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: November 2023

  • Unlocking micro-spaces and micro-businesses

    Asian cities will often have buildings that look something like this:

    In this particular case — Tokyo — the building type is referred to as zakkyo. And apparently, it is something that emerged over time:

    Another is the city’s iconic multistory zakkyo buildings covered in neon signs, like those lining the famous Yasukuni Avenue, which house a spectacular variety of businesses. Zakkyo largely started out as office buildings and transformed over time to house everything from mahjong parlors to karaoke boxes. Almazán and McReynolds point out that these buildings offer a density of destinations rarely found in the West because they offer a vertical—not just a horizontal— dimension to walkability, with elevators that open onto the street and take customers directly up to businesses. Zakkyo are on narrow lots that pull pedestrians along the streets that they line. Unlike larger U.S. office buildings, their small lot sizes also facilitate the easy reuse of zakkyo space for different purposes.

    Okay, so small lot sizes seem to help. But what else is needed? Is there a world where this is possible anywhere in the West? It’s probably hard to imagine. Conventional real estate wisdom would tell you that multi-storey retail buildings don’t work.

    But they work in Tokyo, and probably for two reasons. The first is density. Tokyo is dense and I am told that zakkyo buildings tend to emerge around train stations, where foot traffic is high and people are generally looking for things to do and/or consume.

    The second has to do with rules. Tokyo has an overall policy framework that allows for micro-spaces and micro-businesses. Said oppositely, Tokyo hasn’t erected so many barriers that the only way to open a business is with scale and lots of money.

    Liquor licenses are a perfect example:

    So maybe these are possible in the West, after all. Assuming you have any sort of meaningful pedestrian density, the only real prerequisite might be to just get out of the way of small business.

    And I think this is a powerful way to think about cities. We often think about doing new things to elicit certain outcomes. But what outcomes are we missing out on and not seeing because of the rules that we’ve already put in place?

  • Thank you for your service, Gregg

    It was bittersweet to learn last week that Toronto’s chief planner — Gregg Lintern — will be retiring at the end of this year.

    He accomplished a lot during his six-year tenure. Here’s an excerpt from a recent Globe and Mail article by Alex Bozikovic:

    “…he took the department through significant reforms: allowing new houses in back laneways, then garden suites; eliminating minimum parking requirements; even legalizing four-unit apartment buildings on any lot in the city.“

    All of this was not easy, as anyone in our industry will attest.

    I also got to know Gregg, a little, by way of our development projects. And I can say that he (1) genuinely loved our great city and (2) was always looking for ways to make things better, whether that be through planning policy or through processes internal to City Hall.

    Thank you for your service, Gregg.

  • There’s something to be said about hard assets

    Here is a recent post by Scott Galloway comparing Uber and WeWork. In it, he praises the virtues of asset-light business models:

    For most of business history, having assets was good, and having more was even better. However, one of technology’s tectonic unlocks has been elevating information (bits) over objects (atoms). In the information age, owning assets is one business, while operating them is another, and each demands distinct capital structures, management approaches, and operational skills. Businesses offering the greatest return on invested capital don’t have much capital (assets) and can scale up faster, as they don’t bind themselves to cars, apartments, or even inventory.

    We know this. Uber doesn’t own cars. Airbnb doesn’t own rental properties. And most hotels, as Galloway mentions, also don’t own their real estate. Generally speaking, hotels are brands that enter into fee-earning management contracts with people who own real estate.

    However, WeWork is not this. According to Galloway, WeWork had $47 billion of pre-IPO lease obligations. These ran/run through to 2038. In this regard, WeWork is more bank-like: they have a similar mismatch of short-term assets and long-term liabilities.

    Galloway also argues that asset-light businesses offer the greatest ROI because they can scale up faster. And this is certainly one of the virtues of tech businesses. In more asset-heavy businesses like real estate development, each project/asset is largely a discrete effort.

    But there are significant advantages to owning real estate; one of them being that, at the end of the day, you own a hard asset.

    Venture capitalist Fred Wilson once wrote on his blog that one of his big lessons from the dot-com bubble was that he learned to take his tech wealth and funnel portions of it into hard assets — namely real estate in New York City.

    This, of course, comes with its own set of risks. But clearly there is something to be said about owning real estate.

  • Ft. Toronto

    As a broad rule, I like videos and movies that feature Toronto. I think it should happen a lot more often. So here’s Drake’s latest music video, which does exactly that. If you can’t see it below, click here.

  • Can’t, not won’t

    We have spoken before, here and here, about so-called “use-it-or-lose-it entitlements”.

    The catalyst behind this idea — and it is just an idea at this stage, at least here — is the belief that too many developers are sitting idle on zoned land. And they’re allegedly doing this because they believe it will be worth more tomorrow.

    Why bother building anything when you can instead just wait and make money that way?

    To counteract this speculative force, some believe that one answer is to just strip land of its zoning entitlements if it’s not used within a certain period of time (right now it lasts forever). I get why this is sometimes proposed, but my response to this has consistently been: it’s a terrible idea.

    It is a terrible idea because developers are generally always incentivized to move as quickly as possible. And it is a terrible idea because every now and then a period in the cycle will arrive where, it’s not that developers don’t want to build, it’s that many/most can’t.

    And guess what? Right now is one of those times.

  • How to make the internet more like our cities

    I am halfway through reading Read Write Own and I can confidently say that you want to read this book. If you’re already a believer in this “next era of the internet” (like I am) it will make you a true believer. And if you’re not a believer, maybe it will make you one. Or not. Either way, I am thoroughly enjoying it.

    One chapter that will be particularly interesting to all of you is the one where Dixon makes a comparison between the internet and cities. Cities, he argues, work because of a delicate interplay between public and private interests. And the private side works because, among other things, we have the rule of law and the construct of ownership.

