NY hedge fund partner trying to convert Atlanta ‘red' land into green space

By Jeffry Scott

The Atlanta Journal-Constitution

AJC -- Q&A with Mike Messner about Redfields to Greenfields

Michael Messner, a 1976 Georgia Tech Civil Engineering graduate, grew up in Atlanta and remembers the city before it morphed into a metropolis.  Since 1995, Messner has been a partner in the hedge fund Seminole Capital, managing more than $1 billion in assets.

Now Messner is trying to reclaim land spoiled, in a way, by the financial industry – commercial property that is overbuilt and vacant, worth less than its loans.

He and his wife Jenny are funding “Redfields to Greenfields,” Georgia Tech led research to study converting these properties “in the red” into green space plus raw land to hold for development after the economy rebounds.

Q: What is the Redfields to Greenfields concept?

A: Over the past 10 years, government policies pushed vast over-investment in useless, unproductive commercial and residential development.  Total real estate values reached $45 trillion then fell by $15 trillion; the whole U.S. stock market is worth $14 trillion.

Now, vacant and excess buildings hurt our economy, neighborhoods, banks, businesses and homeowners. Banks’ capital is frozen in bad real estate and bad loans.

Rather than backstop these bad loans, with a zero interest policy, buying $1.5 trillion of mortgages, TARP, TALF and PPIP, and other programs, the Fed and Treasury should help finance the acquisition of some excess commercial real estate for new urban parks and land banks—raw land held for future development.

With bad loans removed from their balance sheets, banks would make new, productive investments in the Internet-based, asset-light economy of the future.  Liquidity would return to the real estate market and property values would stabilize.

Q: How would Redfields to Greenfields work?

A: A Fed-backed land bank fund would finance purchases of bad real estate at 0% interest through the banks.  Nationally, a $200 billion fund would stabilize the $30 trillion real estate market, producing a huge return on investment.

The Federal Reserve would buy into the fund as it sold its residential mortgage backed securities. They would buy these new Land Backed Securities. This is a banking system balance sheet proposal -- not a big government spending project.

Q: How is Atlanta is the “poster child” for the problem?

A: Atlanta’s retail vacancy rate is 13%, one of the highest in the nation. The Atlanta region has vacant office space equivalent to 24 empty Bank America Towers, the largest office building in the Southeast. Over 30 percent of homes with mortgages were in negative equity at the end of 2009, leading to one of the highest foreclosure rates in the country.

Because of this, Georgia leads the nation in bank failures. The city has lost over 30,000 construction jobs in the last three years.  Atlanta has vacant lots selling for 25 cents on the dollar. Commercial real estate transactions are down 90% from 2006, so there is no liquidity in the market.

And Atlanta is park-poor. Less than 5% of its area is parkland; it is among the lowest metros in green space per resident.

Q: What is Georgia Tech’s role?

Georgia Tech Research Institute has already worked with 6 cities (Atlanta, Cleveland, Denver, Miami, Philadelphia, and Wilmington, Del.) to produce “shovel-ready” plans. Studies for 5 more cities (Detroit, Hilton Head/Savannah, Houston, Los Angeles, and Phoenix) are underway. These plans encourage each city to “think outside the box” and build real estate plans for their region. The work can be found at www.RedfieldsToGreenfields.org.

The studies show thousands of jobs would be created immediately for demolition and green space conversion. The plans would also stabilize local property values and remove bad loans from bank balance sheets. Banks could then apply their capital to new loans to support economic growth. Philanthropic entrepreneurship would be stimulated. Remaining property owners would show more confidence in the economy knowing their property values have stabilized.

Q: How big would the impact be for Atlanta?

A: With $3 billion to convert properties to green space, Atlanta would be transformed. Georgia Tech foresees the equivalent of 15 new Piedmont Parks inside the Perimeter and 100 outside. These could include a network of greenways and bikeways to connect the entire region, automobile free.

That’s a lot of money, but finishing the Streets of Buckhead would cost about $1.5 billion. If the banks financed Streets of Buckhead, Atlanta would just have more of the same: excess commercial and residential developed real estate. An investment in green space of that same magnitude would remake the entire region and stabilize everyone’s property values. Tech estimates the parks initiative could generate $20 billion in economic development, 175,000 temporary construction jobs and 100,000 permanent jobs.

Q: Isn't this more big government?

A: I am the last one that wants more big government.  Big government created this problem with their policies.  They are now into the real estate market up to their eyeballs.   Over 90% of all new mortgages are guaranteed by the federal government; FDIC is one of the biggest commercial land owners in the country.  One could argue that the federal government's real estate involvement should be limited to the ownership of government buildings and raw public land, like we are suggesting they help finance.  This will help get them back to those basics.

