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: July 2021

  • “As-is” residential real estate marketplace raises $80 million

    Sundae, which is a residential real estate marketplace that connects distressed sellers and/or dated properties with potential investors, has just raised $80 million in Series C funding. Since its founding in 2018, the company has raised a total of $135 million.

    The marketplace is largely targeted at investors looking to buy, renovate, and then flip off-market homes. The company has also said that it is looking to protect distressed and/or uninformed sellers from opportunistic buyers.

    The way it works is that Sundae lists the home and then aggregates demand from qualified local investors. These investors then bid against each other, in an auction, to buy the home. Presumably this is a good thing for homeowners.

    Once a bid has been accepted, Sundae will then advance $10k to the seller to help with moving and other expenses. Supposedly the company delivers, on average, about 10 offers within the first few days of a listing.

    Sundae appears to have a narrower focus compared to other real estate startups like Opendoor. This is a marketplace for “as-is” homes and a solution to “predatory wholesalers” who buy off-market and then quickly assign the paper.

    But perhaps this is just the start of more change in the real estate industry.

  • The Tokyo Toilet

    One of the biggest challenges with living through this pandemic has been finding a good public toilet. Drinking in the park is all fine and dandy, but at some point you’re going to need to find a place to pee. From experience, I can tell you that this can be a challenge in places like Toronto and Vancouver. But from the looks of it, the situation is a bit different in Tokyo. Japan, apparently, views its toilets as a symbol of its world-renowned hospitality culture. And so it takes great pride in the design of its public toilets. Last year, Tokyo invited 16 creators from around the world to redesign 17 of its public toilets throughout Shibuya. The list of creators includes big names like Tadao Ando, Kengo Kuma, Shigeru Ban, Toyo Ito, and many others. And the result is probably the nicest collection of public toilets that you have ever seen (somewhere around 9 of them are already operational with the balance expected to open sometime this year). The uniforms worn by the maintenance staff were even designed by Nigo (creator of the fashion brand A Bathine Ape). That’s attention to detail.

    For more about The Tokyo Toilet project and to check out the completed toilets, click here.

    Image: The Tokyo Toilet

  • Pine Hill Homes launches call for artists to design new laneway house facade

    My realtor friend Mark Savel tagged me in this earlier today.

    Pine Hill Homes has recently completed a laneway suite here in Toronto and they have now put out a call for artists to come up with something creative for its front facade. I think this is a great / fun idea and so I’m sharing it today on the blog.

    I think it also speaks to one of the differences between laneway suites and the main houses that now host them. Could you imagine a builder doing a call to artists for the front facade of a house not on a laneway? It seems less likely to me. But I think that the laneway side is viewed as a little less precious, and that creates an opportunity for playfulness.

    This, in my mind, is a great thing.

    If you decide to participate and your work is selected, you’ll have all of your materials paid for and you’ll also get an honorarium. I don’t know how much the honorarium is, or where this house is actually located, but I’m sure you can find these things out by contacting Pine Hill.

    I’m looking forward to seeing what ultimately gets selected and put up.

  • A solution by Brown + Storey Architects for Toronto’s Un-Avenues

    James Brown and Kim Storey, who are partners at Brown + Storey Architects Inc., recently put forward this intensification proposal for Toronto’s non-Avenue-designated arterial roads. (The term Avenue is an important designation in Toronto planning.) They call these streets Un-Avenues and here’s what they are getting at with this definition:

    The “Un-Avenues” are the city’s north-south arteries, where the standard residential street was widened in the mid-20th century to allow for more lanes for more cars and vehicular intensification. They are not generally lined with retail, but rather with the original houses that have been devalued because of their location on the arterial roads.

    These roads often serve as busy bus routes that connect directly to subways. The widening of the roads has meant there are no trees, narrow sidewalks, and negligible front. Four lanes of rush hour traffic are provided, with rare provisions for bike lanes.

    The Un-Avenues run silently through the single-family residential zones of Toronto. As countless articles have pointed out, the “yellow belt,” where the single-family house reigns, occupies a substantial swath of Toronto real estate on any zoning map.

    It is hard not to drive or move through Toronto’s “Un-Avenues” without thinking that they belong in a different era. They speak to a Toronto that was much smaller and that was not yet a global city. There’s little urbanity. And no grandeur. They feel a bit like forgotten streets in a city that has otherwise decided to grow up.

