Author: Brandon Donnelly

• How ecommerce is growing in rural China

  This piece in the New Yorker about how e-commerce, and in particular JD.com, is transforming rural China is worth a read.

  In typical New Yorker fashion, it’s a good long-form read, but one that you can also listen to if that’s your thing.

  What’s immediately fascinating are how important trust is to JD’s rural expansion strategy and how locals from these rural communities are used to penetrate the social networks.

  Today, Xia oversees deliveries to more than two hundred villages around the Wuling Mountains, including his birthplace. But, in line with JD’s growth strategy, an equally important aspect of Xia’s job is to be a promoter for the company, getting the word out about its services. His income depends in part on the number of orders that come from his region. Across China, JD has made a policy of recruiting local representatives who can exploit the thick social ties of traditional communities to drum up business.

  This is important because:

  “Chinese people don’t easily believe the good will of strangers,” Liu told me. “Why do you think Chinese fight tooth and nail to get on the bus and subway?” He shook his head and laughed. “It doesn’t matter that it’s less efficient or unnecessary. It’s a complete reflex for them, because it’s what they’ve been taught since they were young.”

  When you have some time, here is the full article. 

  According to the New Yorker, JD.com is the third largest tech company in the world in terms of revenue. They also have the largest drone delivery platform in the world.

  2018.07.24

• The blue (real estate) bible

  Back when I was in grad school studying real estate, we used to refer to the below book as the “blue bible.” It is a comprehensive look at real estate finance and investments, and also development. But perhaps more importantly, it is written in a way that is clear, direct, and immensely practical to the actual world of real estate.

  

  The reason I mention this today is because the fifth edition is out and my friend Bruce Kirsch is now an author, along with Peter Linneman. Thankfully the cover is still blue, otherwise I might be a little sad and this post wouldn’t make a lot of sense.

  Bruce has an MBA in Real Estate from Wharton (at Penn) and is the founder and CEO of Real Estate Financial Modeling, LLC, which I recommend to absolutely everyone who wants to get better at financial modeling and deal underwriting.

  I have a lot of people who reach out to me on a regular basis and want to ask me about getting into real estate, and in particular, development. I try my best to make time because I was once in their shoes. Usually that means an early morning coffee in Toronto’s PATH.

  My advice is fairly consistent. You have two options. Try and get your foot in the door at a shop or, if you’ve got the gall, go out and try and do it on your own. I have friends who have successfully done the latter with very little in the way of formal real estate training.

  Whatever your decision, knowledge of the industry will obviously serve you well. Oftentimes I’m meeting with design and/or planning professionals who bring a lot to the table, but usually lack the finance and investments knowledge. That’s when I remind them of my story: Don’t screw up the numbers.

  This is also when I suggest taking one of Bruce’s classes. I’ve taken a number of them. Because to learn how to model something in Excel you have to understand how it actually works and Bruce helps you do exactly that. Garbage in, garbage out. That’s how models work.

  But the other thing one should consider doing is picking up a copy of the blue bible. I have a copy sitting on my desk right now and will tell you that it’s a “must read”, whether you’re a designer and just want to learn more about the other side of the business, or you’re an experienced real estate professional.

  For more on the book, click here and then on Textbook at the top. Oh, and Bruce, congratulations on the new book!

  2018.07.22

• Toronto’s great streets

  

  Last week the Ryerson City Building Institute published a terrific report on Toronto’s Great Streets. It profiles five streets in the city that have been “redesigned for greatness.” They are:

  • Harbord Street (continuous bike lanes)
  • Roncesvalles Avenue (placemaking and people)
  • St. Clair Avenue West (dedicated streetcar lane)
  • Queens Quay West (public waterfront promenade)
  • Market Street (prioritized for people and patios)

  But what exactly makes a street a great one? The report describes it in this way: “They all play a key role in making the surrounding neighborhood a great place to live, work, and visit.”

  This relates closely to what the City of Toronto calls a “complete street”, which is an approach to accommodating multiple kinds of users, enhancing the local context, and determining which trade-offs to make.

  And there will always be trade-offs. I am fairly certain that all of these street redesigns were contentious at the time when they were proposed. Because at the end of the day they will never be all things to everyone.

  I remember the St. Clair West fight vividly because I moved to the neighborhood in 2009 and the dedicated streetcar lane didn’t fully open until 2010. From 2005 to 2017, streetcar ridership grew 23%. But drivers have remained grouchy.

  I now walk Market Street every single day and I agree that it’s one of the most beautiful and functional streets in the city. But the bollards are constantly getting beat up by drivers attempting to parallel park and the retail vacancy rate has not been 0% like is suggested in the report.

  Queens Quay West is also a magnificent street. It was a giant step forward in terms of the quality of the public realm in this region and I spend a lot of time there. But it’s of course not perfect. All of us have seen the reports of cars ending up in odd locations, including underground, along the waterfront.

