Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.
Jerry Neumann’s recent blog post on the “taxonomy of moats” is a great summary of the ways in which companies — and perhaps even cities — can protect themselves against competition.
Here’s an excerpt from his introduction:
Value is created through innovation, but how much of that value accrues to the innovator depends partly on how quickly their competitors imitate the innovation. Innovators must deter competition to get some of the value they created. These ways of deterring competition are called, in various contexts, barriers to entry, sustainable competitive advantages, or, colloquially, moats. There are many different moats but they have at their root only a few different principles. This post is an attempt at categorizing the best-known moats by those principles in order to evaluate them systematically in the context of starting a company.
And here is his taxonomy of moats. He identifies four main sources:
As a sidebar, consider how this might also apply to cities.
If you’d like to read Jerry’s full post, click here. And if you’re interested in this space, I recommend you also check out Fred Wilson’s recent post on, “The Great Public Market Reckoning.”
The Junction House team is excited to announce that construction will start this fall and that our ground breaking ceremony will be held at 11AM on Saturday, October, 19th. Mark your calendars.
It will take place at our Sales Gallery — 2720 Dundas St W. This will be one of the last opportunities to see the award-winning Junction House Sales Gallery before it is demolished in preparation for construction.
There will be photo opportunities for everyone in attendance, and so we encourage you to bring your phones/cameras. You’re welcome to extend this invitation to family and friends, but kindly RSVP by sending an email to info@junctionhouse.ca.
This recent Streetsblog article about the possibility of turning the M Ocean View line in San Francisco into a kind of subway is a good reminder about the always important connection between transit investment and density. The question I always pose to myself is, “If I were a private company deciding where to spend the money on a new and expensive subway line, what would I look for?” Most of us recognize that population and employment densities would be near, if not at, the top of the list.
Of course, if the company were fully private, then we would run the risk of low-density / unprofitable areas of the city not being serviced by transit. For a variety of reasons, that’s not an ideal outcome, which is why transit operators are mostly subsidized. The challenge is that the way we plan transit in most — or all? — cities has become so highly politicized today. That’s how we end up with the wrong transit technologies in areas that don’t have the density to properly support them.
Now, I don’t know the specifics of the M Ocean View line. (Maybe some of you do and will provide those thoughts in the comments below.) So this is not a post about what may or may not be appropriate in this particular instance. But it is a commentary on the importance of fiscal prudence and sound transportation planning.
This week, RBC Economics published a study on Canada’s rental market where they argued that the pace of new supply needs to at least double in markets like Toronto in order to meet future housing demand and balance the market. Similar things, I’m sure, could be said about many other housing markets around the world.
The report pegs the current rental housing deficit in Toronto at about 9,100 units:
And because they believe that the cost of ownership is pushing more people into rentals, the number of renter households is expected to grow at an average rate of 22,200 units per year in Toronto.
If you take 22,200 units per year over the next two years, and add in the current deficit of 9,100 rental units, you get to a total count of 53,500 rental units. This is what RBC Economics believes must be delivered to the market in order to restore equilibrium, and decrease the upward pressure on rents.
Rental units are, of course, delivered to the market in two main ways. There’s purpose-built rentals and there are for-sale units that end up as rental housing. But even if you amalgamate both of these tenures, we are not building enough housing.
Against this backdrop, I find it curious that developers are so often vilified. Earlier this week, I saw Jennifer Keesmaat tweet out that — as we ready for this fall’s federal election — any sensible housing plan must move away from our current for profit housing delivery model.
Who, then, will build these 53,500 rental units? That part wasn’t clear to me.
It was announced this week that Metrolinx will be making changes to the popular UPX train service that connects Union Station to Toronto’s Pearson International Airport. This is an interesting transit story. And as someone who will be moving to the Junction (adjacent to one of the stops along the way), I have a vested interest in this announcement.
The UPX started out as a high-priced boutique train service to the airport. A one-way fare was $27.50 per person (without a PRESTO card). This was too much and I argued that here on the blog. If you looked at the math and compared it to the alternatives, such as taking an UberX, most people were not going to take this train.
