I think we’re going to see more of those. The issue is that the Westphalian nation-state system doesn’t allow for this very quickly.
It’s tough for many people to get visas in different countries and that sort of thing. Luckily the U.S. is a huge country. And so, I was able to recently move from San Francisco to Miami because I disagree with San Francisco’s governance.
So I voted with my feet, but many people don’t live in big countries with diverse cities. For example, my boyfriend is from Argentina, Buenos Aires is the main city. They have other cities, but they’re not that different.
Compare it to Los Angeles, where you can go to LA if you’re a musician. If you’re a software engineer, you can go to San Francisco. You have specialization of cities.
In the next 10 to 20 years, it’ll be interesting to see if the system bends or breaks. More and more people will want to live that way, where they can choose the city they live in based on their profession, values, or whatever they care about with where they live. But right now, it’s not working very well.
Henry: It is not. But the pandemic has opened up a lot of places. Many countries, including Panama, have made new laws for digital nomads. It has happened in Malaga, in the U.S., and some places even pay you to reside there.
The talent competition is rising. That competition will pressure governments to, hopefully, develop more competitive governance. This is much more important now because people have a greater ability to move.
The countries that take advantage of this trend will rise in value. In places like El Salvador, making Bitcoin a legal tender, opening up for digital nomads and technological people will result in major benefits. There are many people who want to do arbitrage where they reside in Latin America while working for a U.S.-based company, earning much higher salaries and spending it where their money is worth more.
These types of experiments will happen more. Panama has an experiment for knowledge workers called Ciudad del Saber or City of Knowledge. It was previously a military base for the U.S. in the Panama Canal Zone. Now it is converted to a Special Economic Zone of 120 hectares that have attracted the United Nations, universities, schools, businesses, and multinational companies. It has been highly successful. It’s all services companies and none of the import/export.
I use it as a model to explain what we want to do in Porta Norte. We will brand it or market it as a Special Economic Zone for services because we’re not going to be in the import/export business. We want people to start companies, have better labor laws, tax structures and bypass some of the red tapes that happen when people want to come to Panama.
Devon: What things did the Ciudad del Saber do to attract people? Why are people, companies, and universities moving there?
Henry: Because they have tax and immigration benefits, great telecommunications infrastructure, great infrastructure overall with redundant power supply, a high-tech ecosystem, amenities like sport and recreation facilities, and other benefits.
Devon: Are these universities coming from abroad, or are they Panamanian?
Henry: Both. Some examples are Louisville, Florida State University, and La Universidad Francisco Marroquín. In total, they have 34 academic programs.
The Government of Panama is betting on indirect benefits of having more educated people over here, more universities, and not from a direct tax they charge Ciudad del Saber. In Porta Norte, we are inspired by the City of Knowledge and try to incorporate some of the lessons learned.
The challenge at the beginning of new projects, if it’s not a company town, is that it usually becomes a place with no life in the days because everybody leaves in a car to go somewhere else to work and come back only to sleep –becoming a dormitory city. Residents almost always arrive before workers, and companies get interested in moving there when there are a lot of residents. So it’s a chicken and egg problem that we are struggling with, and we have many strategies to fight that, but it’s something that you have to fight.
Devon: Right. Yeah. That’s very exciting. I’ve been meaning to check it out. I should go to the City of Knowledge. Can I just drive or walk in?
By the way, I used to work there at a Venture Capital firm in Ciudad del Saber, so it’s all connected. The DNA of Ciudad del Saber has permeated Porta Norte. CDS inspired me to invest in things I enjoyed like public spaces, culture, education, and sustainability. It made me ponder how to create the virtuous cycle I experienced working there.
Ciudad del Saber has been highly successful. The thing is that they cannot build more, it’s full. The strategy we are debating in-house is how to position ourselves to attract the clients that want to go there but can’t. When people grow too big, or “graduate,” from the City of Knowledge, we can attract them to Porta Norte. We have been talking to some business owners established there.
There’s also another chicken and egg problem. Usually, when these companies come from abroad, they want the structure, and they don’t want to invest in capital expenditures for their buildings. They just want to rent.
Ciudad del Saber inherited many buildings from the U.S., thus having that problem solved from the start. We had no inheritance. This is something we have to solve. Rearranging atoms has a lot of complications, and a lot of things have to be aligned, but we’re working on it.
Devon: It’s fantastic to hear that you already have some idea of what the market could be. It’s the people who want to be in Ciudad del Saber but can’t.
Henry: Or that they have grown too big for them. Or businesses that want to buy land. We sell land, but Ciudad del Saber doesn’t.
I talked with Jeff Speck a lot to structure Porta Norte.
Devon: Oh, cool! No, I didn’t know that. How did you meet him?
Henry: When I was starting Porta Norte, I loved watching Ted talks, and I liked his TED talk called The Walkable City. So I contacted him, and we had a chat. It was before the book. He gave me the roadmap of who to hire.
He introduced me to three architecture firms, which I later interviewed when I attended the Congress for the New Urbanism (CNU). He recommended I talk to Andrés Duany, who became the master planner of Porta Norte. Jeff was a significant influence in Porta Norte.
Devon: Exactly. Yeah. I don’t know. I’ve been interested in cities for quite a while. I don’t know if there was one moment when I was immediately interested in it.
How could you not be interested? It’s just so interesting. I don’t have an exciting answer there. It’s just that cities are such an interesting intersection of economics, architecture, engineering, and politics, which are all of these different types of things that I also find fascinating. And you need to understand all of them to build cities.
It’s just an exciting challenge, and it matters. People tend to underestimate the importance of infrastructure in their life vastly. And when I say infrastructure, I am not just talking about highways, sewage, water pipes, and stuff like that. I’m talking about the platform that they’re living their life on.
What does the environment around them make it easy or hard to do? They at least shape the outcomes of people’s lives a lot more than they realize.
This comes even down to tiny details. Like having chocolate in your house makes it a lot more likely that you’re going to eat chocolate. If you have a goal of eating less, just don’t put it in your house. So when you go to the grocery store, don’t buy chocolate. Maybe you can buy it when you’re out at a restaurant or something, but don’t bring it into your house.
That’s like a micro example, but there are also examples like does your street have a lot of trees and nice sidewalks that you can walk on? or does it have huge roads with cars going fast? Are there trees to protect you from the sun? If not, it will not be comfortable, and you’re going to walk less. And it might not even be an active choice, but you’re just going to do it because the environment is pushing you away from walking.
These things are fundamental and underlooked, and we need to design spaces that match how we want to live our lives. And I don’t think that we’re doing that right now.
Henry: We are not doing that right now. And why is that? Why have the incentives changed, and how can we align incentives better to improve designs?
Cities from before had public spaces, and cities nowadays have very few parks and public spaces. I don’t know if that is also what you have seen. I wonder why has that happened? Is it because all real estate development is delegated to the real estate developers? Are municipalities not doing what they have done historically? What is happening?
Almost no new places in Panama have public spaces. In Porta Norte, we’re taking the municipality’s role and building them. But I wonder what has happened? What incentives have changed? Maybe the answer is just cars, and that people don’t use public spaces anymore, but I don’t think that’s true.
Devon: I think there’s a mixture of things. The top one that comes to mind is that we have released a lot of the constraints on ourselves around where we need to live in the last hundred years. It used to be that you had to live within walking distance to your job at a factory or your fields because there was roughly no other way to get around.
And you had to live in certain places because it was safer to protect against bandits. So you had to live in tighter-knit communities with walls that create interesting constraints that create beautiful towns.
Now you can have air conditioning. So you can live in hot places, which have a lot of open lands, like Florida, where I live or Texas or wherever.
And a lot of those things are great. Cause in many ways, life has gotten a lot better, but the lack of constraints had caused us to run into a lot more coordination problems. In the past, the constraints forced us to coordinate because we all had to be in the same place simultaneously. So we had to solve these problems, and we were closer together.
