When large-scale regeneration becomes an engine of urban growth: How new power coalitions are shaping Milan's governance

Abstract

The overall aim of this paper is to discuss how, and the extent to which, the entrance of financial players in urban development affects the governance of the city. To this aim, we focus on Milan, a fast-globalising city that has recently opened its real estate market to transnational capital investors, and we zoom in on two flagship projects, Porta Nuova and CityLife, both symbols of the entrepreneurial agenda adopted in the early 2000s. While investigating these empirical cases, we aim to put in conversation urban regime analysis and the literature on the financialisation of urban development, by theorising the relationship between capital and the state. In contexts such as Milan, where local governments face increasingly reliance on local revenues from urban transformation, the main priority is to anchor investments and create a good business environment for increasingly mobile capital. At the same time, capital actors’ strategies depend on specific localised political and economic advantages that the state has to provide. We thus argue that power relations are shaped by the mutual dependence between the local state and capital investors. We conclude that it is precisely this relationship of mutual dependence that accounts for how urban governance is being restructured today, in a way that makes it financialised or more formally dependent on financial capital.

Keywords

Urban governance financialisation development coalitions large-scale projects mutual dependence

Introduction

Over recent decades, in the literature on urban politics new questions are arising concerning the redefinition of urban governance in a macro-economic context of increasing dependence of localities on global capital. Financilisation scholars point to a further shift in urban governance towards more financialised forms, placing emphasis on the mechanisms through which urban land is treated as a financial asset. Our theoretical aim is to bring these two approaches together so as to better conceptualise the relationship between the state and capital, moving beyond the mere acknowledgment that contemporary urban development requires, more than ever, transnational capital to be financialised.

From an empirical point of view, we focus on Milan, a city that has received little empirical attention but nonetheless is an interesting case study from a governance perspective. Firstly, Milan notably differs from more mature European real estate markets, like London and Paris, as it has seen the entrance of big capital investors only recently, when the growth of the city has become increasingly dependent on capital investors to promote large-scale regeneration projects and strengthen the city's international reputation. Secondly, Milan is today one of the most attractive European targets for investments (Urban Land Institute and PricewaterhouseCoopers, 2017) that attracted EUR 427.3 M of foreign investments between 2014 and 2017 (Scenari Immobiliari and Risanamento, 2019). Thirdly, until the 1990s, the government of the city was built on a centralised approach to urban development (Savitch and Kantor, 2002; Vicari and Molotch, 1990), which was gradually being reformed to encourage public–private partnerships (PPPs) and the inflow of capital.

Our overarching empirical goal is to discuss how the entrance of financial players in urban development is affecting urban governance in a rapidly globalising context, previously characterised by a strong role of state actors in urban development. To do so, we investigate (a) how state actors bargain with financial capital; and (b) how the making of new power coalitions changes the logic of urban regeneration. To fulfil our aim, we conducted case study research on two large scale-regeneration projects: Porta Nuova and CityLife. In the literature, large-scale projects are seen as both tools to revitalise local real estate markets and key arenas in which political and economic actors bargain. By foregrounding urban regime analysis and the literature on the financialision of urban development, we explain urban governance restructuring by theorising the relationship between capital and the state. We argue that in contexts such as Milan, where local governments face increasingly reliance on local revenues from urban transformation, the main priority is to create a good business environment for increasingly mobile capital. At the same time, the strategies of capital actors depend on specific localised political and economic advantages that the local state has to provide. We, therefore, suggest that power configurations are shaped by the relationship of mutual dependence between the state and capital. We conclude that it is precisely mutual dependence that accounts for how urban governance is being restructured today, in a way that makes it financialised or more formally dependent on financial capital.

In section ‘Urban governance and the financialisation of urban development’, we discuss the theoretical and analytical framework; in section ‘Research aims, case study selection and methodology’, we outline the research design; in section ‘Urban growth through large-scale regeneration: The making of an entrepreneurial growth agenda in Milan’, we focus on the role of large-scale regeneration projects in the city's boosting strategy; in section ‘An overview of the projects’, we briefly outline the case studies in a historical perspective; in section ‘An analysis of Porta Nuova and CityLife's development coalitions’, we examine the development coalitions of Porta Nuova and CityLife; in section ‘New development coalitions, New financial logics?’, we question whether changing power configurations have had an impact on the logics of large-scale developments, by putting in conversation urban regime analysis and the financialisation literature; finally, we draw conclusions from the analysis in order to fulfil the main goals of our paper.

