Brandon Donnelly

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.

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Month: December 2019

  • A non-zero probability of copycats

    Software businesses are generally high margin businesses. But along with this feature comes some risks. Here’s an excerpt from a recent post by Scott Galloway (which is actually about FedEx):

    With any software start-up, there is a non-zero probability that you wake up the next day and find that a better-resourced firm (Microsoft, Oracle, Salesforce, Adobe) has deployed 200 engineers to copy your product, bundle it with their stack for free, or near free, and … welcome to zero. I believe this is happening to Slack, but more slowly than Netscape, as Microsoft’s General Counsel has likely coached Satya to charge a nominal fee for Teams and let Slack bleed out, instead of putting a bullet in its head and stirring the DOJ from a 3-Ambien slumber.

    Real estate, by comparison, doesn’t get disrupted in quite the same way. A location/city can lose its economic purpose (Great Grimsby is just one example), but as long as there are growth tailwinds the real estate should do well.

    Venture capitalist Fred Wilson has on many occasions written about how he (and his firm) made a fortune in the dot-com era, only to lose it all and have to remake it again over the subsequent decades.

    One the lessons learned from that experience (according to his blog), was to take some of that second tech fortune and invest it into hard assets — namely real estate. That feels right to me.

  • The power brokers

    The Nib’s recent comic about Jane Jacobs vs. The Power Brokers (i.e. Robert Moses) is a good little overview of her lessons and legacy. But I don’t understand the claim that developers co-opted her ideals in order to exploit and gentrify urban neighborhoods. According to the comic, gentrification is always a top-down affair by developers, and never a spontaneous emergence as a result of other humans and/or industry wanting to be in a particular place.

    I can think of many neighborhoods that have seen investment from groups other than traditional developers, including from individual homeowners. Take, for example, Cabbagetown in Toronto. There was never a top-down developer moment. It was individuals who saw beauty (and also opportunity) at a time when others were scared of the area. Is that acceptable? Perhaps more importantly, did these people wear black suits?

    The other missing piece is the fact that desirable urban neighborhoods are, today, in incredibly short supply. During the reign of Robert Moses, Jane Jacobs had a view of cities that was in opposition to the planning zeitgeist of the time. But over time, she went from controversial to enlightened, and alongside this we saw a return to cities.

    Combined with strict land use policies, this rising demand for Jacobian-style neighborhoods has meant that many/most dense urban centers operate with a perpetual housing supply deficit. There’s not enough cool urban housing to go around. Add in the current low interest rate environment, and you then have even more money searching for that perfect home in the West Village. That tends to do things to prices.

    Image: The Nib

  • Project connected home

    This week it was announced that Amazon, Apple, Google, and the Zigbee Alliance are joining forces to develop a new royalty-free connectivity standard for smart home products. The working group is called Project Connected Home over IP and the goal is to develop a “USB-like plug-and-play protocol for the home.” If successful, this standard would get applied to all smart home systems, including the Amazon, Apple, Google, and other “assistants” that you may already have in your home.

    The thing about smart home devices is that most of them are exactly that: a device. They’re something you buy and append to your home, as opposed to something that gets built into the core of your home. This, of course, makes sense, given how difficult it is to innovate within the real estate space. If you’re in the business of creating smart home products, you ideally want everyone to be able to buy it and quickly add it to what they already have. And as a consumer, you don’t want your permanent fixtures to become quickly outdated.

    But if/when a standard emerges, I wonder if that doesn’t make it easier to develop a more holistic approach to smart home products. That could be really interesting. If you’d like to learn more about the project, click here.

  • A story about architecture, interiors, and branding

    I was recently having a debate with one of our architecture partners about the interrelationship between architecture, interiors, and branding. This came up because, in New York City, you almost need a name brand architect attached to your project in order to sell luxury condos.

    But this raises an interesting set of questions: How much value is driven by the quality of the architecture versus the architect’s brand? (Though, presumably you need the former in order to build the latter.) And how much of the value is actually just driven by the finishes (interiors) and the branding that you layer on after?

    This latter scenario is a depressing thought for architects. It is architecture as a kind of “empty vessel.” One that just gets dressed up for today’s Instagrammable moments. And I am sure that you can think of some examples of this. Not everything can be capital A architecture.

    But what is clear is that the most successful design-driven projects don’t think in this way. They are thoughtful and deliberate about each component, and they all work together to strengthen each other. Marketing, after all, is about telling the right story. It is always helpful when you actually have one to tell.

  • Australia lost 124,000 millionaires last year

    Global household wealth is currently estimated at about $360 trillion, according to Credit Suisse’s 2019 Global Wealth Report. This represents an increase of about $9 trillion (~2.6%) from 2018-2019.

    Over the last decade, much of this growth in household wealth has come from two countries: the United States and China. 40% of the world’s US dollar millionaires reside in the United States, and China now has the second highest number of dollar millionaires. (If there are any curious Canadians reading this, Canada represents 3% of the world’s total.)

    The number of ultra-high-net-worth individuals — individuals with a net worth greater than $50 million — exhibits a similar pecking order. The US is by far the most dominant.

    Of course, dollar millionaires represent a small percentage of the world’s total population. Credit Suisse estimates that there are about 5.1 billion adults in the world. About 56.6% have a net worth under $10,000 and about 0.9% (okay, 1%) are millionaires. This 1% controls/owns about 44% of global wealth. Thinking back to figure 7 (above), consider this math: 50% of the world’s millionaires are now in the US and China.

    Fluctuations do happen, however. Australia lost some 124,000 millionaires last year largely because of a (-6%) drop in home prices, which tends to correlate pretty closely to the real asset part of household balance sheets. Australia shed about $443 billion in household wealth since 2018, making it the biggest loser in Credit Suisse’s report.