Now people like to create their little castle on their property, and they optimize for building the nicest house with the nicest yard for themselves and their families. Nowadays, they don’t think externally so much.
And it’s because they can just get in their car, drive to the edge of the city and buy a piece of land that they can afford and build there. It’s also because it’s more within your control to create a beautiful yard for you and your family.
It’s a lot harder to get your community of thousands or millions of people to coordinate and create a park and agree upon what should be at the park. So long story short, the reduction in constraints has made it so that coordination is more necessary for us to do things together. So people do the easier thing. But people would still value having these public spaces and having a tighter-knit community.
The numbers that you see on Zillow, the real estate buying website in the U.S., show the square footage of the house. But you don’t have an easy way to measure how close you are to friends and how likely you’re going to run into somebody at a coffee shop. Those are much harder to measure, so they don’t end up on the Zillow page.
And as a result, people make decisions based on the square footage of their house and how big their yard is, and they underwrite other things that make life pleasant, essential, and valuable with your friends and community. It’s also a measurement issue.
Henry: What company is starting to incorporate the walk score? Are you familiar with it?
Devon: Yeah, I am familiar. The walk score is a good step forward. However, I don’t think it fully captures everything we want, but I’m happy to see that development.
I think that’s a typical metric now on Zillow, but I am not sure. I think people are just still way more likely to maximize the number of rooms in their house than they are to optimize their walk score.
Which, you could say, is the revealed preference and what they care about. I’m inclined to think it’s a little bit of a short-termist. You’d love to think about what you’re going to do with that new room, but didn’t realize that having one less room in your house is fine so that you can be closer to the people you love.
That’s my bias and the way I make decisions, and I’m probably putting them on other people. And I don’t know if everybody else has the same values.
Henry: That makes sense. I think the walk score is a proxy for having spontaneous encounters while walking in public spaces. Therefore, having more frequent connections with your community.
Something detrimental to walkability is how buildings interact with the sidewalk in new developments. They usually put the house in the middle of the lot, and you have a huge yard encircling your home. Sometimes they even put a massive wall between the home and the sidewalk or even parking.
In traditional urbanism, you always put the house immediately next to the sidewalk. This creates an interesting and secure place to walk next to. That’s how it’s in Porta Norte. It’s imperative to put all of the structures next to the sidewalk.
You might lose a little bit of privacy, but what it does to the public spaces is it creates a lively neighborhood where people can walk, feel safe, and create eyes on the street. It facilitates an active lifestyle.
Devon: I’m personally more laissez-faire. The battle I’m fighting is that most cities require the opposite; they require setbacks. In the U.S., most cities require your building far away from the street. They say you cannot have your house close to the next house. I want is to lift those restrictions, just let people build what they want to build.
Regarding Porta Norte, it’s great that you’re trying out a different set of constraints, but for me, I’m just like, let’s just let people build. If people don’t want to build parking in their house because they plan to bike everywhere, just let them do that.
Most cities now have parking minimums, which I think is a discussion that is very unintuitive for most people. Some people don’t have a car, and requiring them to build a parking space is subsidizing it.
Many times San Francisco developers want to build next to transit in a part of the city where you don’t need a car. Still, they are required to have two parking spaces per unit, subsidizing space for cars.
When we have a housing crisis, and people can’t afford to live, we shouldn’t subsidize cars; we should be making it cheaper to build stuff. So that’s what I’m fighting against. We need to shift towards more laissez-faire.
But I’m also excited to see, as I was saying earlier, little Kings or CEOs running projects. They should be more restrictive in those cases, like what you’re talking about with Porta Norte. So like an experiment. And if it works great, people will want to live there. And if it doesn’t work, people won’t live there, and the market will punish you for it.
And that’s good. That is how it should be. The issue is when it’s upheld at the government level, and it becomes illegal to build what you’re building or build something else. That’s where it becomes a problem for me.
Henry: What I love the most in experiments, which is very uncommon in real estate, is building places with concepts and meaning. Leaders should have a vision and execute. They should try to create a compelling vision to attract residents.
They should develop real concepts like developing a mountain bike town, a university town, or a place for technological progressives. Build places that focus on incorporating nature. Or do Solarpunk visions. I just want more visions and experiments to materialize.
Sometimes I get frustrated that there are so few experiments in real estate development and that usually, the people involved are old and conservative. And I understand the reason why. There is so much money behind infrastructure that you risk a lot if you build something radically different, and you risk absorption. The capital expenditures for making these types of projects are enormous. Failure is a huge deal because you are working with vast quantities of money.
So it’s hard to push the envelope. I wonder how to enable more experiments and how the future will change to enable more startup cities.
So can you tell me a bit about Pronomos? What they’re looking for, and what do they wish to invest in? What is the future of venture capital and startup cities? How would you project the future?
Devon: So I work at a venture capital fund called Pronomos Capital. I am an entrepreneur in residence there, which means I help with investments. And I’m looking at projects that I might be able to start or join. Pronomos is focused on charter cities, startup cities, and companies that exist to serve those types of new projects.
It could also be software-as-a-service for a city potentially. Right now, the biggest bottleneck for Pronomos is the number of founders. Just like what you’re talking about, there’s just a tiny pipeline of people working on this. It’s not zero –that’s a misconception. A lot of people think that it’s zero.
Many great people are working on it, but we need more. This is one of the reasons I was so excited to meet you, Henry, because you are quite far along with one of these projects. The number one thing that the space needs is a success story.
A big challenge is that these projects take a long time. It takes a while before we see real success. Success would be several thousand people living in a town that they are happy to be there and plan to be there long-term. That’s what I would count as an initial success.
I would hope that it would grow even more beyond that, but that would be the first point people would start to look at it and be like, oh, this is legit, this is a thing that can work, that there is traction.
Prospera is a charter city in Honduras, with only about 30 people living there. So it’s still quite small. But Porta Norte, there is no one living there right now. You guys are still doing the infrastructure build-out.
In the next few years, we’re going to start to see a few of these examples pop up. And once we have one sort of poster child success, I think that a lot more people will see that this is possible.
Going back to what we were talking about before with technology people. I think software people, myself included, are a little intimidated by the idea of doing something in the real world like we’ve done everything with bits for our whole career. And so it almost sounds impossible to build a building, which I don’t believe, but there’s some intuition that it just seems complicated. I think it is possible. There’s no reason that you can’t pencil out.
Software-type people just aren’t used to working on that type of problem. So I think that once you start to see a few success stories and people will see that there’s a path there, they will come with their machete and begin to hack away in the jungle and create even more of a track. And it’ll just become more and more trodden.
Henry: But what would seem like a success story, and where do you draw the line between being a real estate development, a master-planned community, a new city, and a startup city? What would be the business model? What would the founder do? Would it be local? Would it be a master-planned community? Would it be like a negotiation with a government doing a charter city? What would not count? Would that be a startup city if you do a new development with a university focused on computer science?
Devon: Pronomos is interested in being able to make your own laws to the extent to which you have increased autonomy compared to the country you’re operating out of.
A Free Trade Zone is one step in that direction. Prospera in Honduras was one of the earliest investments because Honduras has this unique system. You can create a Zone for Employment and Economic Development (ZEDE), which is about economic employment and development. It gives people who run these zones complete carte blanche, like a blank slate.
It allows you to create an entirely new legal structure. You don’t get to rewrite your own criminal laws; you still have to use Honduras criminal law. However, you can write all of the commercial laws, the labor laws, all of that sort of thing from scratch, which contrasts from a free trade zone or a free zone or whatever you want to call them. They have different names in different countries, which usually change one or two things. But are fairly similar to the surrounding countries.
So that’s what Pronomos is interested in. If I speak from my personal interest, I would be interested in seeing that, but I also don’t think it’s the only exciting kind of startup city out there.
