Story so far. In Part One. TIIA, US pension fund turned global property giant, ran rings round Scottish Government and Edinburgh City Council. Now Princes Street is suffering and the capital’s heritage status is tarnished. A safe investment?
Edinburgh’s predicament should also be judged in another context. The city’s economy has increasingly become dependent on high-volume tourism, and the effects – as in Venice, Athens and Barcelona – have not been good. To walk down the Royal Mile is to be swallowed up by a press of humanity normally associated with rock festivals or football finals. The Old Town is haemorrhaging its traditional community as short-term let investors take over.
In stoking over-tourism, the council, steered by lobbyists who relish such money churning activity, has deserted its duty of civic stewardship, handing over social housing in the Royal Mile for conversion into hotel rooms, disposing of land earmarked for an upgrade of the city’s Carnegie library for another hotel, and making a deal with yet another hotelier for the desecration of one of the world’s finest neo-Greek buildings, the former Royal High School on Calton Hill, which may yet be dwarfed by modernist accommodation blocks for a ‘luxury international’ Rosewood hotel.
Edinburgh’s hotel craze is now a runaway train. By 2015 the city had topped its 2007 target for hotel rooms by 184% and demand was still frenetic. In 2017 it was claimed that 9000 more rooms would be needed by 2021. The analyst Dr Stephen Harwood of Edinburgh University Business School expressed concern in 2015 that this level of growth was excessive but was ignored. In September 2019 Price Waterhouse Cooper’s Hotels Forecast identified a further recently added 1000 rooms, with 2400 scheduled to be added by the end of 2020. Revenue per available room is now slipping down the league tables, with Edinburgh’s average room rates now below those of Brighton.
This bloated bonanza is now impacting other parts of the local economy, as a lack of Grade A and B office space threatens the growth of a tech sector which was predicted to provide 3800 jobs over the next five years. With commercial office space in short supply lost floor plate includes the York Place VAT building, now a mid-range hotel, while PWC’s former 117,000 square feet Edinburgh office, Erskine House, has become a 280-room budget hotel. TIAA’s St James Quarter was originally going to have an element of office space, but no longer. Edinburgh, once a working city, seems destined to become a tourist theme park.
There are now fears that the city’s Carnegie Library is being viewed as a disposable asset with hotel potential. Plans for a ‘literary hub’ following Edinburgh’s designation as the world’s first UNESCO City of Literature in 2004 were ditched when the council sold the adjacent music and children’s libraries and disposed of the land which had been reserved for an extension.
Backing the wrong horse
This hotel-friendly drift is unlikely to be sustainable in the long run, as the hospitality trade faces inevitable dampeners. Take Airbnb, which didn’t exist when TIAA’s Henderson subsidiary acquired the St James site. It has taken around 500 million bookings since it was founded in 2008, gouging at least 6% out of the hotel sector – though a great deal more than that in Edinburgh, where it has a mind-boggling 12,000 listings[DG1] .
Nor is that the only threat. Locals, angered by the pressure of tourism, are making many local politicians nervous ahead of elections in 2022. Edinburgh’s wealth base once included printing, publishing, engineering and pharmaceuticals. It now offers booze-fuelled hen and stag parties, imported ‘tartan-tat’ merchandise, a Coney Island style fairground in Princes Street Gardens, and alarming concentrations of late night licensed premises in such heritage hot-spots as the Grassmarket and the Cowgate.
Tourism’s carbon footprint has now entered the reckoning. If environmentalist Mike Berners-Lee is right about the inevitable demise of cheap air travel – the life blood of mass tourism – there are other factors in play, like the vulnerability of Chinese visitor numbers to the slowdown of that country’s growth, or the rise of ‘flight shame’ in America and Europe among yesterday’s frequent flyers. Indeed, the decline has already begun, with government agency VisitScotland reporting a swingeing first quarter drop of 35.1% for international inbound trips between 2018 and 2019.
The challenges don’t end there. For a hospitality industry which hires much of its workforce from Europe, the Brexit effect, combined with a falling pound, is already affecting staff recruitment. Edinburgh’s hotels could certainly be facing stiff challenges within a decade. If TIAA’s hotel investment fails to live up to its promise and its mega-shopping mall underperforms, the St James Quarter project can only end up being a drain on the resources of US pensioners and contributors rather than a revenue generator.
Beyond Adam Smith
The Scottish capital’s cheerleaders for unfettered development evidently misconstrue the nature of a global capitalism which bears scant relationship to the economic model Edinburgh-based Adam Smith described 250 years ago in his Wealth of Nations. For Smith, a market’s underlying dynamic arose from the mutually beneficial relationship between investors and workers. With global corporate investment we have moved a long way from Smith’s essentially empathetic theories of capital and labour. Broadly speaking, the primary objective of a large US corporation investing in an overseas enterprise elevates the core principle of fiduciary duty to the shareholders above all other considerations. These are, in essence, conscience-neutral extractive (rent-seeking) investments which siphon profits out of the host country.