Urban governance and the financialisation of urban development

The debate on the entrepreneurial turn in urban governance dates back to Harvey’s 1989 seminal work, in which he explains the process of neoliberal reforms leading to the progressive decentralisation of policy-making to sub-national governments. During those decades, real estate development through place-making policies (Harvey, 1989), like large-scale urban regeneration projects, became part of broader growth agendas pursued by local leaders ‘in order to navigate deindustrialization’ (Lauermann, 2016: 5) and position the city in the international market. ‘Coalition politics’ (Harvey, 1989: 6), through PPPs, became the governance mechanisms put in place to ‘maximise the attractiveness of the local site’ (Harvey, 1989: 5) and finance urban projects.

More recent works (Peck and Whiteside, 2016; Van Loon et al., 2019) have identified a further shift towards a financialised urban governance, defined either as an outcome of specific entrepreneurial and neoliberal strategies (Peck and Whiteside, 2016) or ‘as a means through which entrepreneurial urbanism was enabled in the first place’ (Van Loon et al., 2019 – emphasis added). In line with these accounts, financialisation is not only intrinsically related to processes of urban neo-liberalisation but is also linked to the privatisation and commodification of urban space. Financialisation is defined as ‘the increasing dominance of financial actors, markets, practices, measurements and narrative’ (Aalbers et al., 2017: 3) in the making of the city, a process through which land is treated as a financial asset and urban space has become a carrier of exchange values (Farahani and Clark, 2016).

Hitherto the topic is much debated in the literature. Yet there is still a need to understand and explain how the financialisation of urban governance occurs (O’Neil, 2019), going beyond a mere description of the presence, and dominance, of financial actors in urban development and governance (Ibidem). Financialisation should not be considered as a monolithic process but rather contextually variegated (Aalbers, 2019), situated (Halbert and Attuyer 2016: 8), and politically loaded (Clark et al., 2015). As such, it is mediated by actors’ strategies and power relations (Farahani and Clark, 2016).

In order to comprehend the political and economic conditions leading to the financialisation of urban governance, we borrow the concept of ‘locally specific structures of opportunities’ by Halbert and Attuyer (2016), as it takes into account multiple processes ‘relating to global capital circulation, multi-level State configurations and local market features’ (Ivi: 7). We consider this concept to be particularly appropriate for our analysis as it draws attention to the crucial role of the state in ‘creating and maintaining the conditions for urban assets to be traded as financial commodities on capital markets' (Ivi: 5). In line with the authors, we argue that the anchoring of investments is part of a policy project pursued by different means, like land-use regulations, new financial schemes (Weber, 2010) and urban governance reforms.

In relation to planning, local governments tend to mobilise land use in an instrumental way (Savini and Aalbers, 2016), in order to ‘back up the risks of financial investments” (Farahani and Clark, 2016: 20) and meet investors' requirements (Guironnet and Halbert, 2014). This leads to a detachment of urban planning from local needs (Savini and Aalbers, 2016) as it increases the bargaining power of capital actors in planning decisions (Guironnet et al., 2015). Governance reforms, instead, lead to the creation of ‘new spaces of governance’ (Savini and Aalbers, 2016), like PPPs, in which private and public actors negotiate and combine their interests together. It is in these new spaces of governance that one can trace the role of financial players in decision-making processes and learn how local governments mediate. While in some extreme cases state actors end up embracing capital market visions and ‘anchor the financial criteria of risk, and liquidity’ to urban development policies and projects (Theurillat et al., 2016: 1514); in other circumstances, local governments can succeed in countering the power of capital actors, hence acquiring a leading role in the coalition.

