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

  • Live from the Junction

    Today we setup our construction webcam for Junction House. Here is a screenshot from this afternoon:

    As you can tell, Mitchell Demolition is now on site. They still have some work to do inside the existing buildings, but after that everything will be coming down.

    If you’d like to take a look at the public live feed, click here. It will also be available (embedded) on junctionhouse.ca in the next week or so.

    Thank you Notion for letting us setup on your rooftop. If you aren’t familiar with Notion, check them out here. They make custom apparel and other cool stuff right in the Junction.

  • The most expensive city in the world in which to build

    Using data from Turner & Townsend, Curbed recently reported that the most expensive city in the world in which to build is now San Francisco. On average, it costs USD 417 per square foot. San Francisco is followed by New York ($368 psf), London, Zurich, and Hong Kong. New York took the top spot last year, but San Francisco shot up this year because of, you know, tech.

    This number was calculated using a blend of six different types of construction, everything from apartment high-rise and prestige office to general hospital and warehouse distribution centers.

    Now, I’m not exactly sure what this number includes. But I’m assuming it is only direct construction costs and doesn’t include (contractor) general conditions, land, or any soft costs, which are all significant. Once you add in these other cost inputs, I am sure that you can start to see how things — including the cost of new housing — can quickly escalate.

  • Algorithmic home buying expands to Los Angeles

    Algorithmic home buying companies (or iBuyers) have now started to expand into Los Angeles. If you recall, most of these companies started in smaller markets where the homes are more homogenous, relatively inexpensive, and generally less liquid. Places like Phoenix.

    By tackling the second largest housing market in the US (after New York City), the algorithms of Opendoor, Redfin, and Zillow will now need to content with an older housing stock, greater variability, and higher values.

    All of these companies have increased their maximum offer price. The sweet spot for algorithmic home buying has typically been in the $150,000 to $300,000 range. Last year, two-thirds of all homes bought by iBuyers were in this range. I can’t imagine that gets you very much in LA.

    I keep expecting these companies to scale into something more beyond just iBuying and flipping. Perhaps we will see that happen once they establish themselves in country’s biggest markets.

    Photo by Josh Rose on Unsplash

  • How coffee grew São Paulo

    For all of us who are involved in the building of cities, it is important to remember that cities emerge and thrive as a result of economic purpose. Take, for example, Sao Paulo. Once one of the poorest of Portuguese colonies, it is today the largest city in the southern hemisphere and one of the largest and most diverse urban agglomerations in the world.

    How did all of this happen? It was probably because of coffee.

    Brazil is the largest producer of coffee in the world. And it has owned this title for some 150 years. The best areas to grow coffee (as a result of climate, I’m told) are in the southeast part of the country, in and around Sao Paulo and Rio de Janeiro. The inland state of Minas Gerais is the biggest producer.

    But here’s the thing. Rio de Janeiro is along the coast and Sao Paulo is not, though as of 1869 it had been connected to the port of Santos by rail. This geographical feature made Sao Paulo a logical place for rail to converge as it made its way from the coffee plantations in the interior of the country to the coast, and then out to the rest of the world.

    Coffee was the economic purpose. And it was facilitated by Brazil’s longstanding use of slave labor.

    In 1888 that changed. Slavery was abolished, giving Brazil the dubious distinction of being the last country in the Western world to do so. The problem is that the coffee industry relied heavily on this labor. So to fill this void and keep the coffee industry happy, a deliberate effort was made to increase immigration.

    From 1870 to 2010, about 2.3 million immigrants settled in the state of Sao Paulo, many from Italy and Japan. Today, about half of the city is thought to have at least some Italian ancestry. And it is generally believed that it was this significant influx of immigrants that helped the city to industrialize in the way that it did.

    Big and diverse. And coffee probably had a lot to do with it.

    Photo by ViniLowRaw on Unsplash

  • Yearning for Turning Vol. 9

    It is starting to feel a lot like winter and you know what that means:

    Korua makes some of my favorite snowboard videos.

    Please check back tomorrow for our regularly scheduled programming.

  • The Interlock in London’s Fitzrovia

    This is a terrific infill project by Bureau de Change (architect) for HGG London (developer). It’s a five-storey mixed-use development in London’s Fitzrovia neighborhood.

    The design ambition was to respect the area’s history, materiality, and proportions, but also create something entirely new. The result is a blue clay (brick) facade that transforms and looks like this:

    And it was done by inventing a collection of misshapen blocks — 44 of them to be exact. Over 5,000 blocks were ultimately used for the facade and it was assembled on site using a 1:1 printed template. Each block came with a set of instructions.

    There’s something nice about working at this scale and being able to get into this level of detail. It’s 21st century craftsmanship (the entire facade was modeled in 3D before it was built).

    If you’d like to learn more about The Interlock, click here. All photos by Gilbert McCarragher.