The fares were ultimately dropped — by a lot — and the service then took off not only as a link to Pearson but as an inner-city commuter service. I now sometimes call it the Union-Junction Express, because the actual train ride from Union to Bloor St (at Dundas West) is about 7 minutes once you’re on the train.
The announcement this week merely solidifies the train’s evolution from high-priced boutique service (which didn’t work) to airport/commuter service (which is really working). The trains are expected to run more frequently now, some of which will continue to make the same stops as today and some of which will stop in new locations along the line.
As transit-advocate Cameron MacLeod said in the Globe and Mail yesterday, “there’s both good and bad news here.” The good news is more frequent service. Even quicker trips in some instances. And better integration with the broader GO train network. The bad news is the award-winning UPX station at Union will no longer be needed. The service is expected to move to a new platform.
Love them or hate them (I happen to love them), Toronto’s streetcars are part of this city’s identity. Most North American cities got rid of their streetcars around the middle of the 20th century. But Toronto didn’t. And that has left us with the largest first generation streetcar network in the Americas in terms of total track length, number of cars, and ridership. That’s something. If you’re also a fan of streetcars (or just like geeking out about cities), you may enjoy this little ode to Zürich’s tram network by Monocle. It’s called, “My life as a tram.”
This past weekend I was in a condo building here in Toronto with large signs in the elevator saying, “No Short-Term Rentals Including Airbnb Are Permitted. Trespassers Will be Prosecuted.” It was the first time I had seen anything like this, but it immediately signaled to me that the building must be having a problem with short-term rentals. Why else would you deface the elevators? There are some buildings that allow short-term rentals, but most don’t.
However, over the last few years we have started to see purpose-built short-term rental buildings. In some cases, existing apartments buildings were “converted”, as was the case with Niido’s two properties in Nashville and Orlando. Here tenants in the building can rent both unfurnished and furnished apartments and then rent them out on Airbnb up to a maximum of 180 days per year. To date, I think these are the only two properties to use the “Powered by Airbnb” moniker, but more are on the way.
The developer behind Niido — Newgard Development Group — recently launched a new Powered by Airbnb brand called, Natiivo. This one looks to be focused on for sale product, with two upcoming projects in Austin and Miami. Both projects will have hotel licenses in order to avoid any regulatory risk going forward. But this makes me wonder how materially different this model is from the condo-hotels we’re already familiar with.
For landlords and developers, the goal is obviously to maximize rents and prices. Allowing (or explicitly encouraging) residents to rent out their place and earn some extra cash, should help with that. And given the way I started this post, we also know there’s a desire to do this, particularly in places with strong tourist demand like in Nashville and Miami. But the reviews are mixed. Not everyone wants to live in a hotel. But then again, not everyone wants to co-live. To each their own.
Earlier today, the Conservative Party of Canada made the following housing policy announcement. If elected this fall, they would (copied verbatim from here):
Fix the mortgage stress test to ensure that first-time homebuyers aren’t unnecessarily prevented from accessing mortgages and work with OFSI to remove the stress test from mortgage renewals to give homeowners more options.
Increase amortization periods on insured mortgages to 30 years for first-time homebuyers to lower monthly payments.
Launch an inquiry into money laundering in the real estate sector and work with our industry partners to root out corrupt practices that inflate housing prices.
Make surplus federal real estate available for development to increase the supply of housing.
There aren’t a lot of details here, but Andrew Scheer did say that his party would eliminate the financing “stress test” for all mortgage renewals. Currently, you’re only exempt if you renew with your existing lender.
As Rob Carrick points out, this is a pretty sensible move. (Though he doesn’t agree with “fixing” the stress test.) The current situation gives the incumbent lender almost monopolistic power if the borrower can’t meet the stress test and is unable to shop around for a better rate.
At the same time, we know that the price of a highly levered asset tends to correlate with financing ability. So depending on what serves you better, you may be either concerned or delighted that this increased buying power could spur further housing consumption/appreciation.
From 1899 to 1902, the north side of 42nd Street, between 7th Avenue and Broadway in Manhattan, was occupied by the Pabst Hotel. At the time, this neighborhood was called Longacre Square.