As we start from the assumption that financialisation is mediated by power relations, an in-depth evaluation of coalition politics is pivotal to our work. To this aim, we use Urban Regime Analysis (URA) (Stone, 1993, 2005; Savitch and Kantor, 2002), a political economy approach initially developed in Anglo-American contexts and later mobilised to study urban entrepreneurialism and development coalitions in Europe (Harding, 1997; Kantor et al., 1997). Development coalitions are viewed as the core of the ‘social production’ (Hall & Hubbard, 1996: 155) of urban governance and as the means through which local governments gain their power to (Stone, 1993) ‘prioritize growth through economic development and physical renewal’ (Harding, 1997: 293). Power configurations spring from the exchange of resources between coalition partners: material resources, such as financial power, land and property; and immaterial resources, namely skills, organisational capacity and technical expertise.

While urban regime theory is a valuable tool to study power relations, it has several shortcomings when it comes to interpreting financial actors’ ‘characters and interests’ (O’Brien et al., 2019) and how their agency is determined by their organisational and capital structure (O’Neil, 2019: 10). Organisational structures relate specifically to the ownership and control of urban assets. They encompass a variety of instruments and financial innovations, such as special purpose vehicles and investments funds, designed to undertake specific business activities and transactions. Capital structures, instead, concern ‘the mix of finance that is assembled to meet the credit needs’ (Ivi: 12). They can be made up of equity holders, with long-term views of their investments, or credit contracts, typically anchored to limited periods of time. Understanding these two dimensions is not of secondary importance, but rather allows us to interpret the functioning of development coalitions and how they depend on finance and financial institutions (e.g. banks).

Research aims, case study selection and methodology

The overall aim of this paper is to discuss the extent to which the entrance of financial players in urban development affects the governance of the city, in a rapidly globalising context previously characterised by the strong role of state actors in urban development. We decided to focus on Milan for three main reasons. Firstly, the city is a useful case study to understand how the advent of financial players in real estate and urban governance can rebalance power relations in a context previously characterised by the major presence of local operators and strong public leadership in urban policies (Savitch and Kantor, 2002). Secondly, Milan is a fast-globalising city that has become an attractive target for investments in real estate, although it differs from more mature European real estate markets like London and Paris. Thirdly, this case study allows us to consider in more detail the evolving logics of urban development in a city that strongly relies on transnational capital and large-scale regeneration projects to promote its international reputation.

As we learned from the previous sections, tracing this process of governance shift necessitates understanding how it depends on power relations (Farahani and Clark, 2016). To this aim, we present an extensive case study analysis, started in 2012 and ended in 2019, on two large-scale projects: Porta Nuova and CityLife. Large-scale development projects have received a great deal of attention in the literature. Described as ‘catalysts of urban and political change’ (Swyngedouw et al., 2002: 546), they are considered key entrepreneurial policy tools, implemented to revitalise local real estate markets (Diaz Orueta and Fainstein, 2008), and key political arenas to observe how governance is organised. Usually accomplished through PPPs, large-scale development projects are indeed deeply ‘embedded in frames of multi-actor and multi-level governance’ (Salet, 2008) and, thereby, are important fields in which political and economic actors gain the power to (Stone, 1993) orient urban development (Swyngedouw et al., 2002). Furthermore, financialisation scholars see them as engines of financial markets (Savini and Aalbers, 2016; see also Anselmi and Vicari, 2020; Ward, 2019; Adisson, 2017; Guironnet and Halbert, 2014; Guironnet et al., 2015; Kaika and Ruggiero, 2016), thus presenting the idea that they are ‘increasingly developed with an investor rather than a user in mind’ (Aalbers, 2019).

In order to address our overarching empirical goal, the research design was structured around two sub-objectives: (a) to investigate how state actors bargain with financial players to pursue their development goals; and (b) to examine how the making of new power coalitions changes the logics of urban regeneration. Porta Nuova and CityLife were initiated in the early 2000s, when local authorities launched an entrepreneurial agenda based on a mix of place-making and place-branding strategies, namely mixed-used mega-projects and urban events. The two projects, situated in highly strategic locations (Figure 1), represent the first steps in setting up this boosting agenda. Yet they are indicative of the importance of new real estate players (e.g. insurance companies, mega-developers and transnational corporate investors) after decades of urban development being dominated by political elites and mid-sized local developers.

Figure 1.