    The other thing that you may find interesting from this report is the wealth/GDP ratio that they use. Household wealth and GDP tend to correlate. But the ratio of wealth to GDP also has a tendency to increase as a country develops. This makes sense because things like the rule of law and access to capital tend to increase people’s willingness to invest/borrow. But in developed countries, it could also be a signal for asset inflation.

    If you’d like to download a PDF of the full wealth report, click here.

    Note: Credit Suisse’s definition of household wealth is your typical net worth calculation: assets (financial assets and real assets) minus liabilities. For most people, the real asset part is principally housing.

    Charts: Credit Suisse Global Wealth Report 2019

  • A crisis of regional imbalance

    Last week’s general election in the UK was yet another example of the urban-rural divide that we are all seeing emerge around the world. Taking a look at this chart from the Centre for Towns, it’s pretty clear that the type of community someone lives in (i.e. how urban), says a lot about the way in which they probably voted. In big cities, the vote share was 49% Labour. And in villages, communities, and small towns, the vote share was about 48-58% Conservative.

    But what does this stem from? According to John Burns Murdoch of the Financial Times, the biggest predictor (for constituencies) of a swing vote over to the Conservatives during this last election was the share of the population in a blue collar job. Here is a graph from John’s article. Circles with a black outline are constituencies that changed hands last week. Note Great Grimsby, which I wrote about here, in the top right corner.

    These facts probably aren’t all that surprising to most of you. But it is an important reminder of how concentrated the new economy is becoming in big — or perhaps I should say, certain — cities. The Brookings Institution recently referred to this as “a crisis of regional imbalance.” Because it’s not just a case of urban vs. rural. Brookings found that from 2005 to 2017, more than 90% of innovation sector growth in the US could be traced back to just five metro areas. (You’ll be able to guess most of the five. Only one stood out for me.)

    This is the world we live in.

  • Zoning in Silicon Valley, New Haven, and Austin

    Robert C. Ellickson’s recent paper, titled Zoning and the Cost of Housing: Evidence from Silicon Valley, Greater New Haven, and Greater Austin, really holds back when it comes to the shortcomings of zoning ordinances. Here’s an excerpt:

    Zoning, as practiced in much of the nation, gravely misallocates resources. Some distortions are micro, such as the mediocre siting of Anton Menlo housing [a project by Facebook], and the lack of walkable neighborhoods in New Haven suburbs. Others are macro. If Silicon Valley were more populous, it would be a world tech center even more attractive to IT workers. The misuse of zoning squanders land, adds to the nation’s carbon footprint, warps interstate migrants’ choices about where to reside, and helps price poor households out of wealthier neighborhoods that would offer better life prospects for their children.

    The paper focuses on three metropolitan areas: Austin, Silicon Valley, and New Haven. Of these three, Austin is the most permissive in terms of allowing new and denser housing. Silicon Valley and New Haven, by contrast, have done a great deal to limit intensification by adopting exclusionary policies.

    In 1970, home prices in Silicon Valley were only slightly above the national average. Today, they are by far the highest in the United States, which is, of course, partially a result of high demand (tech salaries) and low supply (zoning ordinances). Ellickson’s paper examines the effects of the latter.

    If you’d like to download a copy, click here.

    Photo by Carlos Delgado on Unsplash

  • Missing middle on Toronto’s collector roads

    This recent Spacing article by Geoff Turnbull and Laurence Holland makes a compelling case for “missing middle” type development along Toronto’s collector roads. The idea being that we are already focusing on (and have policies for) infill along our Avenues and within our single family neighborhoods, but we have yet to pay attention to the scale of street that sits somewhere in between the two. Streets such as Hallam that were once commercial spines, but lost their economic purpose for a variety of reasons.

    Here’s a map, from the article, of Toronto’s collector roads:

    There are almost 800 kilometers of collector roads in the city. As the name starts to imply, these streets are designed to collect vehicles and funnel them toward arterial roads and “Avenues.” But this scale difference changes things and creates a kind of in-between condition. They’re less desirable from a residential standpoint (because they’re not as quiet and secluded), but they’re also not designed to become strong retail/commercial streets (despite the odd retail remnant). In fact, retail is probably prohibited on most. Which is why I like the idea of thinking of these streets differently.

    Of course, we have work to do in order to make this scale of development economically feasible, and the authors do acknowledge that. But the more we continue to talk about the future of our low-rise neighborhoods, the more that intensification starts to feel inevitable.

  • Protocols, not platforms

    Yesterday, Jack Dorsey published the below tweetstorm about Twitter’s efforts to create a decentralized internet protocol for social media. What does this mean? Think along the lines of the Simple Mail Transfer Protocol (or SMTP). Some, or many, of you may not know what this is, but you almost certainly use it every day. It is fundamental to modern email communication. It is how emails get sent.

    I would encourage you to click through to the entire thread. It all feels very topical. We are living in a world of recommendation algorithms and content designed to “spark controversy and outrage.” Arguably, this is the result of social media companies being platforms (i.e. proprietary systems), as opposed to being based around open protocols. Twitter is trying to change that by funding a team. And that feels like a great — and timely — idea.

    Full disclosure: I own $TWTR.

  • Glass curtains in Amsterdam

    For the same reasons that I liked the Interlock in London, I am a big fan of this storefront in Amsterdam by UNStudio. It is contextual, but it also something entirely new. To me, it resembles a triptych of curtains being pulled to the side, which is probably a fitting metaphor for a high fashion street. The developer is Warenar and it looks like the space is still available. So if you’re in the market for a retail storefront on Amsterdam’s PC Hooftstraat, here you are.

    Photos by Evabloem