    If I own an asset, like a piece of real estate, I’m only going to be confident to invest in it if I know that someone won’t take it away from me (or dramatically change the rules on me), which is why if this prerequisite doesn’t exist, you typically see a lack of investment.

    The same is true on the internet. But currently, the dominant form of networks are centralized corporate networks. In city terms, you can think of these like an amusement park. Once you enter through the gates, you’re in their world. You could maybe rent some space, but at the end of the day, the owner makes the rules. And if they don’t like what you’re doing, they can remove you.

    It’s a pretty stark contrast when you think of it in these terms, which is why it’s hard not to feel compelled when you consider that similar dynamics are playing out on the internet right now. Cities thrive because we have rules, ownership, and the freedom to innovate on top of the foundations laid by government.

    So I’m all for making the internet more like our most successful cities.

  • Toronto’s King Street is not a transit corridor

    Back in 2016, the City of Toronto announced plans to run a transit-priority pilot on King Street in the downtown core. What this meant was that cars would be restricted to only certain movements and that streetcars would be given priority. This pilot was ultimately implemented in 2017 and, eventually, it was made permanent. Presumably because it was doing some good for transit flows. But just this week, new data was revealed showing that, in some cases, travel times today are worse (i.e. longer) than they were before the pilot:

    CityNews has learned that eastbound travel times from Bathurst to Jarvis during the evening rush hours averaged 19 to 26 minutes before the pilot program in 2017. The latest times show it is now worse with an average of 22 to 29 minutes.

    One way to look at this data would be to say, “okay, clearly this transit corridor thing isn’t working. Streetcar travel times have gotten worse. So why bother?” But I think the real answer is this: King Street hasn’t remained a transit corridor since the pilot. Many/most motorists continue to use it, even though some 22,000 tickets have apparently been issued since the pilot began. Here’s a random photo of King Street West taken from my office window one afternoon:

    So I think what this data is really saying is that we’ve probably done very little to actually improve transit flows on King Street since 2016, and that traffic has generally gotten worse during this time. This seems like a more accurate description to me. But of course, it doesn’t need to be this way. If really want King Street to be a transit corridor, we have the power to make that happen. It just means spending some money on public realm enhancements, gates, bollards, and the like. The choice is ours.

  • You don’t want a version of Las Vegas’ Sphere

    Full disclosure: I’ve never really been to Las Vegas.

    I say “really” because I did pass through it as a kid. But I’ve never been during a time in my life when I could actually remember it and, to be honest, I’ve never had a huge desire. Though, I was interested in the work that Tony Hsieh was doing in downtown Vegas. And I have had people try to tempt me with the lure of good electronic music (and by good I mean not EDM).

    Then all of a sudden, Refik Anadol revealed this enormous sphere that shows happy faces. And now I really want to go to Vegas. So at some point, I will endeavor to do that. But the other thought that came to mind when I first learned about the sphere was “this seems to be working, which means other cities will likely copy it and want their own version of Vegas’ sphere.”

    This is, of course, an understandable desire. And today I learned that Los Angeles is working on a “tiny Las Vegas sphere replica” for Sunset Boulevard. Despite being “tiny”, I’m sure it’ll be pretty cool too. But in the end, who wants to be a replica? The aim should never be to recreate some version of what another city has already done (see “Two very different beans“).

    The aim should be to create something new and truly remarkable. And Las Vegas did exactly that with its sphere. So much so that, one day, I may actually visit the place.

  • The toughest market I have faced in my real estate career

    Once a year, I teach a session in Carleton University’s Certificate in Real Estate Development program. That once a year is coming up this Thursday, and so I’m spending today (Sunday morning) preparing for the class.

    This is the third time I’ve participated. And my usual topic is to cover the complete condominium development process, provide commentary on what’s happening in the market, and then discuss how developers might best navigate whatever it is that’s going on.

    These latter points are particularly important today. A lot has changed over the last year. In fact, you could rightly call it a real estate sea change.

    This is the toughest market that I have had to face in my real estate career. 2008 was certainly bad. I couldn’t find work in the US at that time, or in Ireland where I had spent a summer working for a real estate firm. But I did manage to find work in Canada. Here, things didn’t feel quite so bad.

    According to all the gray hairs, the early 90s recession was considerably worse. That was the really scary time in Canadian real estate. (See: Bay-Adelaide stump.) But already today, the comparisons have started: “This is feeling more like the early 90s than the GFC.”

    It’s probably too early to really tell. But regardless, this downturn is going to mean problems for some, and opportunities for others.

  • Framing nearing completion at Parkview Mountain House

    The building season is short in Park City. There was still snow on our site in May and there was snow again on our site by October. You can certainly build through the winter, but it’s not ideal. It slows you down, and so the team has been racing to get “closed in” before the real winter weather arrives. (Park City Mountain Resort opens for the season on November 17.)

    Right now, it looks like we’ll be finished framing by early next week. We have our framing inspection scheduled with Summit County on Wednesday. Here’s a progress shot of level three from last week:

    This is the top floor of the house, which will house the kitchen, dining area, living room, terrace (which is where the above photo was taken from), and two bay windows. The far one is going to serve as a seat in the living room, and the closer one (on the right) is going to be a workspace area. In both cases, they’re designed to orient you towards the trees and the mountain.

    Overall, this was Mattaforma’s design strategy — to create a kind of introverted house. The windows facing the street are generally small and placed to frame very specific views of the landscape; whereas the windows facing the trees and mountain are generous. The intent was to always connect you with nature as you move throughout the house.

    Sadly, PMH won’t be available for rent this winter. But if you’d like to get on the list for next summer and winter, click here.