Position of Porta Nuova and CityLife in Milan.

Our data comprise both primary and secondary sources. We consulted policy documents, specialised press, consultancy briefs and community reports. We additionally analysed explorative interviews with key experts (e.g. academics and journalists) to gather preliminary information about the case studies and get access to key informants. We participated in five events organised by Scenari Immobiliari, a national real estate consultancy firm. Finally, we carried out 40 interviews with planners, municipal councilors, developers and real estate consultants, either directly involved in the projects or with special expertise. The interview template consisted of open-ended questions on the Milanese real estate market and on the projects, with a particular focus on actors, strategies, interests and negotiations.

Urban growth through large-scale regeneration: The making of an entrepreneurial growth agenda in Milan

Milan's metropolitan region is a highly productive area, to the extent that the city has gained the status of economic and financial capital of Italy (Foot, 2003; see also Balducci, 2005). Like many other contexts, where the economic boom of the 1950s and 1960s was associated with the establishment of big Fordist factories, Milan underwent a process of gradual de-industrialisation, especially in the 1970s and 1990s. During those decades, urban growth was framed within a national planning scheme aimed to counter the negative effects of the fast urbanisation caused by the economic boom (Foot, 2003). Urban development policies were highly centralised and planning represented a crucial resource for public administrations to regulate zoning and the provision of public amenities (Savitch and Kantor, 2002; Della Seta and Salzano, 1993; Vicari and Molotch, 1990). The leadership role of the national government in urban development was further strengthened by the control exerted by political parties on key sectors of the Italian economy, such as construction and banking, which made developers completely dependent on their public partners to secure economic opportunities (Vicari and Molotch, 1990).

Despite the crisis of the industrial sector, the urban economy held up due to the good performance of the service sectors and the growth of other industries, such as fashion, design, media and communication, research and development, and finance (Bigatti, 2016). At the same time, a process of gradual liberalisation began in the planning system (Mosciaro, 2020; Savini and Aalbers, 2016), giving more power to subnational authorities. National fiscal reforms substantially reduced transfers to local governments, making the latter more reliant on local revenues captured by means of urban transformation (Bruzzo and Ferri, 2014; Caruso et al., 2011; Camagni, 1999). In Milan, old industrial sites became a policy priority, as their development could generate an increase in the tax base. In 2001 the planning system was re-imagined, creating a number of investment opportunities in brownfield areas situated along two major axes, connecting the two airports and the city-centre to the North of the metropolitan area (Comune di Milano 2001; see also Mazza, 2007; Ponzini, 2013).

The Framework Document [strategic plan] supported a thesis: the future of Milan could no longer be planned through traditional urban plans but opportunities had to be seized. Therefore, it was necessary to work only for specific projects. The Document tried to demonstrate that once again the city of Milan, understood as the ability to govern transformations, abdicated its role in favour of the real estate market (Interview with municipal planner#1 – Authors’ translation)

Within this framework, planning became less prescriptive and more flexible. New planning instruments, the so-called Programmi Integrati di Intervento (PIIs), were introduced to facilitate the formation of PPPs. These instruments permitted ‘quicker derogation to statutory planning’ by ‘giving central importance to project-based bargaining between public authorities and development corporations on costs, revenues, and collective benefits agreements’ (Savini, 2014: 189). Large-scale regeneration projects were thus seen as engines of urban growth and gradually became ‘a policy tool’ (Conte, 2021: 834) to attract financial capital.

New power configurations took shape. New players (e.g. insurance companies, mega developers and industrial groups converted to finance and real estate) entered the Milanese real estate market, thus replacing local operators and constructors (Anselmi and Vicari, 2020; Pasqui, 2019; Kaika and Ruggiero, 2016; Savini and Aalbers, 2016; Memo, 2010). The arrival of these players represented a further challenge for public regulators as they were poorly equipped in terms of technical and financial expertise.

[Our offices] were understaffed and sometimes had trouble bargaining with private developers, especially when tracking their contribution for public amenities (Interview with senior local politician – Authors’ translation)

Real estate operators have a great knowledge of the costs and risks of their operations (they know how much public amenities cost, how much they will sell, the risk tolerance sale, the profit that must be obtained, etc). [….] Municipalities are unable to make these assessments (Interview with planner – Authors’ translation)

In this context, several big real estate operations began. In the following sections, we analyse Porta Nuova and CityLife, two projects that opened the season of large-scale developments in Milan.