If some of these ski communities we’re talking about really become like year-round communities. And I don’t know, maybe a bunch of hedge fund managers moves to Aspen. And now suddenly, there’s a hedge fund manager community and Aspen. That would be an interesting example for me.
I don’t know if I would say it’s like a charter city. Actually, I would not say it’s a charter city, but I might say it’s a startup city or something like that. So I don’t know. It’s a spectrum. I don’t think there’s one crisp definition.
Henry: It is a spectrum, and everybody has a different definition.
Is it on purpose, or is it not on purpose that Pronomos don’t have in their website where they have invested? Is it public? If I ask you, where have they invested? Are you able to say where or not?
Devon: I have always assumed it was public, but now that it’s not on the website, maybe I will hold off. I’ll ask them if I can share it. But it’s public that they’ve invested in Prospera.
Henry: You had the crypto project with a16z –Andreessen Horowitz. There’s this spirit between the people in software engineering and designers who have this native urge to improve the physical and digital world. I wonder if the new technologies arising right now, let’s say crypto or Decentralized Autonomous Organizations (DAO) can solve some problems.
Real estate developers usually don’t focus on public spaces. They want to extract every square meter they can. There are few institutions or structures focused on public goods. What would happen if you had Decentralized Autonomous Organizations where the community invests in a DAO focused on community benefits like maintaining public spaces clean, temples nearby, libraries, or laboratories.
This new way of making decisions with algorithms can improve the incentive structure to have more community-oriented elements.
Devon: An interesting contrast is land ownership, which serves as equity in a city. It’s not a perfect comparison, and there are some significant differences, but on a high level are similar.
I live in Miami beach. I don’t own my house, but let’s say I did. If Miami beach has a new library, now that improves the value of my home because people who love libraries now want to live here. Or if there are a lot of homeless people doing drugs in the park, the value of my house will drop.
So I think land ownership has historically served as equity, but it’s not perfect because people who rent don’t have equity, myself included, I don’t own here. And it also creates NIMBY issues where the land you own is not the same as your neighbor’s.
And if your neighbor starts to do construction to improve their house, they’re helping their equity, but they’re hurting your equity because now it’s like noisy. And so you want to stop them because you don’t want construction next to your house.
I would love to see people experiment with another proxy for equity instead of having land ownership as equity. What would it look like to have equity in the city overall?
So I don’t know what this looks like, but maybe it’s something like they own shares in the company that runs the community. And this gives you something like a right to live somewhere in the neighborhood. It would give you some voting powers or something. And then, because you own equity, it might incentivize you to push for things that might not be good for your short-term interests.
Maybe there will be some construction noise because people are building a library across the street from you, but now that you have equity, you won’t try to stop it. The reason is it is good for your equity in the long-term since the community is more beautiful and has a better education.
So I don’t know exactly how you would structure that. I’m not even totally convinced it would work. I would like to see experiments on alternative forms of equity.
Henry: Yeah. I’m sure it will work. Companies that reward equity tend to do better than the companies that don’t reward equity. It’s a perfect way to align interests. I’m going to ponder about how to make that work.
Devon: And you don’t need that much. However, your local interests would still dominate. I think that’s a pretty valid critique, but I also believe there is something fundamentally different about having a small amount of equity versus no equity at all. A little equity gets you to think about something a little differently. You start to think about it as an owner.
It might still be that you have other interests that dominate. But it gets thinking in an owner’s mindset. You don’t need a ton of equity to start with some of that mind shift. It might be even more effective if you have a lot of equity. But I think just having a small amount gets you thinking.
You can see this with crypto. In 2017, ICO’s were going crazy. People who bought tokens and ICO’s early would market that coin because they had equity. And some of them didn’t even have that much, but they would go out and shill the coin on Reddit and write blog posts about why this coin was going change the global financial system forever or whatever.
And again, maybe it’s not what you want because those people were pretty obnoxious. They made the crypto space look illegitimate, and it had a lot of problems, but you cannot deny that they had a lot of enthusiasm. That happened because they were owners of the network.
Could you take 10% of that enthusiasm and direct it more constructively? There’s a lot of pent-up energy there that could be used for good.
Henry: That’s a great way to think about it. Okay. I’ll think about it much more. I have been studying a lot about what you have done, and it’s impressive. I recommend everybody to read your blog. It’s amazing. You have excellent sources for cities, books, and reviews. Also, the YouTube videos I saw about you were highly eloquent, and your ability to write and communicate is off the charts.
So congratulations, you have unique skills and an exciting way of thinking. Thank you for sharing, and I hope we can do much more in the future. So do you have anything to add to the audience?
Devon: Yes. One thing I’m working on right now. I’m about to publish a long document about Prospera. The charter city I mentioned in Honduras is about 40 pages long and is structured as an FAQ. I had so many questions, and I thought other people would find it interesting, especially those building cities like yourself.
It’s not quite published yet, but you’ll find a link to that on my website, which is www.devonzuegel.com. That’ll be published hopefully this week; although I’ve been saying that for a while, it’s a monster document, but hopefully a useful resource to people.
Henry: Oh, that’s awesome. I didn’t know you were writing that. I’m very excited to read that. And also, they can find you on Twitter.
Devon: It’s just my name, @devonzuegel. And I tweet too much, so I’m sorry.
Henry: You have a great Twitter feed. Well, thank you, Devon. It is always a pleasure talking to you, and I’ll see you very soon. So thank you very much.
Devon: Yes. Sounds good. Looking forward to it. Bye Henry.
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At Ciudad Porta Norte, we strive to facilitate physical activity, connection with nature, and belonging. We do this by preserving natural waterways, building tree-lined trees, parks, and squares with lots of greenery, promoting sports, and more to promote culture.
In this story, I imagine what a father’s day will be like enjoying Porta Norte’s European town lifestyle.
I wake up at 5:30 am on a Tuesday. I open my eyes and see my roof supported by wooden beams from the trees of Porta Norte. My feet are on the bamboo floor and stretch my arms.
I go out onto my terrace, take a deep breath of fresh air and watch the tops of the trees dance in synchrony. It is one of the last summer breezes. But, then, I remember that I have a tennis match at 6:00 am.
I cross an inner courtyard on my way to the kitchen. I make myself a cup of freshly ground coffee beans, grab a plate, a knife, and salt. The mornings in the yard are spectacular. On a typical morning, the sun hits the mango tree, the birds sing, and the weather is chilly while I sip my fresh brew.
I go out into the inner courtyard and am greeted by my dog, Max, wagging his tail as usual. I walk through the grass barefoot until I reach my morning chair under the mango tree. Before I sit down, I stretch out my arm and pluck a ripe mango. I sit listening to the voices in the garden as I scratch Max’s furry neck. The birds sing as they drink water from the little waterfall in the pool.
A lot of little animals come here in the summer when they need water. That’s the beauty of having a courtyard connected to Mariposa Creek —it attracts biodiversity. I breathe in the fresh air before I begin to meditate. I close my eyes and focus on my breath.
In the end, I give thanks for another day and plan my day while I peel the mango and eat it with a bit of salt. Then I ponder, do I go to the Bike Park at midday? Do I bike? To the office? the orchard? the park? the river? a square? For a stroll?
I get ready for tennis and go to the Sports Club to play with a friend from 6:00 am to 7:00 am. Then, I go back to the house, grab the hose, freshen up the floor and my head. When I’m done, I start watering the plants. I love watching the plants grow, especially my tomatoes and cucumbers; it’s eatable art. My garden is pesticide-free because I want the birds, bees, and butterflies to grow as nature commands.
I continue my virtuous morning and go to the sauna for a few minutes. Inside I’m thinking about my new project, a small house overlooking the creek. I’m going to put a small office there.
When I finish, I take a dip in the pool, play with Max for a while and go to change. Then I meet up with the rest of the family. They say they want to go to our usual café in Plaza Fundadores for breakfast. So we grab Max and head out the front door to a pedestrian street.
