Month: March 2017

• Landowner vs. city

  

  In my BARED post with Michael Cooper he described real estate development as being one of the most creative things you can do because of all of the constraints that one has to deal with. This certainly feels true on many days.

  A lot of these constraints also create competing tensions. One example is the tension between what landowners want and what the city may want.

  The value of development land is dependent on what you can build on it. It is, in theory at least, the residual claimant once you factor in all of your other development costs. But in a competitive land market, owners will naturally have high expectations around what their land is worth. And telling them about the intricacies of your residual claimant Excel model will fall on deaf ears if the output doesn’t match their expectations. They see what other land is selling for – even if the land use policies are entirely different – and they want the same or more.

  So to make the math work, it often becomes about density. In practice, many financial models are probably working in the opposite direction to what I described above: here’s how much money the landowner needs to sell; now let’s figure out if we can get enough density to make this work.

  Of course, the challenge with this approach is that you naturally start to push up against a ceiling with respect to density. Landowner wants more density. City wants less density. If I ever ran a development model today where this wasn’t the case, I would instinctively worry that my model wasn’t working properly.

  And therein lies the tension: how can I give this landowner the money that she/he wants, but at the same time satisfy the city and the community, and build enough density such that the project doesn’t lose money? For the time being, ignore the archaeological dig that will need to be done on the site and the creek running underneath it that is going to add $2 million to your underground costs.

  This is where you have to get creative. One potential solution is try and make the price dependent on achieved density. But not all landowners will go for this and sometimes the price spread is so great that even a density bonus isn’t going to close the gap.

  I like to believe that there’s always a creative solution to every problem. Try and make it work. Don’t give up. But the reality is that in many cases the land just isn’t worth the asking price and you’re going to need to walk away. That can be sad, but it can also be the smart thing to do.

  2017.03.21

• Big cities, small cities, and automation

  It’s fine to talk about the importance of big cities in today’s world, but there’s another side of this coin to consider. What happens to the towns and smaller cities who aren’t guiding the global economy?

  Here is an interesting snippet from the NY Times that recently caught my attention:

  As one of my college professors recently told me about higher education, “The sociological role we play is to suck talent out of small towns and redistribute it to big cities.” There have always been regional and class inequalities in our society, but the data tells us that we’re living through a unique period of segregation.

  If you combine the above with the fact that a significant number of jobs are likely to be automated in the near term, one has to wonder what the world is going to look like assuming the status quo continues.

  2017.03.20

• Why cities are where they are

  I’ve always been fascinated by questions around the origin and location of cities. How did they get their start and why did they get founded where they did? Access to water and resources are obvious factors. But it could have also been for defensive reasons. 

  In some cases, the location makes intuitive sense. Quebec City, for instance, is founded on high ground at the point “where the river narrows.” Both of these elements come in handy when you’re trying to fend off intruders. But in other cases, the exact location of a city or town may not be as obvious.

  Thankfully, Wendover Productions – which is a YouTube channel entirely focused on explaining how the world works – recently published a video called: Why Cities Are Where They Are. (Video embedded below.) It’s about 16 minutes long and it has gotten over 1 million views at the time of writing this post.

  [youtube https://www.youtube.com/watch?v=3PWWtqfwacQ?rel=0&w=560&h=315]

  They also have a video that I watched today called: The Economics of Airline Class. It covers why airlines don’t care about coach and don’t make money off coach travellers. The real estate developer in me enjoyed the part about revenue per square foot for each “class” section of the plane.

  2017.03.18

• Top 10 city regions by GDP (and comparable countries)

  Below is a mapping (by Taylor Blake of the Martin Prosperity Institute) of the top 10 metro economies in the world by GDP at purchasing power parity. In brackets, is a country with a comparable GDP.

  

  Tokyo is the world’s largest metro economy with ~$1.6 trillion in GDP. This is greater than the GDP of all of Canada. New York City is number 2 with ~$1.5 trillion in GDP, which is only slightly less than Canada.

  The point of all of this – which Richard Florida argues here – is that the global economy is, today, powered by metropolitan areas. And yet our governance structures do not reflect this new reality.

  Here’s an excerpt from Florida’s article:

  “Cities really are the new power centers of the global economy—the platforms for innovation, entrepreneurship, and economic growth. But when it comes to fiscal and political power, they remain beholden to increasingly anachronistic and backward-looking nation-states, which has become distressingly obvious with the rise of Trumpism in the United States and populism around the world.”

  Florida has been arguing this for years and I’ve really gotten behind it. The above chart is a good reminder just how big and wealthy some cities have become in today’s economy. 

  2017.03.17

• DroneBase — real estate aerials

  

  Real estate companies often have a need for aerial photography. Perhaps you want to showcase an existing building. Perhaps you want to capture the views from a future/proposed building. Or perhaps you’d like to document a building under construction.

  Usually in the latter case, you have to find a neighboring building and negotiate some sort of agreement so that you can place a camera on it and document your construction site. This is probably still the solution if you want a clean time lapse video.

  But drones have opened up a new world of possibility and today I thought I would share with you a company called DroneBase. They’ll probably hate that I’m making this reference, but one way to describe them is Uber for drones. They connect a “large network of drone pilots” to customers needing drone footage for commercial or creative purposes.

  If you take a look at their website, you’ll see that they cater a lot to the real estate and construction industries. I’m not sure how active they are in Toronto and Canada right now, but if they aren’t that active I’m sure it’s only a matter of time before they are. 

  And over time, I am sure that a network like this will only mean faster, better, and more affordable aerial footage.

