LOS ANGELES-Henry Cisneros, former HUD Secretary and four-term mayor of San Antonio, is closely involved in urban real estate investing as executive chairman of Los Angeles-based CityView, which calls its investment strategy Smart Capital for Smart Growth. Cisneros recently answered GlobeSt.com's questions about the immediate and long-term effects of changing demographics and other factors on urban investment and development.

GlobeSt.com: Considering how more people are living in urban areas throughout the world than in rural communities today, what does this mean for future development in America’s cities?

Cisneros: I believe there is a strong wind behind the sails of America’s cities. The census of 2000 showed a population of eight million living in New York City. That was an all-time high. Current projections show a population of nine million by the year 2030. This is for a city that was written off by many skeptics as all but unlivable in the 1970s. A similar reversal has taken place in the central cores of Atlanta, Dallas and Denver, where the 2010 census will show the end of decades of population decline. The new American economy is more city-friendly than any economic environment since the Second World War. We have critical new industries rising to leverage the value of our great American cities—higher education, health care, new media, professional services and international trade. These industries are driving the adaptive reuse and clearing of old structures, which are remnants from an era driven by manufacturing. These industries are also attracting new demographics to the cities—certainly the creative class, and as the cities continue to redevelop, also immigrants and empty nesters, who are seeking the thriving cultural pulse of an evolving metropolis. Add to that the newly entrepreneurial role of city governments, where we have mayors convening groups of both private and public sector leaders to drive change and accomplish major goals. There are a number of positive trends at work today in America’s cities; the recession did slow down some of these initiatives, but all of these trends are converging again as the recovery takes hold.

GlobeSt.com: Will this new development be primarily projects built from the ground up, redevelopments of existing properties, or a combination of the two—and in what other ways will the environment impact these major trends taking root in American cities?

Cisneros: There will be a combination of new developments and redevelopment, but driven by the opportunity presented by identifying brownfields and other infill locations for adaptive reuse. For example, people are realizing the benefits of transit-oriented development as a way to reduce congestion and pollution and help improve the environment. We will see developers identify and leverage these adaptive reuse locations in order to construct mixed-use projects that enable workers to embrace walkability and transit-driven lifestyles. In terms of the environment, as the biggest sources of economic growth in this new economy, cities are ideal places for leading the charge toward new and better green construction and development. In fact, I believe cities must be major contributors in solving the environmental challenges of our time. According to an excellent report titled “Reinventing the City,” published by the World Wide Fund for Nature, cities will generate half the total allowable emissions for 90 years within the next 30 years or one-half the total of emissions in one third the time. Worldwide over those next 30 years, cities will spend about $350 trillion on the construction, operation and maintenance of urban infrastructure. At the same time, our US population is going to grow from the present 306 million to about 410 million by 2050; that is, we will grow by more than 100 million people over the next 40 years. The Brookings Institution reports we must add 171 billion square feet of new built space in the United States between now and 2050. And when we add replacement structures to that new space that is needed for growth, the sum comes to 213 billion square feet of buildings to be constructed. The juxtaposition of the scale of that forthcoming investment and the urgency of the environmental problem in urban areas makes clear that cities around the world will be planning advanced infrastructure that promotes environmental sustainability. Clearly, cities must lead in deploying new sustainability policies, new urban planning, new infrastructure, new communities and homes, new building materials, new technologies, and new financing.

GlobeSt.com: Where is financing going to come from for these developments?

Cisneros: We are going to see a wide range of traditional investment sources available for this urban surge. For example, residential development is most likely to be funded by equity financing from public companies, but also commercial bank debt. We also believe we will see continued interest from institutional capitol and private equity. There’s a wide variety of capital available in our society, ranging from high-net-worth individuals and REITs to private equity and institutional capital, to debt in several categories. Looking outside our borders, one significant source of investment for these developments will be foreign capital. There will be countries such as Canada and China that view the United States as a good place to invest in comparison with other parts of the world. A recent survey by the Association of Foreign Investors in Real Estate (AFIRE) found that more than half of its nearly 200 members believe the US real estate market offers the best opportunity for long-term capital appreciation and plan to invest here. I think we’ll see a return to high levels of foreign investment once this recovery is complete.

GlobeSt.com: Have we seen the last of urban sprawl? Everybody is talking about smart growth and sustainability, but many people still like that house in the suburbs, with the lawn and the two-car (now maybe three-car) garage.

Cisneros: I think it’s premature to describe the current urban dynamic as indicative of an end to sprawl. The demand for growth is going to return to very high levels; the demographics of our country are such that unlike Europe, Japan, and other parts of the world, we will continue to grow. There will always be an attraction to the “green grass” site, and a need for large-production builders that can meet the sheer demand of a growing population. As I previously mentioned, most demographers agree that by 2050, we’re going to have a population of 410 million, an increase of over 100 million people. We could accommodate 100 million people in our urban areas, but I suspect that is unlikely. Suburban growth will continue to be important. It may be more illustrative to examine whether the ratio of suburban to urban development will change; I suspect it will. Development and growth over the post-war years have been so predominantly suburban that I suspect we are entering a period going forward where the suburban/urban development mix is much more in balance than we’ve seen in decades.

GlobeSt.com: Where does CityView see the most opportunities for its investment programs, and what kind of companies in general will find the most opportunities in this “new normal” that you are describing?

Cisneros: During the years I served as Secretary of Housing and Urban Development and visited cities—both growing cities like Los Angeles as well as legacy cities like Detroit—it became very clear to me that urban investing has a perpetual future. It is not something that ends when the cities are built out. Our cities are very dynamic places. When the economic function of a city changes, we simply remove the physical structures of that era and recycle the ground to build the beginnings of a new economy. As the industrial period passes and factories and brownfields are eliminated, their locations are being recycled as new uses related to bioscience, research and development, higher education expansions, and put into high tech companies. CityView is an urban solutions firm. The theme Smart Capital for Smart Growth means more infill, more urban, and—driven by these secular dynamics—CityView is well positioned to act upon the urban opportunities that lie ahead. We firmly believe, from years of analysis of trends and experience that the best places for us to be are urban, and that the nation’s metropolitan areas are going to be very strong markets for the foreseeable future. The key is to relate to their economic functions; that’s the absolute key. Every city has economic purposes. The wise investor will relate to those changing purposes.

GlobeSt.com: Are we going to see another big push to bring home ownership to a larger proportion of Americans, or will the memory of the subprime lending mess steer us away from that?

Cisneros: I think we’re going to see more balance in our approach to home ownership and rental. We recognize that there is a substantial portion of the population that will always be better suited to rental—young people finishing school who have not yet amassed the savings for a down payment, or immigrants who may take as much as a generation before they can become home owners. We understand now that the push was too intense to provide home ownership to everybody who dreamt of it, but home ownership will continue to be important to our society. In fact, several studies have shown that the principal vehicles for building the middle class since World War II have been three sets of public policies: Access to higher education, policies relating to incomes and wages, and home ownership. Home ownership becomes a dimension of the move into the middle class. Given the demographics of the minority populations, and the need to create a new American middle class out of that diverse new population, there’s no doubt that the drive toward home ownership must continue, in a more balanced and responsible fashion.