Leveraging Government-Owned Land as a Catalyst for Private Investment

By Dag Detter, May 5, 2025

Dag Detter Is a Financial Advisor to Governments Worldwide & Former President of the Swedish National Wealth Fund.

He will be appearing on the Leveraging Government-Owned Land as a Catalyst for Private Investment panel at the 2025 ULI Spring Meeting.

He Can Be Booked For A Speaking Engagement Here.

Rethinking how local governments manage public assets is as much a moral imperative as it is an economic and financial one. It involves recognising that a local government is, in fact, the largest wealth manager in town.

At the local government level, real estate is by far the most significant asset segment and includes transport-related assets such as railways, airports, and ports, as well as former industrial areas located in or near city centres.

And the evidence is clear: commercial management of these public assets can yield substantial gains. 

MTR Corporation Limited (MTR), the Hong Kong railway company, is one of the most prominent examples. It was set up to build and operate a mass transit railway system to meet the city’s growing public transport needs. The Hong Kong government holding company was inspired by railways in Japan, among other places, where the cost of providing public infrastructure was met through the development of properties adjacent to its railway stations.

This inspired the government of Hong Kong, through its holding company MTR, to construct an entire railway system the size of New York City without using taxes. Instead, it funded the railway construction through a ‘rail plus property model’.

Originally, revenue from property development was not intended to finance the railway’s capital cost. Rather, it was meant to serve as a contingency reserve and enhance MTR’s cash flow. However, the property development income became increasingly significant, with property revenue constituting 40% of MTR’s total revenue each year since the late 1990s. 

Another example of the benefits of commercial management of public sector real estate comes from Sweden. When it moved to deregulated its railways in the 1990s, the incumbent government rail monopoly was divided into different operational parts, such as the cargo and passenger business, to enable competition and attract private sector investments. All the real estate previously owned by the former monopoly was consequently demerged into a separate company —Jernhusen — directly owned by the government.

Once independent from railway operations, with a board and management comprised of professional real estate developers, vast development opportunities became evident in the newly-established separate balance sheet that had previously been either hidden or prevented from being realised due to management prioritising the running of the railway. 

Large development projects were completed around and above the major railway stations. For example, decking over railway tracks in the central business districts created substantial additional housing and commercial real estate assets. And a disused railway yard in central Stockholm was transformed into a new innovation and residential district. Additionally, the company helped fund significant national infrastructure investments, including doubling the capacity of the railway infrastructure to ease a bottleneck in Stockholm. These projects created vast business and investment opportunities across the private sector and provided a boost to the economy.

Additional examples of successful management of public real estate come from considering case studies involving disused port infrastructure. With economic development and the rise of standardised shipping containers, ports integrated into city centres - once integral to many metro areas' economies - were abandoned for wasteland areas, leaving attractive city regions such as the area around Manhattan and Canary Wharf in London ready for development.

The governments of Hamburg, Germany, and Copenhagen, Denmark, led the way in redeveloping these types of abandoned urban districts without using taxpayer money, creating professional Urban Wealth Funds (UWFs).

Hamburg redeveloped its old harbour, a 2.4 sq. km large inner-city district, under the auspices of the local holding company ‘HafenCity Hamburg Gmbh’. It developed seven thousand residential units and offices for about 35 thousand people while funding schools, universities, and kindergartens, as well as a landmark concert hall.

The Copenhagen UWF ‘By og Havn I/S’ (City and Port) took over and developed both the old harbour and a military garrison in the city centre. With a total area twice that of Hamburg, the Copenhagen UWF is the most extensive urban development project in Europe, resulting in more than 33,000 new residential units, a hundred thousand workspaces, and a new university for over twenty thousand students, as well as new parks, and retail and cultural facilities. With the financial surplus from its operations, the UWF has been able to help fund part of the extension of the local metro system and other infrastructure investments required by the developments and the city.

These large projects give a welcome boost to the economy and create opportunities for a wide range of private sector contractors and investors.

Additionally, the substantial increases in the housing stock bolster social mobility, the famous American engine for economic growth, and one of the key factors to create attractive and livable cities.

A critical requirement for any such development is assembling a professional management to lead the commercial development project. Management should possess the skills of any equivalent private sector holding company. This includes assembling a team of accountants, developers, and analysts capable of producing a yield on commercial public assets.

Of course, the faster and easier route would be to sell the entire portfolio of properties to private-sector developers instead of managing the development under government ownership. But as with any commercial agreement, the party that takes the risk will also take the potential upside from the project. Thus, when a government sells outright, it will inevitably lead to an undue transfer of public wealth to the private sector.

In contrast, as the examples from Hong Kong, Hamburg, and Copenhagen demonstrate, urban wealth funds - guided by city mandates, supported by dedicated professional staff, and free from political influence - are capable of managing public real estate assets to the benefit of society as a whole.

These urban wealth funds, tasked with managing public sector real estate assets, can cooperate with the private sector on individual construction projects, sharing the risk and rewards on an equal footing and aligning the interests of all stakeholders. Such collaboration would significantly reduce the barriers to streamlining the complex execution of tasks such as urban planning and infrastructure development to land use regulation, financing, delivery, and contracting approaches.

The technical challenge is relatively simple: commercial assets have been managed sucessfully daily in the private sector for centuries.

The primary challenge is political: managing public assets effectively on behalf of society depends entirely on the will of political leadership.

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