    Here’s what Brown + Storey are proposing as a solution (images via Spacing):

    I haven’t spent enough time going through the proposal to comment on whether or not I think this is exactly what should be done. There is also the minor issue of single-family homeowners accepting towers, or anything really, next to their backyards. But I do feel strongly that something needs to be done — for reasons of affordability, livability, urban beauty, and a bunch of other reasons.

  • Q2 2021 rental market update for the Greater Toronto Area

    The Greater Toronto Area builds a lot more condominiums than purpose-built rental units. This isn’t the case everywhere though. I was recently reading an article about Salt Lake City and how developers there don’t want to build condominiums. It’s mostly rental housing. There’s simply too much risk and liability with condominiums. I guess this is one of the reasons why real estate is often said to be a local business.

    In any event, because of this dynamic in Toronto, condominium rentals are often used to measure the health of the overall rental market. There are simply more recent comparables to point to when you’re trying to figure out what is “market.” The Toronto Regional Real Estate Board recently published its Q2-2021 rental market report and here is what they found when it comes to condominium apartment rental transactions in the Greater Toronto Area:

    Q2-2021 – 14,920 transactions

    Q1-2021 – 13,168 transactions

    Q2-2020 – 7,300 transactions

    What this report tells us is that rental demand is returning. Transactions and rents are up compared to the first quarter of this year and certainly compared to Q2 of last year (2020), which was the low point of this pandemic. We are not yet back to where we were in Q1-2020 when the city was firing on all cylinders, but I have no doubt that we will get there and ultimately surpass those figures.

    For the full rental market report, click here.

    Photo by Narciso Arellano on Unsplash

  • Should rooming houses be allowed across the city?

    One of the debates I came across on Twitter this week was about multi-tenant houses (also known as rooming houses) in Toronto. Currently, they are allowed in the former city of Toronto, parts of Etobicoke, and in York. But they are illegal everywhere else in the city.

    The reason why the rules differ is simply because they weren’t harmonized following amalgamation in 1998. And so right now we are debating whether or not things should be changed so that multi-tenant houses are permissible across the city.

    As you can probably guess, it’s a divisive issue.

    The more urban councillors believe that rooming houses are vital because of their relative affordability. The more suburban councillors are, on the other hand, speaking for their constituents and saying that homeowners really don’t want them in their communities. It’s about “protecting the integrity of single-family communities.”

    No surprise here.

    For this reason, a recent vote on the issue was deferred. It’s expected to come back to council in September. Maybe there will be more support at that time. Or maybe there won’t be. Either way, rooming houses will continue to exist all across the city. Some of them may just be illegal.

    If I had any say in the matter, I would vote “yes.”

  • Soho House went public this week

    So Soho House went public this week. It is now trading on the NYSE under the ticker $MCG. It renamed itself the Membership Collective Group Inc. for the IPO given the myriad of brands that the company now operates. The company went public at $14 a share and with a $2.8 billion valuation. It raised $420 million through the offering.

    My first reaction when I heard the news was that going public is maybe at odds with being a cool, urban, and exclusive membership club. We’re all about creatives; also, buy our stock. But maybe I’m wrong. This is just the company maturing. At 26 years old, the company now has some 119,000 members and has 30 Soho Houses around the world in 12 different countries.

    Full disclosure: I am a member and a big fan of Soho House.

    But now that the company is public, we also know that it has never turned a profit. And it hopes to do that by next year, as well as open some five to seven new Soho Houses each year while trying to remain “asset light”. As the company does this and pushes toward profitability, there is, of course, a very natural question about what that does to the experience and the overall brand.

    Does it get diluted at all?

    I don’t think that necessarily needs to be the case. But of course the company will end up evolving. On a related note, if anyone from Soho House / MCG is reading this post (unlikely), I would love to connect about an opportunity here in the Toronto area. I think it has the potential to become something truly remarkable — not to mention, much needed. I can be reached, here.

  • Marchetti’s Constant and why commuting actually has positive utility

    @OceanJangda shared a great article with me today about “the psychological benefits of commuting to work.” It is excellent, it cites a lot of psychological research, and I would encourage all of you to give it a read. While it is never fun getting on a packed subway in the morning, the argument is that there are psychological and other positive benefits to commuting. It turns out, we need breaks in our day.

    Here’s an excerpt from the article:

    But here’s the strange part. Many people liberated from the commute have experienced a void they can’t quite name. In it, all theaters of life collapse into one. There are no beginnings or endings. The hero’s journey never happens. The threshold goes uncrossed. The sack of Troy blurs with Telemachus’s math homework. And employers—even the ones that have provided the tools for remote work—see cause for alarm. “No commute may be hurting, not helping, remote worker productivity,” a Microsoft report warned last fall. After-hours chats were up 69 percent among users of the company’s messaging platform, and workers were less engaged and more exhausted.