An overview of the projects

The development of Garibaldi-Repubblica: From its early days to Porta Nuova

The area of Garibaldi-Repubblica (34 ha) has been targeted by several development attempts since the 1950s, although remaining undeveloped until the 2000s. Today, the development of the site is completed and the area is owned by the Qatari Investment Authority. Based on a mixed-use design, the Porta Nuova project comprises office towers, luxury housing, cultural and retail centres, commercial spaces, and an urban park (Figure 2).

Figure 2.

Porta Nuova.

Despite the strategic position of the area, no project was initiated until 1997, for legal and financial reasons. On the one hand, infighting within the municipal centre-left coalition opened a prolonged legal battle over the right to build on the site. Furthermore, political and economic elites were found to be implicated in a national massive scandal regarding public work contracts (Della Seta and Salzano, 1993). On the other hand, the municipality planned to complete the project by encouraging a group of local rentiers, Associazione Interessi Metropolitani (AIM),¹ to develop the area, despite the master plan was highly contested by local activists because of building density.

The 1997 local election brought to power a new centre-right coalition which ‘was much more cohesive, and […] had stronger ties with Milan's economic actors, especially among real estate and construction companies’ (Anselmi and Vicari, 2020: 110). In 2001, the City Council adopted a new strategic plan in which Garibaldi-Repubblica was identified as the site for the fashion industry hub and the new central business district of the city. However, a number of critical issues undermined the development of the area. Land ownership was highly fragmented and the city council was unable to secure investments from the banking sector: both the fashion industry (d’Ovidio, 2016) and the other ‘investors saw the earlier infighting and were unwilling to risk money on the project’ (Interview with a senior local politician – Authors’ translation).

The stalemate was overcome by the regional government that purchased one of the office towers. In parallel, Hines Italia – a local subsidiary of a US multinational enterprise – gradually acquired the land. Hines's proposal was highly contested from its inception. The contention mainly revolved around the high density granted by the land-use, the destruction of one of the few green areas in the neighbourhood, and the dearth of public amenities. Lawsuits followed in 2005 and in 2006 but had no discernible impact on the development process. In 2007, the Porta Nuova project was finally launched. The promoter opened three international calls for design, respectively awarded to internationally acclaimed architects, namely Norman&Foster, Boeri Studio and Cesar Pelli.

The evolution of the historical fair district: The CityLife project

CityLife is one of the most symbolic mixed-use projects of Milan. It stands on a 36-ha area that formerly hosted Fiera Campionaria, the city's main international exhibition centre. The development of the site started in 2003 with the government's decision to move the fair to the outskirt of the city and the launch of an international call for design. Proponents were initially shortlisted for their financial availability, expertise and core competence (Roth and Artusi, 2005). Thereafter, short-listed candidates submitted a business plan comprising an economic offer as well as a timeline and costing summary of the project. The consortium guided by Generali Group made the highest bid (EUR 523M) and was announced as the winner of the call, with a project designed by leading international architects like Hadid, Libeskind and Isozaki.

The group of investors created CityLife Spa, a Special Purpose Vehicle in charge of the development and management of the area. After the first negotiations, the first PII was approved in 2005: according to it, the project, to be completed by 2013, would have allocated 196,896 m² to luxury housing, 84,034 m² to office space, 16,000 m² to retail and 15,578 m² to public amenities (Figure 3) (Comune di Milano, 2005).

Figure 3.

CityLife.

CityLife Spa agreed on investing EUR 69M in public amenities, namely two museums and a park (Comune di Milano, 2005). As in the case of Porta Nuova, the master plan was disputed for the high building density, the design of the park, and the prevalence of luxury housing. Despite local residents’ appeal to the Regional Court, the case was lost, and negotiations could proceed.