This is my favorite street. It is full of pots with plants and ends with access to Mariposa Creek. We walk a little and see some children running in the community garden and the amphitheater in the park. The laughter of the children running is the music of the neighborhood. My son wants to go and play with them, but I tell him we will join them later.
We walk along a tree-lined street where the trees form a green roof. The squirrels keep moving from tree to tree. It is nice to see how some rays of light pass through the canopy of the trees. The brightly colored veraneras are overflowing from the balconies.
We walked to the plaza in 3 minutes. On arrival, we greet neighbors and friends. A couple of people are enjoying their hot coffee while reading the news under the tree shade. The elders are in their usual corner chatting.
There is a fountain in the middle of the plaza, and you can hear the water drops falling. Brightly colored mosaics dress up the fountain.
My favorite places in the square are the bookshop and the market where they sell fresh food. In addition, there is a park for children to play in and a dog park—the smell of freshly baked bread permeates the plaza.
Marco, the waiter, smiles at us and asks, “The same as always?” We nod. We enjoy our toast while we do some people and dog watching in the plaza until we finish.
My office is on the second floor of the plaza. I say goodbye with a hug, a kiss and go to work. My office has an antique wooden desk facing my balcony, which overlooks the María Prieta River, is full of plants, and has a hammock with a mola design.
I like to keep the doors open to take advantage of the cross ventilation and to see nature. It’s a great inspiration for writing. Also, the eaves over my balcony keep the rain out.
At lunchtime, I decide to exercise. I am thankful that I have direct access to rivers from my house and office. I walk down to the plaza and cross the pergolas that lead down to the river. Next to the volleyball court, I join the yoga group and then go for a hike.
There is a microclimate; the air is cooler and humid due to the river. The smell of the tropical forest is identical to that of El Valle or Cerro Azul. I walk for several kilometers, seeing howler monkeys, blue butterflies, iguanas, ñeques, small fish, bees, and hummingbirds.
The riverbank has countless species of trees. Some of them are huge centenarians. I enjoy the fruit trees the most because I love to take them home with me. The canopies form a green roof that cuddles me.
Occasionally there are cave-like passages formed by bamboo. I feel like I’m in a movie when I walk through them. The track is made of gravel, and every 2 minutes, there are spaces with benches, picnic tables, and barbecues made of wood, stone, and brick.
Many people love to come down and play. How nice to have that dose of tropical nature just a few steps away on any given Tuesday. It’s food for the spirit. When I finish exercising, I approach the edge of the river where some children bathe and play with frogs. I watch the water flow between the rocks, kneel, dip my hands in the cold water and soak my face.
I go home, bathe, cook and have a home-cooked lunch with my partner. Lunch includes vegetables from the community garden and free-range chicken eggs that we buy at the market.
Before returning to the office, I have to pick up my son from school. So I go out the front door and grab my bike parked next to the door. On the way, I greet many parents who are walking back with their children. Next, I ride by the Plaza del Amor. When I arrive, I wait a few minutes for the soccer match to finish.
On the way back along the cycle path, my son decides to go and play in the park. So we go for a while. The space we like the most is the vegetable garden. He enjoys pulling up vegetables and seeing the roots.
There we both learn about permaculture. There is a wide variety of flowers, vegetables, fruits, and medicinal plants. Medicinal plants used to be a mystery to me, but I am learning more and more about them. Now I drink anti-inflammatory teas.
I enjoy feeding the fish in the irrigation ponds. When I leave, I take a couple of vegetables with us for dinner. I leave him at home and walk back to the office to work some more.
The bells are ringing in the distance, so it’s 6:00 pm; as usual, I watch the sunset in the hammock on the balcony. A few minutes pass, and I see a couple of friends downstairs having a few beers in the plaza under the trees. I give in to temptation and join them at their table. As I arrive I am grinning from ear to ear, and we all greet each other with a hug. I order myself a glass of wine, an appetizer, and we start telling stories.
I have plans for the evening. First, I’m going to cook on the wood-fired barbecue on my terrace with my family. As dinner time arrives, I say goodbye to the table. Some of them have already started to dance to the guitarist’s songs, so I wave them goodbye from afar.
As I walk back to my house, I get a silly smile on my face when I see so much life on the street. The lighting at night gives me a warm feeling. Finally, I cross my pedestrian street and enter my home, where I am greeted by nephews and nieces who arrived early to play.
I begin preparing the wood-fired barbecue and rinsing the vegetables from the garden. Finally, we end the evening sharing the barbecue, a few dishes that each of us brought, including the fruit from the river, wine, and good conversation at a long, narrow wooden table under the full moon.
Some nephews and nieces decide to dip in the jacuzzi while others water the plants. Finally, at the end of the night, we all say goodbye and go to sleep. I look at my phone and get excited because I surpassed my 10,000 steps a day. Then, I thank this joyous day and go to sleep.
What a great day.
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In my early twenties, I played with drones. Then, some years ago, after founding Porta Norte, I bought a new drone to examine if it was worthwhile for the project — also to play. After tinkering with it, I realized it was beneficial for many purposes.
I thought a lot about the onboarding process and how to delegate drone usage. My strategy was to learn first, then teach.
The team resisted using it at first because they feared they would break it. So I always reassured the pilot that the company would pay for another drone if something happened.
I decided to start using the drone with the engineering department to improve our engineering analysis capabilities.
The civil engineer that is physically in the project learned to fly drones. We use drones to investigate areas of the project we cannot reach, analyze water runoff damages, audit our subcontractors, and much more. We take aerial views about every two weeks.
We have expanded our drone usage to our marketing and sales department. The Community Builder in the marketing team also learned to pilot the drone to make good videos and photos for regularly updated marketing material.
I fly drones often to appreciate changes in the project from a bird’s eye point of view, supervise the operation, explain concepts to clients, spy neighbors, study engineering challenges, construction updates, understand topography better, and more.
Quick story: The first time I used my newest drone was on a friend’s birthday. The celebration was in the outskirts of Panama City, on a mountain’s cliff edge in Vacamonte. There was a lot of wind, and I dismissed the notifications. Unfortunately, the battery drained, and the drone fell in the port.
My friend’s parents gave me advice on entering the port without permission: act like the owner — say hi, wave, and don’t stop at the entrance where the guards are. So I did. The guards shouted at me, but I kept on driving.
Finally, I arrived at the area where I lost it and found it after searching for 15 minutes. On the way out, the guards stopped me, told me I violated the rules, but they let me go. Often it is better to ask forgiveness rather than permission.
Drones can also improve parties and rekindle memories. This is a video of the occasion:
We have lost two drones already in the jungle. These are a few best practices:
Pay attention to battery levels; don’t have the drone far away with less than 50% battery.
Avoid flying with strong winds; return the drone and land it with the first notification of strong winds the drone will give you.
Set your height limits; if it loses GPS connection, and the automatic return sets in, and your height limit is too high, then it might lose the battery just going up.
Now the company has acquired drone skills, and we have more data points to make better-informed decisions. Having an in-house drone and learning to use it is an excellent investment. Drone technology is improving fast, and we are excited to keep tinkering with them.
The following are recent drone outputs we use:
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These are the introductory words of Porta Norte’s architecture charrette report by the Master Planners — Duany Plater-Zyberk (DPZ) in 2015.
Panama City has experienced unprecedented economic and urban growth in recent years. The urban edges, in particular, have been seeing new development, including shopping centers, malls, office parks, apartment complexes, and single-family developments. Many of these, including those infill sites closer to the historic center, are auto-dependent interventions. By design, they isolate themselves from their surroundings and minimally contribute to the public realm.
The northern region of Panama City is not yet overbuilt. It affords Porte Norte the opportunity and the challenge to create a model of sustainable growth. The following few principles outline how the region should relate to its natural resources, pedestrian-oriented development, and sustainability in the long run.
