A case of hubris - Songdo International Business District

Songdo International Business District (IBD) in Incheon, Korea is a city of multiple identities. Projected to cost upwards of US$50 billion when it is finally finished in the mid-to-late 2020s (fifteen years later than originally planned), Songdo is the most expensive real estate development project in modern history. It is also the largest mixed-use master planned community in the world, and one of the largest public-private partnership projects ever undertaken. Thanks to its innovative energy and water-saving design, Songdo is widely touted as one of greenest cities in the world, and because of the ubiquity of its sensor networks and digital control systems, one of the smartest cities as well. Yet beyond its carefully-curated public image, Songdo is just another failed real estate development project undertaken by two inexperienced partners - the Korean City of Incheon and American office developer Gale International - with no real knowledge of what they were each getting into. Among Songdo's many avoidable problems - in addition to its developers' lack of relevant experience - were that: (i) the project's Korean sponsors and lenders had little understanding of how speculative real estate development projects are financed; (ii) no initial market study for the project was undertaken; (iii) the contributions and responsibilities of the various development partners were never laid out in a concrete and contingent fashion; and (iv) for a project of Songdo's huge size, there was no robust phasing or contingency plan that connected market absorption and pricing to subsequent construction activity. To be fair, these failings are not unique to Songdo. To one degree or another, they are present in every large-scale urban development initiative undertaken by inexperienced governments and over-confident developers who refuse to believe their projects are subject to market forces and instead buy their own marketing hype.