Global investors naturally take the view that such an outcome is not their problem, and in a way it’s hard to blame them, given that any overseas corporation’s primary duty is to return a profit. Where the beneficiaries of such investments are pension contributors and retirees, the duty to maximise profits becomes something of a moral imperative. For many years, the California Public Employees Retirement System (CalPERS) pursued ethical investment policies. At the same time, it sought to maintain commercial rates of return on its investments, only to find that public sector workers and police officers could be critical when yields fell. TIAA’s professors and schoolteachers could likewise feel aggrieved where the board’s excessive virtue-signalling causes their incomes to shrink.
For American company executives – perhaps more than most – fiduciary duty is a moral imperative, and the neoliberal Friedman doctrine, with its emphasis on share value and profitability, remains the cornerstone of corporate business practice, even where a light wash of ‘social responsibility’ seeks to make the profit motive more palatable.
Yet the avowed social responsibility sentiments don’t always align with the actions. In 2015, The Rosewood Group’s New York-based CEO, Sonia Cheng – a scion of China’s 8th richest family – stated in Focus Magazine:
Our essence is an all-embracing commitment to “a sense of place.” Our entire team devotes itself to immersing in the local culture of each market, then shaping something precious and unique that celebrates each city.
Very re-assuring – except that it’s Cheng’s Rosewood Group which wants to add modernist ‘Inca terrace’ accommodation blocks to the former Royal High School, an addition which has been compared to adding Mickey Mouse ears to the Mona Lisa.
TIAA literature exudes similar soft-focus jargon. ‘We are defined by how we behave. We never compromise our high ethical standards – we live our values, deliver results, and keep our commitments – we take our responsibilities within the wider community seriously. Our social value initiatives and environmental strategy prove this, and give you confidence in our ethical approach’ and so on ad infinitum.
The right thing
Somehow, TIAAs high-minded aspirations about ‘doing the right thing’ don’t seem to inform its conduct in Edinburgh. The public opposition to its soaring copper spiral hotel which one US architect has suggested would have a problem getting past the review board for Las Vegas Strip is by no means the only discordant note as we have seen.
The myth of a new, caring capitalism persists, although millionaire giving, in general, is down in both Britain and the USA. Former Prime Minister Gordon Brown, celebrating Andrew Carnegie on BBC Radio 4 on the centenary of his death, added a few tropes of his own with the help of David Rubenstein, founder of the Carlyle Group and Chairman of the powerful US based Council on Foreign Relations.
The Brown-Rubenstein theme was that the 1980s Friedman, Reagan, and Thatcher profit-driven view of capitalism is losing its allure. Increasingly, says Mr Rubenstein, all investing will have a favourable social impact which all investors want to weigh as a factor in their decision making. Perhaps he meant every word, even if his Carlyle Group has been criticised for, among other things, ramping up ground rents in trailer parks.
Even so, might it not have been more appropriate if, rather than Mr Rubenstein, our former prime minister had interviewed the CEO of the pension fund which Carnegie himself had founded in 1918. Roger W Ferguson could then have had an opportunity to explain precisely how his company’s rapacious involvement in the capital of Carnegie’s native country could possibly be described as ‘doing the right thing.’
Topics they could have discussed on air could even have included TIAA’s infamous ‘Golden Turd’ hotel. After all, this soaring hideous icon of vulgarity, when complete, will feature in the view of Edinburgh’s historic skyline as seen from Brown’s former constituency of East Fife, a county which also happens to be birthplace of TIAA’s much cited founder, Andrew Carnegie!
Gordon could perhaps even have spared a couple of minutes to ask one or two Edinburgh councillors why they thought it such a good idea to asset-strip Carnegie’s great gift to the city, his 1890 library, by selling off the land which had been reserved for its expansion.
Now that would have been a radio programme worth listening to!
Feature image by George Rosie from his three-part series on the tangled history of Edinburgh St James – a sorry saga over 250 years. The final part Winners and Losers predicts continuing conflict. In the meantime what of the city centre?
In exchange for permitting all this glossy affluence the Council have set a few (fairly modest) conditions. The developers are to build 38 ‘affordable’ houses, but not on Moultrie’s Hill [St James Centre]. Certainly not. They are to be on a vacant lot down in Beaverbank Lane near Canonmills. I’d say the new dwellings on Edinburgh St James are not going to be ‘affordable’ for most of us. That lively mix of skilled trades folk, minor bureaucrats, labourers and small businesses that was St James Square circa 1850 is not about to be replicated in 2020.George Rosie