The region should consist of multiple urban nodes with identifiable centers and edges. They should be compact, connected, mixed-use, walkable, and diverse.
Development patterns should not blur the edges of the metropolis. Infill development should be encouraged. New, non-contiguous development should be organized as towns and villages with their urban edges and planned to balance jobs and housing, not as dormitory suburbs.
New development should respect historical patterns, precedents, and boundaries. They should incorporate a broad spectrum of public and private uses to support a regional economy that benefits people of all incomes. Affordable housing should be distributed throughout the region to match job opportunities.
A framework of transportation alternatives should support the physical organization of the region. Transit, pedestrian, bicycle, and other viable systems should maximize access and mobility throughout the region, promoting choice while reducing dependence upon the automobile.
Human habitats should be compact, pedestrian-friendly, and mixed-use. They are the main structural elements of cities and towns.
Many daily living activities should occur within walking distance, allowing independence to those who do not drive, mostly the young and elderly. We should design interconnected networks of streets to encourage walking, reduce the number and length of automobile trips, and conserve energy.
We should embed a range of civic spaces, buildings in neighborhoods, and green areas (parks, playgrounds, village greens, sports fields, and community gardens). We should define conservation areas to connect to different neighborhoods, districts, and nature.
Blocks, Streets, and Buildings
A primary task of all architecture and landscape design is the physical definition of streets and public spaces as places of shared use, with buildings seamlessly linked to their surroundings. Streets and squares should be safe, comfortable, and enjoyable to the pedestrian.
Architecture and landscape design should grow from local climate, topography, natural traces of the land, history, and building practice.
Civic buildings can be distinctive because their role is different from that of other buildings forming the city’s fabric.
All buildings should provide their inhabitants with a clear sense of location, weather, and time using natural heating and cooling methods.
Porta Norte will offer a departure from Panama’s current development trends as a sustainable new settlement based on traditional planning principles. Well-connected to the region and respecting the natural and human-made local context, the new town will create new choices for compact, walkable, human-scale environments.
We envision Porta Norte neighborhoods integrating high-quality housing, associated retail and civic facilities, and employment development. Based on the Transect’s urban-to-rural methodology, the final master plan incorporates a range of human habitats, from the most urban and compact choices to larger homes and rural greenways along the rivers’ edges. Each neighborhood will undergo further detailing in such a large site during the next design and construction phases.
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Panama was born like a startup out of the Panama Canal. Since its inception, Panama has experimented widely with Startup Cities. In this post, I will expand on trends like the increase in remote workers, how cities must adapt to them, the definition of startup cities, Panama’s success with Startup Cities, and Porta Norte — the Startup City I am building.
Geographic Independence Enabled by Remote Work
The Covid-19 pandemic dramatically accelerated the adoption of digital infrastructure worldwide. Lockdowns forced remote work on most companies. Now, as we reach herd immunity, companies have a choice whether they go entirely physical, remote, or something in between. As we all know, many more companies are now remote than before the pandemic.
CEOs who choose to go remote are unlocking new features like attracting more talent from a bigger talent pool and reducing costs by avoiding paying for office space. Remote employees can avoid commute and choose to work from ideal places.
The number of remote workers has spiked worldwide, and it is not going back to how it was before. It will be something in between, but as the digital infrastructure continues to improve, the market of remote workers will continue to expand.
Remote workers can stop thinking about their company’s location and relocate to places that offer them the highest quality of life. They can do arbitrage by earning in the US and spending in Latin America. Newly minted remote workers are weighing options with some of the following questions:
Is it safe?
Is there good food?
Can I satisfy my hobbies?
Can I adapt to the culture?
Can I connect with nature?
Do they embrace foreigners?
Can I find like-minded people?
Can I get a resident visa quickly?
Should I move closer to my family?
Are there good schools and universities?
Can I get a direct flight to my hometown?
What city gives me the best bang for my buck?
Nowadays, remote workers go online to compare and contrast what cities are best for them to visit and hopefully relocate. They use websites that rank countries like nomadlist and teleport to inform themselves. It is a similar process to how people choose vacations or universities.
Remote workers are essential for cities because they are educated, bring know-how, are tech-savvy by default, and many more reasons. Immigration of talent leads to a higher productivity per capita, increased tax base, and results in a virtuous cycle — great citizens attract great citizens.
City as a Product
Talent is the leading indicator of a great organization. A great company is a group of talented individuals led by a talented CEO; a great city is a group of talented citizens led by talented leaders. To improve any organization, you must improve the individual contributor and recruit more talent.
Lee Kuan Yew, the founding father of Singapore, focused on improving talent as he led Singapore from rags to riches. He often spoke about the importance of education, interbreeding amongst intelligent people, and attracting foreign talent.
Singaporeans, if I can choose an analogy, we are the hard disk of a computer; the foreign talent is the megabytes you add to your storage capacity. So your computer never slows down because you got enormous storage capacity.
— Lee Kuan Yew
Recruiting is more relevant than ever before. It is an effective strategy for elevating the talent pool. Cities must align incentives with remote workers. They must be pro-technology, pro-immigration, pro-capitalism, pro-diversity, and proactive.
If successful, the concentration of remote workers leads to increased production of startups, which begets a startup ecosystem that leads to a Startup City.
A city where startups happen along with a thriving startup ecosystem like San Francisco and New York. In the pandemic, Austin and Miami have positioned themselves as THE next place.
A city that acts as a startup with a clear vision and competent governance. A great example is Miami, where Mayor Francis Suarez is serving as the CEO of the City. For him, Miami is the product he iterates. He listens to feedback from startup founders, signals the acceptance of bitcoin, recruits through Twitter, etc. A CEO of the City delivers results and positions their city as a great place to move.
Urban development with startup DNA are projects with a defined territory focused on delivering economic growth or a better way of living through an innovative vision. They are public or private enterprises, public-private partnerships, for-profit or non-profit, or a combination. Some examples:
Neighborhood Upgrade some examples of upgrades are Panama’s Historic District, through better infrastructure and fiscal incentives, Wynwood through art, and Times Square, through removing cars. Usually, there is a combination of public investment towards infrastructure and private investment towards buildings.
Master-Planned communities are mixed-use neighborhoods with a large number of recreational amenities. They tend to have sports centers, lakes, parks, public spaces, playgrounds, swimming pools, stores, restaurants, businesses, schools, universities, cultural centers, medical centers, etc. They are greenfield development — building in undeveloped land. They must push the envelope of what is possible with urbanism and have a strong vision like being car-free, an eco-village, off the grid, etc. Examples: Cayalá, Celebration, Culdesac, Kalu Yala, Las Catalinas, Porta Norte, and Punta Mona. The typical pattern amongst these places is active public spaces and walkability, which, unfortunately, is uncommon.
Special Economic Zones are geographically limited places with regulatory, fiscal incentives, and trade laws that differ from the rest of the country to foster economic and/or cultural prosperity. Examples: Prospera and Shenzhen.
Seasteading means living on environmentally restorative floating islands with some degree of political autonomy. The term derives from homesteading, which means making a home for oneself in uninhabited places. It generally has associations with self-sufficiency and a frontier lifestyle.
Micronations or Microstates are small sovereign countries or colonies. Examples: Liechtenstein, Monaco, and Vatican City.
Panama is a country of immigrants with a long history of experimenting with Startup Cities. Many businesses choose to settle here because:
It has a great relationship with the United States.
It has a strong logistics sector with the Panama Canal and a big airport.
The following are some examples of Startup Cities in chronological order.
Panama Canal Zone was an unincorporated territory of the United States surrounding the Panama Canal. The United States enabled Panama’s independence from Colombia to build the Panama Canal in 1903. They kept some land and set up a Microstate that infused Panama with American culture.
Colón Free Trade Zone is the largest free port in the Americas and the second-largest in the world. It started operations in 1948 and occupies 600 acres (242 hectares). It is a Special Economic Zone with fiscal benefits for importing and exporting.