In the wake of the 2008 financial crisis, the project was at a standstill (Brenna, 2013). The financial risk was mainly concentrated in the residential segment and CityLife Spa gradually fell apart. The consortium succeeded in postponing the finalisation of the project to 2016, after negotiating a new land-use plan featuring a decrease in residential and office volumes and a new metro station (financed by public money) (Comune di Milano, 2013). The situation remained stable until 2013 when the last land-use variant was approved. A couple of years later, Generali Group acquired all CityLife Spa's holdings, turning into the main owner of the site. From then on, the project took over, thus heading to its completion.

An analysis of Porta Nuova and CityLife's development coalitions

The description of Porta Nuova and CityLife illustrates that both projects were sponsored by two development coalitions which gradually centralised power in the hands of the core private partners: Hines Italia, in the case of Porta Nuova, and Generali Group, in the case of CityLife. This evidence suggests that, in both cases, actors’ bargaining brought about new power configurations titled in favour of private actors. However, in order to verify whether this is indicative of a governance turn, we need to examine the role of local governments in the negotiation processes.

Porta Nuova and CityLife began in the early 2000s when urban regeneration and property development became the backbone of the city's entrepreneurial agenda (Bolocan Goldstein, 2009). Both projects came to light in a changing political and economic context. While the liberalisation – and flexibilisation – of planning had empowered sub-national authorities, public-private partnerships presented a new challenge to local governments, which were now confronted with new real estate actors endowed with large financial resources and specialised skills. Planning was then the main source of power for public administrations and it was therefore used to boost the profitability of investments.

In the case of Porta Nuova, Anselmi and Vicari (2020) showed that the institutional reforms of the late 1990s paved the way for the making of a ‘financialized growth machine’ (106). The arrival of Hines was a major turning point for a project that had laid dormant for decades. Hines was seen as the only player able to raise the capital needed to undertake such a big operation because of its strong capital structure, made of a number of financial institutions (e.g. TIIA-CREF pension fund, Qatari Sovereign Investment Fund, Hines’ European Development Fund, Montepaschi Asset Management).

The main idea was that if we failed to give Hines what they wanted, we would have lost access to ‘American capital’. That would have meant stopping the project, as no local actor had that kind of capital intensity (Interview with municipal councillor#1 – Authors’ translation)

By contrast, City Life Spa's capital base was largely dependent on bank loans. This significantly undermined the coalition, which began to lose some private partners.

One factor influenced the two interventions: financial availability, that is to say the credit-banks factor. Financial capital was probably more solid in one case [Porta Nuova] and less in the other case [CityLife]. In that period, banks made the difference (Interview with real estate consultant#1 – Authors’ translation).

The special purpose vehicle was led by Generali Group, the largest Italian insurance company that manages a large portfolio of assets in Italy, France, Germany, Austria, Spain and Central Europe. The partnership included four other players: the Italian financial firm Riunione Adriatica Spa; the Spanish developer Group Lar; the Italian contractor Lamaro Appalti; and the property management company Progestim-Società Immobiliare Spa. The Spanish Group quickly pulled out, as they were not in line with CityLife Spa's business plan (Mosciaro, 2020). Soon after, Allianz, a global insurance company and asset manager, acquired Riunione Adriatica's shares. Finally, in 2011, Progestim left the partnership as they were struck by a court investigation into their manager and the cutting of bank loans by nearly 13% (Mosciaro, 2020, 2018). As a consequence, Generali Group and Allianz, less dependent on the credit system and more reliant on their capital resources, took over.

CityLife's good fortune was that the initial consortium was composed by two financial partners that actually carried out the project. Otherwise the operation would not be in the state as it is in today (Interview with real estate consultant#2 – Authors’ translation)

While Hines immediately proceeded with the construction of the site, CityLife's priorities were rather different as some members were more inclined to speed up sales.

In the case of Porta Nuova, a single owner, financially strong, developed the project even before selling (Interview with municipal planner – Authors’ translation).

At the beginning of the project [CityLife], it was possible to make a comparison with small builders: you can only build if you can sell what you have already built thanks to the financing of the banks. Now, with Generali […] the situation is radically changing. It is a question of both strategies and initial financial resources (Interview with municipal planner#2 – Authors’ translation).