    It also turns out that there’s kind of a magic commute number. In the mid 1990s, Italian physicist Cesare Marchetti remarked that, all throughout history, humans have tended to cap their commute times at about 60 minutes per day. So a half hour each way. This was the case in ancient cities and it appears to be the case today (ignoring COVID).

    What this mean is that as new technologies became available — such as the automobile — we were able to further decentralize and still only consume about 60 minutes of our day. Apparently the average one-way commute time in America is indeed about 27 minutes. Some people, of course, have much longer commutes, but this is the average. Currently mine is about 12-15 minutes with a coffee stop. Yes, it’s luxurious.

    This 60-minute rule of thumb has become known as Marchetti’s Constant. And there are a number of possible explanations for why this has remained the case. Again, the obvious one is that it helps us detach from work, which is why so many of us have felt burnt out while working from home. We haven’t been shutting off and we need to.

    For more on this, click here.

  • Eight centuries of global real interest rates

    Levered assets, such as real estate, tend to have prices that are correlated with interest rates. Lower rates usually translate into higher asset prices. We are living through this kind of environment right now. And so it is generally valuable to have a view on where rates might go next.

    To do that, it can be helpful to look back at history. And a lot of the time, that look goes as far back as the second half of the 20th century. I wasn’t buying real estate in the 1970s and 1980s, but I am often reminded — by people older than me — that this was a period of high inflation and high interest rates.

    But what about an even longer period of time?

    Paul Schmelzing (visiting researcher at the Bank of England) has a pioneering working paper that was published last year which looks at global interest rates over a 707 year time horizon. His research spans the period of 1311 to 2018 and uses archives and many other sources to try and reconstruct annual rates across the world’s advanced economies.

    Below are two charts from the paper that I found interesting. The first represents the data that was used to weight long-term debt yields across the various advanced economies. My how things change when you take a long enough view. It also shows the share of advanced economy real GDP that is captured by the study (it’s about ~80% — the red line below).

    The second chart shows the headline global real rate from 1317 to 2018. And what Schmelzing discovers is that even when you look across many different monetary and fiscal regimes, real interest rates have never really ever been stable. In fact, when you look as far back as the 14th century, real interest rates have on average declined about 0.6 to 1.6 basis points per year.

    So part of his argument is that what we are seeing today maybe isn’t all that strange; it’s actually expected. For a copy of the full working paper, click here.

    Images: Bank of England

  • Risk and architecture

    Building things, as we all know, is a risky endeavor. I think of myself as an optimist, but the reality is that there are countless things that can go wrong. There’s approvals risk, political risk, market risk, construction risk, design risk, and many other kinds of risk, some/many of which will be entirely unforeseen. If you asked me two years ago, I wouldn’t have listed pandemic risk as being all that high up on the list.

    So one way to think about the process of building/developing is that it is an exercise in risk mitigation. This makes it sound a lot less sexy than “city building.” Given this, there can be a natural and understandable tendency to want to repeat what worked the last time around. Why make a change and introduce more risk into the system if you don’t have to, right? This is arguably one of the reasons why it is often said that the real state industry isn’t all that innovative. Too busy managing risk.

    To give a specific example, let’s say you’re really focused on managing design risk. In this case, you might make the decision to always work with the same architect. This way you can establish a set of typical approaches and a standard spec. You know how to work together and you know what you’re getting when it comes to working drawings. Rinse and repeat as best you can.

    There is also something to be said about a kind of product-driven or branded approach to development. In this case you want some consistency to help build a specific brand and experience. And just because you’re using the same firm, doesn’t necessarily mean you can’t innovate and be design forward. This is what great architects do. Think Foster + Partners and Apple. Their stores are powerful brand symbols but also wonderful and highly site specific.

    An alternative approach might be to continually use different (design) architects. And maybe partnering with an array of celebrated firms is part of your brand story. You introduce a certain degree of design risk because you’re now trying out and building new relationships, but you could perhaps argue that you’re mitigating other risks. Does using a brand name architect help to reduce market risk, for example? In some markets, it’s almost essential.

    I don’t think there’s a right or wrong approach here. Use the same firm, or don’t. Use international starchitects, or don’t. The point is simply that development is fraught with risks that need to be managed. Design is one of many. How you choose to do that depends on what you’re trying to do and what you’re after.