In 2017, the government expanded some of the benefits of the Colon Free Trade Zone to Colon City. It is a Special Economic Zone and a Neighborhood Upgrade called Colón Puerto Libre.
City of Knowledge (Ciudad del Saber) was born from the idea of converting some former American military area located in the former Panama Canal Zone into a center for knowledge exchange. It is a Special Economic Zone and Master-Planned Community of 296 acres (120 has.) full of academic organizations, technology companies, and non-governmental organizations run by a non-profit foundation.
Panamá Pacífico is a former United States Air Force Base in the Panama Canal Zone. The government created a Special Economic Zone and a Master-Planned Community as a public-private partnership covering 3,450 acres (1,400 has.) of land. Many multinational corporations have already located in Panama Pacifico, including Samsung, DELL, FedEx, Pepsico, 3M, and Caterpillar, taking advantage of special tax, labor, and legal incentives.
Panama’s Historic District (Casco Viejo) is a Hispanic colonial town where the elite lived. By the 2000’s it was a run-down and insecure neighborhood full of abandoned buildings. The government decided to do a Neighborhood Upgrade by improving the infrastructure and giving tax breaks for development within Casco Viejo. It is one of the most visited places in Panama, and it has the highest price per square meter in the country. I lived there for six years.
Kalu Yala is an eco-village that targets digital nomads and students who take undergraduate courses for accreditation. They are building a new urbanist Master-Planned Community with their strong community.
Selina is a company that has built a network of hostels/hotels that cater to digital nomads. It was founded in Panama and quickly grew around the world with over 60 destinations. Recently they joined Kalu Yala, and you can now book your stay at Selina Kalu Yala.
The following are essential laws that improve our position as a Startup City:
Law for Multinational Companies (Ley SEM) gives them regulatory benefits, including residence visas to their employees and dependents. Since 2007, it helped attract 175 multinational companies paired with highly educated employees. In 2020 the government added more fiscal incentives to multinationals that did manufacturing.
Law for Free Trade Zones (Ley de Zona Franca) paves the way to create more Special Economic Zones and experimentation with Startup Cities within Panama’s territory. There are 10 active free trade zones and another 10 in development.
Remote Worker Visa: You have to be a remote worker who earns a minimum monthly salary of $3,000 outside of Panama to receive a Visa for 18 months. The government passed this law in May 2021.
Friendly Nations Visa: Fast-track a permanent residency from over 50 friendly nations. You need to own a Panamanian legal entity, “a business,” and temporarily deposit $5,000 into a local bank account. You opt to have Panamanian nationality after 5 years.
Economic Solvency Visa: Invest $300,000 in real estate and/or a Certificate of Deposit in a Panama Bank.
Business Investor Visa: Invest $160,000 in Panama’s stock market.
Reforestation Investor Visa: Invest $80,000 to purchase at least 12 acres (5 has.) of land in a government-certified reforestation project.
Retired or Pensioned Program Visa: Permanent visa for those with over $1,000 in pensions.
Marry a Panama Citizen.
I was born and raised in Panama. Since 2014, I have been pushing the envelope of Panama’s tradition of experimenting with Startup Cities by leading Porta Norte.
I am CEO and Town Founder of Porta Norte, a new-urbanist solarpunk master-planned community of 650 acres (262 has.) located in the city’s northern periphery, just 15 minutes away from the airport. Andrés Duany, the founding father of the new urbanist movement, designed the Master Plan.
Porta Norte has human-scaled urbanism integrated with dense nature and adapted for micro-mobility. It has a network of open, public spaces. We believe social interactions in public spaces are essential to fight the loneliness that remote workers often feel. You can get a clearer vision by reading A day in Porta Norte.
Porta Norte has a unique vision, different from what has been built before in Panama. We are incorporating the best practices from Silicon Valley. My hobby for over a decade is watching interviews and reading blogs from Paul Graham, Elon Musk, Naval Ravikant, Balaji, Sam Altman, and Y-combinator founders.
One example of applying what I have learned is the importance of iterating the product. To increase fidelity and feedback loops, we have a developer in-house whose job to put our construction documents in Virtual Reality. Then we gather feedback from our engineers, architects, clients, etc., to do another iteration. The following is a video of our latest iteration:
We build first-world infrastructure with underground utilities, fiber optics, internet in the public areas, cycling lanes, ample sidewalks, tree-lined streets, parks, pedestrian plazas, and much more. It is handicap and pet-friendly. Right now, we are finishing the roads of the first phase.
My most important job is to create a virtuous ecosystem of prosperity by attracting residents, companies, and institutions. We incentivize them with an excellent urban product and private subsidies for anchor tenants like universities, schools, sports centers, hospitals, etc.
After writing this post, I am committed to studying what laws we can use for our advantage as a Startup City and push the idea of making Porta Norte a Free Trade Zone. This is another step towards organizing the economy around remote work.
In Panama, we need to embrace our history of Startup City and continue experimenting towards an optimist and definite future. We must react to worldwide trends like remote work and crypto to position Panama as THE next place.
Please let me know how to do a better job attracting remote workers, companies, and great institutions to Panama and Porta Norte. How can I help?
Read more from the other 9 winners of the contest detailed on1729.com/miami:
The book, Developing: My Life is about the life of real estate developer William “Bill” Zeckendorf Jr. He was a pioneer who helped revitalize neighborhoods in New York and Santa Fe, New Mexico.
He developed many New York projects until 1987, when the stock market crashed and left him in a terrible financial situation. After that, he moved to Santa Fe, New Mexico, where he continued real estate development. In Santa Fe, he was involved in community affairs with universities, hospitals, performing arts, and more.
Bill’s strength and focus was in structuring the project, which means envisioning a project, buying the land, choosing an architect, securing financing, hiring contractors, and placing a team that would follow through.
This book talks a lot about generations. His father, William Zeckendor Sr. was one of the biggest and most famous developers in the United States. His two sons have a billion-dollar real estate development business. His grandchildren are almost all involved in real estate.
Real estate development is a craft where the most common path to get in is by apprenticeships through family businesses. It is tough to get into the business because you need a lot of capital, expertise, and connections.
Development is slow, and having many projects under your belt might take decades. This book helps you identify some patterns and learn from someone who was once the most active developer in New York—one of the world’s most sophisticated markets. I recommend this book to people who want to improve their judgment on real estate development or better understand how cities get built.
Bill’s life story is full of warning tales. It demonstrates how someone so knowledgeable in real estate can make small fortunes in many projects but lose their shirt when a deal goes sour or when the market dries up. In the last chapter, “Summing Up,” Bill opened up on what happened to him and his father, explaining the concept of “developer’s disease.”
“After suffering with my father through the demise of his company and personal bankruptcy, I was determined never to let that happen to me. Still, many years later, I, too, succumbed to what ultimately took him down. I call it developer’s disease.
Developer’s disease is a rare but highly contagious condition that afflicts certain developers. They hire the best architects. Their projects are the most admired. They’re financially very successful. They start with one project at a time. Then one project grows into another and another until they have many projects—some would say too many—underway. They begin to take on the most difficult projects, not just to put up buildings but remaking whole neighborhoods. Their goal is no longer making money; it’s being a savior. And they are treated royally for their pains. Based on their sterling records, financial institutions rush to provide money, and investors clamor to partner on their projects. And then, just as these developers are riding high, invincible, a deal goes sour or the market turns, and their luck runs out. Developer’s disease mows them down.
That’s pretty much what happened to me. After a cautious start in the 1970s, by the middle of the 1980s, I was the busiest developer in New York City, with a full plate of deals in progress and a full-blown, if undiagnosed, case of developer’s disease…
…Were I to make my career over, I might undertake fewer projects, juggle fewer balls, and steer clear of personal guarantees. But I wouldn’t for a second choose another field. I can’t think of anything more challenging, more satisfying, more frustrating, and more fun than real estate development.”