When the crisis broke out in 2008, ‘the two projects ended up having to cope with it under different conditions' (Interview with municipal councillor #2 – Authors' translation). In the case of CityLife, financial risks were mainly linked to the residential sector which ‘could not find a niche’ in the market (Conte, 2021: 836). Local governments had to intervene to prevent the project from stopping and ‘to sustain […] the coalition's hold’ (ivi: 840).

Real estate operator needed to sell to make revenues because with no revenues they couldn't complete the project. Therefore, it was a kind of exchange: ‘I don't have the money and, therefore, the risk is that I stop and leave the work unfinished’ (Interview with planner – Authors’ translation).

The city council granted a new land-use variant including a new metro station and new residential and office volumes. The end of the site's construction was dealt with in two different variants negotiated in 2011 and 2016.

New development coalitions, new financial logics?

According to urban regime scholars, private-driven development regimes concentrate ‘primarily with changing land use in order to promote growth and counter decline’ (Stone, 1993: 19). The main task of local governments is to secure their support of private players by mobilising planning in ways that allow their partners to make profit. Porta Nuova and CityLife can be considered as a manifestation of a development regime, as understood by Stone. Nevertheless, our main argument is that Milan is undergoing a further shift in urban governance, in a way that makes it financialised. We therefore recall Cox (1993, 1995, 2013) and his invitation to take into serious consideration ‘the question of local dependence and of the scale’ (Cox, 1993: 434). This analytical effort, in our view, will allow us to build a bridge between URA and the financialisation literature.

In the global competition between cities, capital investors ‘have considerable leverage’ (Cox, 1995: 214), as they are mobile and can decide to switch their investment from one city to another based on the profitability of investments. This empirical evidence is confirmed in the cases of Porta Nuova and CityLife: the two operations eventually rewarded patient capital (Van Loon, 2016), that is to say, transnational capital investors (i.e. real estate and sovereign funds) and insurance companies. This, however, should not lead us to assume that local governments were ‘powerless’ (DeFilippis, 1999: 981). It rather suggests that they were able to create the conditions for these actors to stay. In other words, local governments built the necessary ‘locally specific structures of opportunities’ (Halbert and Attuyer, 2016), such as new spaces of governance and an attractive economy, to make capital investors more dependent on the local scale. We additionally contend that, in creating the conditions for a greater local dependence of capital (Cox, 1993), state actors adopted a new financial rationality, thus embracing the logic of investors.

The national fiscal reforms made sub-national authorities more dependent on their tax base to promote urban growth. Hence, the regeneration of large industrial sites emerged as the main tool to boost local revenues. The introduction of PIIs in the late 1990s led to the establishment of a ‘planning by project tradition’, the aim of which was to waive to the rigid plans of the past and encourage development coalitions. Moreover, at the end of the 1990s, Milan was reinforcing its economic status, due to a good performance of the service sector and the growth of other industries, such as fashion, design, media and communication, research and development, and finance. The city represented a good business environment for several economic players, among which new capital actors were interested in investing in flagship projects like Porta Nuova and CityLife.

The dependence of local governments on their tax base and the lack of experience in carrying out big operations weakened local governments while strengthening their financial partners. Our research on Porta Nuova and CityLife proves that, because of their capital and organisational structure, Hines Italia and Generali Group took advantage of a large number of negotiations, seeing their requests recognised in land-use plans. PII variants were indeed enacted in an ‘instrumental way’ (Savini and Aalbers, 2016) to meet investors’ requirements, even when some of CityLife Spa's partners were facing serious challenges in bearing financial risks. Local governments also internalised financial calculations when defining building density, and optimising the tenant base and the public amenities of the projects.

Financial sustainability was a key point in private-public bargaining, first and foremost because of project density. As this informant put it:

Hines position on density was that it was non-negotiable. They would say: ‘We can bargain on something else, but those density figures cannot change, otherwise the project becomes unsustainable’ (Interview with a senior local polician – Authors’ translation)

According to the 2001 strategic plan, local governments could grant a density equal to 0.6 m²/². Eventually, the average index for Porta Nuova was 1.65 m²/m², despite the fact that density was a highly contested matter. In the case of CityLife, negotiations on density took place in 2004, between the owner of the fair site and the city council, and ended with an index increase to 1.15 m²/².