Owned by the Pabst Brewing Company of Milwaukee, the building was part of a growing network of hotels and restaurants that the company used to promote its beer. Note the cool rooftop sign.
The portico you see in the above picture was highly controversial. I guess some things never change. City officials were criticized for allowing such a structure to encroach over a public right-of-way. Curiously, the Times was one of its biggest critics. A judge ultimately ordered for it to be removed in 1901.
The building also came down not long after. The introduction of New York City’s first subway — operated by the private Interborough Rapid Transit (IRT) Company — began to spur new investment in the area. The first IRT line ran right through Longacre Square.
Adolph S. Ochs was the owner of the The New York Times during this period and he believed that the new subway line would increase foot traffic in the area. Betting on transit is clearly not a new phenomenon. So in January 1905, the newspaper moved into a new headquarters on the site of the former Pabst Hotel; a building that it developed for itself.
Today this building is known as One Times Square. Here is a photo of it under construction in 1903:
And here is a photo of the completed building in 1919 (at this point, it was no longer occupied by the paper):
At the time of its completion, it was one of the tallest buildings in New York City. And eventually, perhaps as a result of some encouragement on the part of Ochs, Longacre Square was renamed to commemorate this new building and the paper. It became known as Times Square.
By 1913, the Times had outgrown the building and would move down the street. But not before it would introduce a now famous New Year’s Eve celebration in the Square. The Times would continue to own the building up until 1961.
The area continued to evolve into an important theater district and transit hub. Everything connected through Times Square. Sadly, the Great Depression was not kind to the area and, either because of it or alongside it, Times Square declined into an area of vice filled with everything from burlesque shows to prostitution. This would come to define the area for almost the balance of the 20th century.
It would take many attempts starting in the 1980s to try and redirect Times Square’s now entrenched reputation. In 1982, the Department of City Planning created the Special Midtown Zoning District, which attempted to attract developers with tax breaks and other subsidies. It didn’t really work.
The City eventually looked to eminent domain to try and tidy up the area. But property owners — many of whom owned the adult businesses in the district — objected via a group known as the Coalition for Free Expression.
It would take a few other mayors, many legal battles, and interim ordinances such as the 60/40 rule — which allowed adult businesses to continue operating as long as no more than 40% of their floor area were allocated to sex — before things would really change.
Today, or at least as of 2015-2016, Times Square represents 15% of New York City’s total economic output. And it does this via 0.1% of the city’s total land area and 7% of its total employment.
Real estate in the district is estimated to be worth over $7 billion, with the Square generating about $2.5 billion in municipal tax revenue and about $2.3 billion in state revenue. A lot has changed in more than a century. But perhaps most importantly, the portico came down.
Joshua Levine’s recent (WSJ Magazine) piece on John Pawson, — the architect who “elevated nothingness to an art” — is a good read.
It’s mostly about the country retreat that he recently completed for himself and his wife in the English countryside, but there’s also lots about his minimalist architecture, his career, his work with hotelier/developer Ian Schrager, and his passion for photography.
I like this bit about architectural simplicity. The great irony of minimalism, and the reason why brands such as Calvin Klein and Jil Sander began working with John Pawson to leverage his aesthetic, is that it’s often more difficult to do less. Getting the details right costs money. Hence this great line from the New Yorker:
As the New Yorker cartoon put it, “Only the rich can afford this much nothing.” Don’t expect a rebuttal from Pawson. “It is big, and it is expensive, you know. It’s sophisticated architectural simplicity. This isn’t a religious thing, and it isn’t as simple as you can go. You can go a lot simpler than this.”
I also like what the following says about labels and what it means to be defined as something:
Slowing down for Pawson isn’t all that slow. He takes photos constantly and has always used the camera as his third eye. In 2017, Phaidon published Spectrum, a book of his photos, many of them first posted on his Instagram (“I said, ‘Well, I’m not a photographer,’ and they said, ‘You are a photographer,’ so now I’m a photographer”).
Click here for the rest of the article from WSJ Magazine. And if you aren’t familiar with John Pawson, here is his minimal website.