“Bill would chase a deal, secure financing, and then pore over the plans with the architect. But as soon as the first shovel hit the ground, he moved on to the next deal.”
“One of the challenges in a renovation is something most people don’t think about: you have little control over the construction workers. When a new building goes up, construction proceeds in an orderly fashion, floor by floor. The floors’ sides remain open, so you can readily see who’s doing what, and where and when. But in renovations, workers are hard to track; they are all over the building at any given time. We found that some of them were hiding in rooms, literally sleeping on the job.”
“These things happen: projects that look good on paper for one reason or another don’t pan out.”
“Big is key for turning around a decaying neighborhood. A small building won’t change anything; the infusion of high-quality new apartments must be sufficient to upgrade the available housing stock.”
“As a further amenity—one not offered before in a New York apartment building—the one and two-bedroom units were laid out so they could be combined easily into larger apartments. This provided to be an effective marketing tool, and designing interiors so the apartments could be readily joined became a Zeckendorf trademark.”
“For me, the thrill of developing was not in watching a building go up: I seldom spent any time on job sites, leaving construction supervision to my project managers. My passion was putting together the deal. I loved every aspect of it: finding a property, assembling a site, securing financing, hiring an architect, and working on the plans. Once we broke ground, I was happy to turn over day-to-day supervision, only stepping back in if a problem arose or we needed more financing.”
“Most developers like to hold on to commercial buildings, leasing out the office space as an ongoing source of income. However, I didn’t want to be a landlord any more than I wanted to be a hotelier and preferred the business model of our residential condos: sell off the individual units as quickly as possible and get out.”
“With apartment sizes ranging from studios to two bedrooms, the Vanderbilt was aimed at younger buyers. To attract this market, we put in a state-of-the-art health club with a swimming pool, sauna, and basketball and squash courts.”
“Building apartments near a hospital center is good for business: doctors welcome the convenience, and buyers find it reassuring to have a top-flight medical care close at hand.”
“Big projects take more time and money and involve more parties. All of that ups the ante. In executing the four biggest projects of my career, I discovered the many ways a project could go right—or horribly wrong.”
“The terms were stiff, however, and we had to make personal guarantees on the loan. I always tried to avoid personal guarantees: if you put up personal assets as collateral and the project runs into trouble, you risk losing your assets.”
“Negative opinions come with the territory: developers automatically get a bad rap because what we do inevitably means change.”
“A complicated project can easily take ten or more years to come to fruition, exposing the developer to uncontrollable changes in market conditions.”
“The key to a successful assemblage is to keep your intentions quiet. You don’t want to tip your hand and have other developers swoop in and tie up parcels you’re after. Nor do you want the owners of the lots to jack up the prices, or rent-controlled tenants to stick you up for exorbitant relocation fees.”
“And we were a full-service organization, not merely developing our own properties as a managing partner with equity but also offering our expertise as project managers.”
“Between New York and Santa Fe, I had more than a dozen projects in the works when the stock market crashed in 1987. I was leveraged to the hilt, and it was only a matter of time before I ran aground.”
“Unless a developer has very deep pockets or a large portfolio of properties, leverage is the only way to finance a deal. I seldom financed a project alone. Having multiple partners allowed me to share the risk, but also meant sharing the returns. And often, it meant taking my money out to invest it in my next venture before I could reap the profits.”
“Inevitably, if a project is going to make a big impact on a community, somebody is bound to oppose it.”
“I learned a long time ago not to assume that anything is impossible.”
“And while my father and I usually had half a dozen or more projects underway simultaneously, my sons concentrate on one or two buildings at a time.”
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Henry: Welcome, Stefanos. It is great to work with you in Panama again.
Stefanos: It’s always great to work with you and your excellent team. Let me start by saying that you have an exceptional Master Plan, designed by Duany Plater-Zyberk (DPZ).
Why is Panama City built for cars and not for people?
The car had massive adoption in the 1920s, and that started the modernist movement. That is why modernist principles are car-scaled, not human-scaled. Those principles were born in the International Congress of Modern Architecture (CIAM).
Panama imported sprawl from architecture firms in Miami. Thus, it introduces the urbanism of Miami, which is the most car-dependent urbanism in the United States. Panamanian leaders — even though they studied in great universities — have copied the wrong ideas. They have built a “modern” city that is comfortable for cars, but uncomfortable for people.
They have also built modernist buildings that look the same anywhere on Earth. They don’t respond to climate and disregard local culture. They have the same cold glass façade in the arctic, desert, and the tropics.
Old modernist buildings don’t age well. In some ways, that is why their price per square meter is much lower than those of Casco Viejo. Despite all this evidence, the majority of architecture schools still teach these ideas.
On the other hand, you have traditional towns responding to climate, culture, and public needs. The human race has built beautiful cities for thousands of years, with fewer resources. We must learn from them and continue the evolution process. Later, I will show you how.
What should be the inspiration for Porta Norte and Panama?
Humans understand that traditional urbanism works. Our ancestors have left us a rich legacy. We must learn from our past and use that information to create better places.
People love traditional urbanism. That is one reason why France and Spain are the most visited countries on Earth. People like to walk. It is no coincidence that tourists always go to walkable, traditional cities.
One great thing about traditional architecture is its flexibility. It adapts to new needs. For example, residents may use the same ground floor as a home, a shop to sell cookies, or an office to start a new business. Buildings evolve with people.
For inspiration, you must study the architectural DNA of Panama. By DNA, I mean the history of pre-car cities. You can explore Sevilla, Cartagena de Indias, and Casco Viejo.
Let’s talk about each one.
In Sevilla, you can learn from the roots of Hispanic architecture in Spain’s warmer climates. Most of the ships that came to Panama started their journey from Sevilla. Sevilla’s architectural language influenced Casco Viejo; that is why they are similar in style. You can go to other beautiful cities of Andalucia like Málaga, Granada or Córdoba. Also, study different epochs in architecture like colonial, medieval, renaissance, or baroque.
Cartagena de Indias is a majestic city where you can learn a lot. Let’s not forget that Panama originally was a forgotten province of Colombia, so it did not have a sophisticated architecture. Study it. It is only one hour away by plane. You will find a much wider variety of architecture with a tropical climate.
Casco Viejo is small but beautiful and has the most abundant legacy of traditional architecture in Panamá. It was forgotten for decades and was on the verge of demolition. In a way, this was good because people living there had no money to demolish buildings or renovate them into modernism. It bought time to put in place rules for preservation. Renovations for all public spaces and most buildings are finished. The change is so dramatic that it has the most expensive real estate in the city. It has started a revolution in real estate.
In Porta Norte, you should use Casco Viejo as your main source of inspiration. You are adopting the slogan “El Nuevo Casco Viejo”. That is brilliant because you are learning from the best of the past to produce a better future.
Go to these places and study their squares, streets, buildings, construction techniques, etc. After that, you will have a much richer vocabulary and a more sophisticated language.
Something I enjoy is that Porta Norte is that it is a direct response to a classic new urbanism question:
If Casco Viejo works and has the highest real estate values in Panama, why not build more?
What advice would you give architects?
The purpose of listening to Mozart is not about glorifying him but celebrating the human race. When you hear the 9th symphony, do you say, “oh my God, Beethoven was a genius?” No. The first thing you do is take a deep breath and think, “my God, how could I be a human being and not know this?” It elevates the culture.
It’s the same thing in architecture. I help create a building or a neighborhood, but I’m going to die in 20 years. I will leave behind a great legacy for humanity. We do this for our fellow humans, descendants, and other people who live 50 years from now. Everybody needs to understand themselves as being part of a grand obstacle race.
The second thing is that architecture is not independent of its setting. It is about responding to the context of a larger urban whole, whether it’s a neighborhood, a district, or a block. You need to understand architecture in the context of a block and the space between them. Architecture is dependent as opposed to independent of the world around it.