Locally, we are really pushing for non-profits, and maybe even for-profits, not local governments to be the "entrepreneurs" to solve this problem.  These entrepreneurs need a financing mechanism, like developers have had ... hence the Land Bank.  In your area, Redfields to Greenfields Atlanta is a non-profit led by Atlanta citizens.  The Atlanta BeltLine greenway effort is a non-profit.  Piedmont Park is now run by a conservancy.

Q: So your interest is in more parks?

A: No, I came at this completely from the financial perspective. The financial crisis that erupted in 2008 was solely due to excess real estate investments. Bear Sterns, Lehman, Fannie, Freddie, the hundreds of bank failures were all due to bad real estate investments.  The more we try and support these bad investments, the more we distort the entire financial system.  Let’s clean up the mess “on the ground”.

Q: Has anything like this been tried before?

A: The U.S. railroad industry has shown that more assets don’t increase wealth. It’s the utilization of assets that increases wealth. This country has eliminated 55% of railroad track in the last 60 years, 200,000 miles worth. Yet, rail tonnage handled is up 5.3x, resulting in a 12 fold increase in rail productivity. Railroads have never been more profitable and efficient than they are today. We’ve converted 19,000 miles of the excess tracks to Rail-for-Trails, linear parks.

Pittsburgh, PA converted excess steel mills to parks and green space in the 1980’s and is now considered the most livable city in the U.S. Flint, MI has invested $4 million in a land bank, holding excess property as raw green space, and has increased the remaining property value in the city by $100 million. So, tearing down actually increases overall wealth.

Q: Is the political environment now – many are calling for smaller government, less taxes, a greater unfettering of the “free market” to turn the economy around – more difficult than it was two years ago for your plan?

A: Again, this is a banking balance sheet proposal – not a bigger government project. Over the past ten years, our country took “cash” from the banks and put it into real estate. The banks’ balance sheets now have too much real estate on their books. Rather than the Fed buying Mortgage Backed Securities or Treasuries to provide liquidity in the system, the Fed can buy underutilized commercial real estate to be held as green space. Banks and developers would just turn bad real estate to cash, and the Fed could hold a new asset, Land Backed Securities, rather than Mortgage Backed Securities they hold now. The new cash could then been invested in better investments, like internet start-ups, or the stock market.

Redfields to Greenfields reduces the government’s current backstopping of bad real estate paper, which helps our capitalist system become less dependent on big government.

Q: When you explain it, do you get accused of big government meddling in the free market?

A: The banking system provided easy financing for developers to build unneeded properties throughout our nation. With so much bad real estate developments, the Fed has now been forced to reduce the Fed funds rate to effectively 0% and provide other real estate backstopping programs. Why can’t the banking system help finance a new asset: raw urban land? Rather than the Fed providing 0% funding to the banks for all their real estate assets, provide 0% funding for bad real estate to be held as green space.

Q: How does Redfields to Greenfields compare with the $800 billion 2009 stimulus plan?

A: The stimulus money has changed nothing about our country. Jobs were protected but not stimulated.  No one gets anyplace faster, no new productivity improvements were generated like the Interstate Highways did. Stimulus projects were not transformational.

Converting real estate to green space and freeing that capital would be transformational and would have three positive effects.  1) Direct job creation for demolition and green space conversion. 2) Strengthening the banking system by removing bad real estate loans so banks can make new loans. 3) Real estate owners will spend and invest more, knowing their properties have stabilized in value.

And, most importantly, Redfields to Greenfields would have major visible effects in every urban neighborhood in the country. People would see the impacts of the Land Bank fund.

Q: Why is green space so important?

A: Urban parks play a vital role in the social, economic and physical well-being of a city’s residents.  People who live near parks have more ways to walk, run, play do other heart healthy activities. Parks preserve regional ecosystems amid growing cities. Well-maintained parks promote community engagement and civic pride.

In a city like Atlanta, where no natural boundaries help regulate development, parks can be a very important land management tool.  The overall real estate market can be more productive and valuable.

Q: A year from now, what do you hope to be able to say about the impact of Redfields to Greenfields on metro Atlanta?

A: I hope the people of Atlanta will have a financing option through our nation’s banking system that can help them acquire dead malls and other underutilized commercial real estate for conversion to new parks and land banks. Central Park took 15 years to build. Rebuilding Atlanta with more green space will probably take equally as long, but hopefully, within the next year, you can start.