  Riding your bike there can also feel like a challenging game of Frogger with all of the pedestrians that now obliviously meander back and forth across the cycling trail. I suggest riding with a good blow horn. The report rightly mentions the lack of delineation between these users.

  But cities are a living laboratory and none of these streets should now be considered static. We are fortunate to be in a position to critique levels of greatness. If anything, the map at the top of this post tells me that we need to create more greatness across the other areas of this city.

  2018.07.21

• How U.S. cities make money

  The below figure shows the taxing authority of US cities by state. In some cases there’s a city or two with additional taxing authority. New York City, for instance, has been authorized by the state to levy property, sales, and income taxes, whereas other cities in the state can only levy property and sales taxes.

  

  The figure is from a recent report by Brookings called, City budgets in an era of increased uncertainty. In addition to revenue sources, the report also covers spending limits and tax structure alignment. 

  The report concludes that cities generally have a stronger fiscal position when their tax structure aligns with their economy. For example, cities such as Las Vegas that have lower than average property values and are only authorized to collect property taxes, do not score well.

  One thing that the above figure does not get across is that more money now comes in from non-tax revenues, user fees, and other charges. According to 2012 census data, 37% of all municipal revenue in the United States came from these sorts of charges.

  

  To download a PDF of the full report, click here.

  2018.07.21

• Learning about O-zones

  I spent this evening reading about Opportunity Zones, or “O-zones”, in the United States. 

  For a census tract to become an O-zone, it has to have a poverty rate of 20% or higher, or the median household income has to be less than 80% of the surrounding area. Governors are also only able to designate 25% of their eligible census tracts.

  Here is a map of the areas that have been designated as Opportunity Zones.

  

  Here is how these O-zones work. (All excerpts taken from this Forbes article.)

  The law’s engine is a new breed of financial product, the opportunity fund, that offers investors a trifecta of attractive tax breaks. Here’s how it works. Investors who sell assets have 180 days to plow their taxable capital gains into an approved opportunity fund, which must hold 90% of its assets in Opportunity Zone projects. To put money to work fast, the law requires that the funds invest all of their cash within some specified time frame. (The Treasury Department is still deciding on that and other crucial details.) Tax on the original reinvested gain isn’t due until 2026, and the taxable gain is cut by 15%. Meanwhile the new opportunity investment grows tax-free, like a Roth IRA, provided it’s held for at least ten years. (If it’s sold earlier, it can be rolled into another opportunity fund and remain tax-free.)

  Here is how it could get the real estate industry to take action.

  For real estate developers, O-zones offer cheap real estate and unlimited, untaxed upside if a neighborhood takes off. Developers must do more than stash cash in crumbling property. To qualify for tax perks, they must make swift and significant upgrades (at least equal to the cost of the initial purchase). With real estate projects come new office buildings, industrial districts, restaurants and affordable housing—all of which can lay the groundwork for an economic boom. “The real estate aspect is a great catalyst to attract new businesses,” says AOL founder Steve Case, an early supporter of the O-zone initiative, whose Rise of the Rest Fund invests in backwater areas. “But it’s the startups that will be the real job creators.”

  And here is how it could influence where new businesses decide to locate.

  “If Facebook could have chosen to locate itself in an Opportunity Zone, like the Tenderloin in San Francisco, the investors would’ve paid no capital gains on their equity,” says Parker, who presumably would have been one of the big winners. The promise of mega-returns could send VCs, investment banks and private equity firms scrambling to launch their own opportunity funds to create incubators, scour second cities for overlooked talent or move portfolio companies into O-zones. “It wouldn’t surprise me if a lot of Silicon Valley VCs started to tell founders, ‘We’d like you to go over the bridge to Oakland, or we’d like you to go to Stockton,’” Parker says.

  If you’d like to learn more about Opportunity Zones, check out the Forbes article.

  2018.07.20

• Thank you, DeRozan

  Look, I get it. 

  The Raptors had plateaued. When the Cavaliers swept them in the playoffs earlier this year we all knew there were going to be significant changes in the off-season. Many people who know more about basketball than I do also seem to believe that sending our franchise player DeMar DeRozan to San Antonio in exchange for Kawhi Leonard is a win for us. The betting odds also seem to reflect this win.

  But, like many people here in Toronto, the first emotion I felt this morning when I heard the news was sadness. Here is a guy who has played his entire professional career in Toronto (9 years) and has openly and continually expressed his loyalty to this city. He wanted to retire a Toronto Raptor. He declared himself to be Toronto.

  Of course in the end this is a business. And the primary goal of this business to win championships. If you don’t think you’re in a position to win championships – or lose to the Golden State Warriors in the finals, which is probably the most that teams can hope for right now – then it behooves you to make the necessary changes, however painful they may be.