If you understand a city block, you will never design the façade and the back the same. You will know that buildings define public spaces.
You need to study how older buildings have responded to nature by making them comfortable in cold, warm, dry, or humid climate.
If you understand that architecture is dependent, then you can look at the Casco Viejo and say, “What am I learning here that’s special?”
How do you design traditional architecture?
The wrong, superficial, and quickest way of doing it is to copy a style like Mediterranean or French. This technique may succeed in the hand of a brilliant architect, but it often looks fake.
Let’s go over the order of decisions to design a building:
Define the type: Know whether it is housing, offices, retail, a combination, etc. Let’s say it is a housing project.
Study the context: Analyze the climate, fauna, flora, and what is going on around the lot. Use the topography as an advantage for parking, or to create views.
Locate the parking: Parking is the first constraint. You need to hide the parking well. Try to put it on the lower side of the lot to reduce excavation.
Locate the façade: It should be next to the main public space, such as a street, a plaza, or a park. The outer walls should follow the property line in a way that defines the street. You must be aware of the inside and the outside at all times.
Define the shape: The building may vary in stories within the lot. Make the building increase in height if there are views.
Revise private and public space: Make the buildings accessible from the outside. They should react to corners. When you follow the property line, it will be easy to form courtyards on the inside.
Choose a style: After all this, now we are ready to give this building a style. You should have inspiration from local traditional architecture, so the style reacts to the local climate.
Refining the Plan
After you design this building, you can use it as a model to design other lots.
When you walk around Casco Viejo, you must study the decisions made for each lot. You will begin to see patterns. You will learn that buildings are human-scaled and that their shape reacts to public spaces and nature.
It all ties together in a language that is derivative of the culture and climate. You’re not repeating Casco Viejo. You’re getting inspiration and interpreting it to transform it into new designs. It is about the evolution of language.
We can enhance our language by studying towns, buildings, and construction techniques of the past. Architects must see themselves as being part of the local language. The language of Casco Viejo is not the end of the Hispanic architecture.
Now, let’s be specific.
You need to observe how walls, columns, and rooms are logical components that emerge from the human body to provide function, comfort, and beauty.
Traditional buildings in the tropics have overhangs and balconies to protect pedestrians from the rain while giving outdoor space to residents.
One example is the windows. The height in windows is equal to the length between your waist and your raised hands. This way, you can call someone by waving your hands and hinge your upper body outside.
To show you what I mean, look at Mediterranean roof clay tiles. They were formed around a log or the maker’s thigh, resulting in their semi-cylindrical shape.
Materials are locally sourced to ease maintenance. Materials have a manageable size so that one person may build or fix anything.
We, as a society, have forgotten how to build this way. We must relearn this art.
What is the role of public spaces?
Public spaces let people get together and advance their culture. There are two kinds: natural and human-made public spaces.
Natural public spaces are rivers, mountains, greenways, etc. It is where wildlife thrives. It is for connecting with nature in its raw state. They are places where humans can reset by hiking or just contemplating nature.
Human-made public spaces are plazas, parks, squares, etc. It is where humans get together; they are the living room of the community. In them, they can do art, music, festivals, play, and be more active in civic society.
In Panama, Casco Viejo has the most human-made public spaces. It is no coincidence it has the most vigorous culture in Panama. Public spaces lead to the evolution of culture within a community.
Right now, there are crimes against humanity on the edges of Panama City. Developers are clearing forests to build suburbs without public spaces. They are building car-oriented developments with parking in the front of buildings. In those suburbs, people will have no room for interaction or connecting with nature. Their residents will end up with an unhealthy lifestyle, a weak sense of belonging, and a dull culture.
In Porta Norte, you have a beautiful forest. Due to heavy rainfalls, you will end up developing around half of it. You also have many pedestrian plazas. The best of all is that you connect them to form a network of public spaces.
You have a high quality of natural and human-made public spaces. These public spaces, combined with dense urbanism, create a vibrant place. Porta Norte is the kind of urbanism that should be at the heart of the new urbanism.
What is your advice to Porta Norte?
You have a remarkable master plan, leadership, and guidance. You work hard to build this place and are also pursuing this at personal economic risk — so you have skin in the game. So I am confident it will succeed.
One of the crucial questions to address is: how to avoid mistakes?
Your most important task at this stage is assembling great people to contribute. Get developers who understand that it is not about them in the short term, but about them and others in the medium and long term. Ensure that architects get inspiration from the places we talked about and make them read the Code of Porta Norte.
Everybody must understand that the first steps are the most important ones. If you do it wrong, people will come to Porta Norte and say, “Is this what they meant?” And not like it. If you do it right, you will have an urbanism people love, gain ambassadors, and the development will speed up.
One promising thing is that Porta Norte is in the middle of a developed part of the city. It has significant people around it and a major highway going next to it. That means you can have a mixed-use pedestrian town center built there.
You must also build a school in the beginning. Between the mixed-use town center and the school, you will have two anchors of attraction. With this, it will be much easier to convince people that there’s life here, and they should be part of it.
It is difficult to build these many buildings well from the start because it is Panama’s first time. I am here to help you with this.
You need a lot of guidance in the first phase, less on the second, and in the third one, you are by yourselves. It is like learning how to bicycle. You get extra wheels, and somebody helps you climb it and ride with you. Then you ride alone and take off the wheels. After some time, you ride to school by yourself. I am here to help everyone become the authority they need to be to get this right.
What is the future of Panama, and how does Porta Norte fit in it?
Projects like Porta Norte will redefine living in tropical cities and refine citizens’ desires. It will enable an active civic life and a healthier relationship with the environment.
I have worked in Panama for over a decade, and I know at least six new urbanist projects. Together, they are inspiring more walkable real estate developments.
It is depressing to live in a world that does not know how to build well. Gladly, humans have recognized their mistake and are changing cities from cars to people. It is hard to think beyond our lifetime, but these changes are slow and may take over 100 years.
Panama City’s car-oriented growth made the city chaotic. We are here in the middle of the city with a horrible view of the “modern” city, dreaming of a romantic traditional town.
Porta Norte is an integral part of the expansion of the city. Fortunately, the backward modernism movement has not trapped you.
As I have seen in other countries, Porta Norte will awaken the market with its traditional planning. It will excite young people and be very successful.
You have been a great mentor. Thank you.
You can watch the video of the conversation below:
We used to call them our founders, and we honored them by erecting their statues in our town squares. Today we just call them “developers.” — Andrés Duany, Cofounder, and leader of the New Urbanism. The urban planner of Porta Norte.
It is human nature to resist change. When we were cavemen, if something changed in our environment, it may mean death (intruders, animals, etc.). We have evolved to resist change.
Today, real estate development is one of the most tangible ways a society changes, so society tend to resist it.
Real estate developers of the past were called Town Founders. They were the primary protectors of towns from intruders, animals, etc. by building forts, moats, walls, residences, commerce, etc. Interests were aligned, hence the excellent reputation of “Town Founders”.
So, continuing our survival patterns of resisting change without the added incentive of our survival (we don’t have our life at stake anymore), society tends to resist new developments. For example, you live in a house in a low-density area. If a developer wants to build a high rise, the community will fight them. The residents do not want the added traffic, construction noise, pollution, and the workers for two years in their neighborhood. The developer wants his project built. Short-term interests are opposed. We tend to think lowly of people who degrade our quality of life, hence the bad reputation of “greedy developers”.
The long-term interests of the neighborhood and real estate developers are aligned. Increased density makes us less reliant on the car by making it feasible for new businesses to survive. Increased demand leads to more products and services offered nearby.
The job of our modern-day Town Founders, real estate developers, is not to protect our lives anymore but to create a vibrant town were economic life, health, community, and cultural life thrives. If developers do not provide any of these, by all means, resist!
If you think someone is doing an excellent job of founding a town or improving our cities, help or join them. 😉