  • What it takes

    Stephen A. Schwarzman (of Blackstone) was at the Canadian Club of Toronto today, talking about life, finance and his new book, What It Takes: Lessons in the Pursuit of Excellence. I haven’t read it yet. But thanks to today, I now have a copy and I am confident it will probably be excellent.

    One thing that I really appreciated were his comments around teachers. Education is paramount. And yet US schools (K-12) are falling behind the rest of the world. (China has supposedly integrated computer science education across the board.) His recommendation: Pay teachers more and don’t charge them income tax.

    Why no tax? Because it would signal to the rest of society just how important teachers are. Maybe that’s exactly the right solution or maybe it’s not. Either way, it feels directionally right, and there’s no question that teachers are some of the most important people on the planet.

    If you’re interested in this topic, you may also be interested in this startup. They offer down payment assistance to “essential professionals,” such as teachers.

  • Current state of Toronto’s new condo market

    Ben Myers of Bullpen Research & Consulting was recently interviewed by Newinhomes.com about the state of Toronto’s new housing market. Ben is always interesting. And these are the sorts of things that I read in my spare time. So here’s an excerpt:

    The average price of popular new condo floor plans in the City of Toronto in October 2019 was approximately $1,275 per-square-foot (psf) and with growth of 3% a year, prices would hit $1,475 psf in 2024. I wouldn’t be surprised to see annual average growth of 4%, which would get you to $1,625 psf in five years in Toronto.

    This data was taken from BuzzBuzzHome and — by “popular new condo floor plans” — I believe he means that these are the floor plans that buyers tend to click on and review when they visit the site. So it’s a good indication of buyer demand.

    Here’s another quote that stuck out:

    Part of the reason that price growth has spiked is a rise in construction costs, development charges, and land prices – this cost-push inflation is passed on to consumers.

    That sounds right. And I have been writing about this phenomenon all year. Most of us can probably remember when $1,000+ psf was a high water mark for new construction condos. Now it’s pretty much a floor.

  • 4 decades of inequality

    We all know the story: Much of the world is becoming increasingly less equal thanks to the new knowledge economy. Using data from the Federal Reserve Bank of New York, the NY Times (Emily Badger and Kevin Quealy) recently published this interesting piece on “4 decades of inequality” in American cities. This is what the findings look like:

    In 1980, the United States was relatively flat in terms of wage inequality (except for maybe Fairfield). In fact, inequality in a place like Binghamton, New York was about the same as in New York City. But thanks to decline in the former and growth in the latter, New York City is now a much more unequal place.

    Economic growth is usually considered a good thing, but inequality is not. Emily and Kevin rightly call attention to the fact that — according to the above charts — these two things seem to come together as one package. See New York, Chicago, San Francisco, San Jose, Washington, D.C., and so on.

    The other takeaway from these charts is the way in which inequality seems to correlate with metro area population. We know that as the population of a city increases it tends to also become more productive. And so what we are seeing here are those urban agglomeration benefits accruing to some, but not all.

    There’s a lot that can be inferred from these charts.

  • Grinding it out over the long-term

    Fred Wilson’s latest blog post about “grinding” tells the story of how Twitter solved the infamous “fail whale” problem that plagued its platform in the early days. I remember that whale, as I’m sure many of you do as well. It was a problem and, according to Fred, it was a real threat to the business. The solution wasn’t all that sexy; though sexy solutions were attempted. The team just rebuilt everything, piece by piece. And eventually the fail whale problem went away.

    The lessons here go well beyond just this Twitter example (or at least, it triggers something for me). Here’s how Fred ends his post:

    If given a choice between a flashy operator or a grinder, I will take a grinder every time. It is a much higher percentage bet. It requires faith and patience and the results are sometimes hard to see. But if you look at the results from grinding it out over a long enough time frame, you can see the power of that approach.

    This kind of long-term patient thinking can be difficult, especially in an increasingly instantaneous world. We are all drawn to magic solutions, hot stock tips, and new condos that are destined to double in value over the next year. I suppose that’s partially why so many people enjoy playing the lottery, even though the odds of winning big can be as low as 1 in a million.

    Being a grinder is largely a higher percentage bet because you’re taking a longer, more disciplined, view. Warren Buffet has, admittedly, no idea how stocks will behave over the next week or year, just as I have no idea how condo prices in Toronto will behave over the next week or year. Instead, Warren chooses to bet on “The American Tailwind” and I choose to bet on the role of Toronto as a global city.

    Warren first invested in an American business in 1942. He was 11. Over the next 77 years, the S&P 500 would go on to return an average of 11.8% annually. Had he invested in a no-fee index fund and reinvested all dividends, his gain would have been 5,288 for 1. In other words, a $1 million investment would have grown to $5.3 billion on a pre-tax basis. (See: The compound effect.)

    77 years is, of course, a long time. But I am sure you get the point: faith. patience, and tenacity — even when, sometimes, the results can be hard to see. Real estate development is very much that kind of business.