Fondazione Fiera had a considerable debt for the construction of the new external pole. […] What Fondazione Fiera was interested in was the profit obtained from the sale of the area. And, to hide this, they did this sort of architectural competition that was eventually won by those who proposed the highest offer’ (twice the actual value of the areas) (Interview with a planner – Authors’ translation)

The density calculation maximised cash flow for Fondazione Fiera while increasing the building area of the site. Besides this, public actors raised the rate of return in at least two other ways. On the one hand, they optimised the tenant base moving the regional parliament and offices within the area of Porta Nuova, thus serving as a benchmark for prospective commercial tenants.² On the other hand, they manoeuvred the negotiations on public amenities. In the case of Porta Nuova, in early bargaining rounds between local citizens and municipal officials, subsidised affordable housing and a kindergarten were promised as compensation for the destruction of Bosco di Gioia, a local public park. The construction of these public amenities was to be financed by the developer through the payment of building fees. Eventually, these public amenities were discarded in favour of a museum and a cultural canter, as the latter would benefit commercial tenants the most.

Conclusion: Power relations, mutual dependence, and the financialisation of urban governance

In this paper, we questioned whether the entrance of financial players in urban development has had an impact on the governance of the city, in a way that makes it financialised. We focus on Milan, a context that has received little empirical attention in the literature but is nonetheless emblematic for three main reasons. Firstly, the city is an interesting case to study how the advent of financial players shifts power relations in contexts previously characterised by a strong public leadership in urban development policies. Secondly, Milan allows us to consider the evolving logics of urban development in cities that have increasingly relied on real estate development and urban regeneration to promote their economic growth and reputation. Thirdly, real estate in Milan is going through different dynamics compared to those of more mature markets, such as Paris or London.

We investigate the new power configurations that guided Porta Nuova and CityLife, the most iconic developments and symbols of the urban entrepreneurial agenda adopted in the early 2000s. We show that negotiations rewarded private partners and, in particular, patient capital actors, that is those players with more capital intensity and with long-term profit strategies. In this process, however, local governments did not have a secondary role. On the contrary, they secured their support to their private partners by mobilising planning and internalising financial calculations in order to back up financial risks.

While investigating the case of Milan, we aim to contribute to the literature by contextualising urban regime analysis and the accounts of the financialision of urban development. While the first approach served as a tool to analyse development coalitions and power relations, we encountered several limitations in explaining how urban governance is being reshaped by the inflow of transnational capital in urban development. We overcame these by echoing Cox's criticism of URA for undertheorising the relationship between capital and the state. This allowed us to highlight the relation of mutual dependence between local governments and capital investors. In contexts such as Milan, where sub-national authorities face increasing reliance on local revenues from urban transformation, state actors see urban development as the major source of income. Given the mobility of capital, their main priority is to anchor financial investments and create a good business climate. This explains why they make concessions when negotiating density zoning, infrastructure and public amenities. At the same time, investors channel their money in contexts where they can find ‘localized advantages’ (Cox, 1993: 440) which make their investments more profitable (e.g. new governance spaces, flexible planning instruments, a growing economy). We conclude by stating that it is precisely this relation of mutual dependence that accounts for the ways in which urban governance is being restructured today, in a way that makes it financialised or more formally dependent on financial capital.

Footnotes

Acknowledgements

The authors would like to express their deep gratitude to Serena Vicari Haddock for her mentorship at Università degli Studi di Milano-Bicocca. Serena is a source of great inspiration to them, both academically and personally. This paper would not exist without her encouragement and is therefore dedicated to her. The authors wish to thank the editors and the anonimous reviewers for the insightful and constructive comments, and Manuel Aalbers, the REFCOM group at KU Leuven, and Alberta Andreotti for their feedback on earlier versions of the paper. Finally, they would like to acknowledge the contribution of Simone Caiello in drawing the maps.

Declaration of conflicting interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship and/or publication of this article: Both authors received PhD scholarships issued by the Italian Ministry of Education, University and Research (Veronica Conte: 2015-2018; Guido Anselmi: 2011-2014).

Notes

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