  I have no idea how this all went down, but the Instagram story that DeRozan posted this morning makes it abundantly clear that he feels betrayed. He feels he was told one thing, and that one thing isn’t what ended up happening. That’s the truly sad part for me. But I’m not going to speculate. Instead, I would like to thank DeMar DeRozan for his dedication and loyalty to this city. He was one of Toronto’s finest city builders.

  2018.07.19

• Lyft reveals plans for bikes and scooters

  On Monday, John Zimmer and Logan Green, the co-founders of Lyft, published this Medium post announcing their “approach to partnering with cities to introduce bike and scooter sharing” to their platform. 

  “Approach to partnering with cities” is undoubtedly a carefully chosen set of words given all the backlash going on right now around dockless scooters.

  Nevertheless, this is an exciting announcement. I could have used a scooter this afternoon to get to a meeting. And this is all part of their larger goal of transforming Lyft into a multi-modal platform – one that will also support conventional public transit.

  Here is an excerpt from the Medium post:

  Transit, bikes, small electric vehicles, and infrastructure such as safe pedestrian paths and bike lanes, all play a large role in decoupling people’s right to mobility from car ownership. We know we can’t accomplish this alone, and we’re committed to working with cities and residents to bring these elements together in the most cohesive way to maximize a reduction in vehicle miles traveled.

  The company has also set the goal that 50% of all trips on the Lyft platform will be shared rides by 2020. It is yet another example of the lines between public transit and ride sharing apps becoming blurrier. 

  Full post can be found, here.

  2018.07.18

• Value of distribution and reach for consumer facing products

  

  Forbes recently pegged social media influencer Kylie Jenner’s net worth at somewhere around $900 million. That makes her the youngest (she’s 20) person on Forbes’ annual ranking of “America’s Richest Self-Made Women.” 

  And if the trend line continues, she’ll be the youngest self-made billionaire, ever. Mark Zuckerberg apparently holds that title right now. But he was a classic underachiever and only became a billionaire at age 23.

  Most of Kylie’s net worth is derived from Kylie Cosmetics, which launched less than 3 years ago, but did an estimated $330 million in revenue last year. Forbes values the company at almost $800 million. And Kylie owns every bit of it. 

  The reason I am mentioning this today is because I was fascinated by the above Forbes article. It’s such a powerful example of social media leverage. Forbes put it differently: “Social media has weaponized fame.” 

  Kylie has 111 million followers on Instagram (plus many more on her other social channels) and that’s really the most important part of this equation. She has the distribution and reach to acquire boat loads of customers. It doesn’t matter what you’re selling if nobody knows you’re selling it.

  The rest of her business is pretty much outsourced. Seed Beauty (out of Oxnard, California and Nanjing, China) handles the manufacturing, packaging, and shipping fulfillment. Shopify (headquartered in Ottawa) is her e-commerce platform.

  We could of course have a debate about whether a celebrity-fueled business is really all that sustainable. And perhaps there’s risk in relying so heavily on social for customer acquisition. But youngest billionaire is youngest billionaire.

  Image: Forbes

  2018.07.17

• Live/work photography studio on Stoney Lake

  It’s the dog days of summer right now and I suspect that some of you may be spending your time (or at least some of it) near water. So here is one of my favorite lakeside homes. It is a live/work photography studio sitting on top of a boathouse on Stoney Lake in the Kawartha Lakes region of Ontario. It is by gh3*. They do terrific work.

  

  I love the relationship to the Canadian Shield (see above). And I love how it is a dramatic departure from the archetypal Ontario cottage. I am more impressed by a project like this (it has 1 bedroom) than I am by a 5,000 square foot “cottage estate.”

  Some of you may be wondering how a largely all glass curtain wall box performs environmentally during these dog days of summer and I am wondering the exact same thing. But it is north facing. And the goal was to create a space that would enable photos not possible in a conventional studio.

  For more on the project, including other photos, go here.

  2018.07.15

• Toward a Concrete Utopia: Architecture in Yugoslavia, 1948–1980

  

  A new exhibition on postwar architecture in (the former) Yugoslavia opens up today (July 15) at the Museum of Modern Art in New York. It’s called, Toward a Concrete Utopia: Architecture in Yugoslavia, 1948–1980, and it runs until January 13, 2019.

  Here is a bit more about the exhibition:

  Situated between the capitalist West and the socialist East, Yugoslavia’s architects responded to contradictory demands and influences, developing a postwar architecture both in line with and distinct from the design approaches seen elsewhere in Europe and beyond. The architecture that emerged—from International Style skyscrapers to Brutalist “social condensers”—is a manifestation of the radical diversity, hybridity, and idealism that characterized the Yugoslav state itself.

  And here is a panel discussion about the exhibition (click here if you can’t see the video below):

  [youtube https://www.youtube.com/watch?v=M2S0bBTHu-8&w=560&h=315]

  Architecture tells you a lot about a place and what was happening at the time in which it was built. I would love to see this exhibition and I hope to do exactly that if I’m in New York City before the new year.

  Image: MoMA

  2018.07.15