  2017.03.16

• What Facebook knows about you

  Here is an eye-opening article from data scientist Vicki Boykis outlining the number of ways in which Facebook collects data about its users. It’s called: What should you think about when using Facebook?

  One of the more surprising tidbits from Boykis’ article is that Facebook collects keystrokes. That means if you start typing a status update but never actually post it, that information is still fair game.

  Facebook previously used this data for a study on self-censorship. That sounds like like a fascinating study, but I’m sure the thought is also scaring many of you if you care about privacy.

  Here is a quote from the article that gets at the core of what is going on:

  “The fundamental purpose of most people at Facebook working on data is to influence and alter people’s moods and behaviour. They are doing it all the time to make you like stories more, to click on more ads, to spend more time on the site.”

  A worthwhile read. And in case you didn’t already know, if you go to Settings -> Download a copy of your Facebook data, you can get a pretty good dump of your activity, including every private message you’ve ever sent on the platform.

  2017.03.16

• Latest house-price indicators from The Economist

  The Economist recently published the following chart alongside this article talking about the impact of foreign buyers on global house prices.

  

  They also have this set of interactive graphs that allows you to chart prices according to a number of different measures. The two metrics that The Economist focuses on (above) are house prices against rents and house prices against incomes. 

  The argument they make is that as (foreign) capital begins to think of property as merely a bolthole, it can start to detach itself from fundamentals such as rents and incomes. New Zealand, Canada, and Australia are specifically called out.

  This isn’t necessarily news. And one chart can only tell you so much. But I like staying on top of the various indices.

  2017.03.15

• Escalator etiquette

  

  I am one of those people that gets annoyed when people don’t follow proper escalator etiquette. The etiquette being: stand on the right; walk on the left. Some cities – London and Tokyo come to mind – are draconian about this.

  But it turns out that this is not always the best way to optimize throughput. A recent study conducted in London found that during peak periods – such as the morning rush hour – it is actually better for everyone to stand still.

  What they found was that when 40-60% of people chose to walk up on the left, maximum throughput was 115 passengers per minute. But when everyone stood still maximum throughput increased to 151 passengers per minute.

  The reason for this is that walking takes up more space than staying put on one step. When demand is low, this has no impact on capacity. But as soon as people start slowing down to avoid the set of legs in front of them, a bottleneck occurs and capacity starts to drop. 

  This is not dissimilar to what happens in traffic jams. Imagine if during peak periods all of the cars could separate themselves by only a few inches and travel at exactly the same (slow) speed. That’s not going to happen until self-driving cars hit the road, but it would be more efficient than the current chaos of distracted drivers starting and stopping.

  All of this being said, since this finding only applies during very busy times, I plan to continue being annoyed when proper escalator etiquette is not followed.

  2017.03.14

• The winter garden

  Balconies, outdoor spaces and, more broadly, the relationship between inside and outside are important considerations in multi-family residential design.

  Earlier this year, Mansion Global ran a piece talking about a recent trend in cities such as New York, Toronto, and London, where high-rise outdoor spaces often go unused because of the wind and the cold. It’s called the winter garden.

  “So luxury developers are trying an option that they tout as both lush and cozy: the winter garden. Enclosed by glass on three sides, and often designed as an alcove off the living room or bedroom, these spaces can feature fireplaces, radiant-floor heating and sliding glass doors to maximize the breeze, weather permitting. For developers, the amenity can bump up asking prices, because winter gardens add interior square footage to a unit.”

  This, of course, is not a new idea. In fact, solariums are very common in Toronto condos of a particular vintage. But they are rare today, for probably a few reasons. Policy changes removed the incentive to build these spaces. Unit sizes have come down. And many people like the idea of being able to step outside.

  The other way to think about this trend, though, is that it’s about creating adaptability within the skin of the building. You want to be hermetically sealed off in the winter, but you want the opposite in the summer and/or swing seasons. This is about making indoor spaces feel more like outdoor spaces when you want them to be that way.

  There are countless examples of vernacular architecture figuring out how to strike this balance. Today we typically think in terms of mechanical systems. But I love the idea of a building that responds to the changing seasons.

  Thanks for sharing this article with me, Rick.

  2017.03.13

• We’re still on road pricing

  

  The New York Times recently argued that self-driving cars can’t cure traffic, but that economics can. Here is the key soundbite:

  “Maybe autonomous cars will be different from other capacity expansions,” Mr. Turner said. “But of the things we have observed so far, the only thing that really drives down travel times is pricing.”

  The argument here is that capacity expansions – such as additional lanes – never solve the problem of gridlock. Yes lane widening projects increase capacity, but the latent demand is so strong that the problem never gets solved. Even in places like Houston.

  We talked a lot about this phenomenon on the blog a few years ago when Toronto was embroiled in debate over the Gardiner Expressway East. But it’s interesting to think about self-driving cars as simply another incremental capacity expansion.

  I have no doubt that this technology will make more efficient use of our roads. Carpooling will be a lot easier – as is already the case. Cars will be able to drive closer together. We’ll be able to stop abrupt breaking and swift land changes, which actually create systemic traffic problems for everybody else.  And the list goes on.

  But there will still be limits to how many people can be efficiently moved on a particular strip of road. Exactly how there are limits to how many people can be efficiently moved via a particular subway tunnel, streetcar line, and so on.

  So if latent demand continues to outstrip available capacity, which has historically been the case, then we are once again back to the politically unpopular idea of pricing away congestion. As much as people criticize it as regressive, I believe that’s where we’re headed.

  2017.03.11