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.

Author: Brandon Donnelly

  • Fashion nothingness

    Fashion, like architecture, says a lot. It is, according to Wikipedia, an “aesthetic expression at a particular time, place and in a specific context.” So it’s interesting to consider how fashion might translate, and not translate, around the world. This recent article by The Economist, called “The United Nations of Uniqlo,” offers up one comparison, albeit a generalized one, between Japanese and American clothing preferences. (It’s an article about the Japanese fashion label Uniqlo.)

    Japan:

    At first glance there seems nothing obviously Japanese about Uniqlo’s wares. But a strong strain of minimalism pervades Japanese culture. Buddhism remains an important influence on Japanese society even in an increasingly secular age, and among its core tenets are renunciation and detachment – concepts that mean being able to suppress one’s lust for the material elements of daily life. Mario Praz, an Italian critic, contrasts the Japanese style with the suffocating abundance of Victorian interiors in Europe and America which, he says, stemmed from horror vacui (fear of emptiness). More recently, young people in the West have also grown less enamoured with acquiring stuff, hence the widespread popularity of another Japanese export: Marie Kondo, a professional declutterer.

    America:

    The American market has proved harder to crack. The 56 Uniqlo stores in America fall far short of Yanai’s plan, in 2012, to open 200 there. They still operate at a loss. “When you think about the American market, you don’t always think of subtlety,” said Steve Rowen of Retail Systems Research, a consultancy. “This is a social-climber society. Even if you want to fly under the radar, there still has to be some indication that you’re fashion forward.” Once that urban millennial with a starter job begins to make real money, Rowen postulated, “they move past a brand like Uniqlo pretty quickly.” Americans are perhaps willing to embrace invisibility only until they are rich enough to want to be seen.

    You could probably also fashion a similar argument around housing preferences. The Japanese are known for their minimalist houses, as well for completely different views on housing in general. But we shouldn’t forget that good minimalism is expensive. Remember: “Only the rich can afford this much nothing.” Maybe that’s what Uniqlo needs to do in America. The problem is that its nothingness isn’t expensive enough.

  • China’s homes are currently valued at $52 trillion

    The Journal published a piece this past week talking about China’s $52 trillion residential property bubble. According to a recent study by Goldman Sachs, this is the current value of all Chinese homes (built homes and developer inventory). And to put this number into perspective, it is twice that of the U.S. residential market.

    Now, I don’t know all that much about the Chinese housing market and I have no idea where prices will go next. But it is interesting to look at some of the data, particularly in light of this current pandemic. Urban home prices in China were up 4.9% year-over-year in June, and 1.9% year-to-date. Shenzhen appears to be one of, if not the hottest market. Why is that?

    At the same time, it is believed that about 21% of urban homes in China were vacant as of 2017. I don’t know what the figure is today, but this is a high number. As of last year, urban China also had a homeownership rate of about 96%. (Here is a look at how this number compares with other countries around the world.)

    What is clear is that Chinese households are going long property, and eschewing other investments such as stocks and bonds. Above is a chart showing how China compares to the US, where bonds lead, followed by stocks. Presumably it is because property is viewed as a safer and more lucrative investment in China.

    According to a report by China Guangfa and the Southwestern University of Finance and Economics, urban Chinese have on average about 78% of their wealth tied up in residential real estate. Many own multiple homes. In the U.S., this figure is about 35%. (I don’t know what the number is for Canada, but I would be interested to know.)

    Call me old fashioned, but I think it’s important to keep in mind things like rental demand and cash flow when thinking of property.

    All figures and charts from the WSJ.

  • The importance of the RCP

    One of my colleagues likes to remind me that in an open concept floor plan, which is obviously pretty common these days, it is the RCP, or reflected ceiling plan, that really defines a space. (For those of you who might be unfamiliar, an RCP is a plan drawing that shows you what the ceiling of a space looks like.) What he means by this is that it is things like dropped ceilings and bulkheads that really define a space. And when you’re designing a multi-unit building, you are going to have these things to contend with and coordinate (though you can also run exposed ductwork, which eliminates the need for some bulkheads/drops).

    I like this reminder for two reasons.

    One, he’s right. Ceilings matter. Frank Lloyd Wright, for example, is well known for playing around with them in his projects. He would take you through compressed spaces with lower ceiling heights and then “release” you into grand open spaces. The contrast made it all feel even more dramatic. (But I reckon Mr. Wright was pretty short because I swear I’ve been in some of his houses and the ceilings were in the range of 6′-6″.) And two, I want us to focus on this level of detail in our projects. They can be a pain in the ass to coordinate and you can’t always get them exactly how you want them, but we are paying attention.

  • One Delisle approved at Community Council

    Back in March of this year, which seems like a very long time ago, I wrote about how One Delisle came to be and how City Planning at the City of Toronto were recommending approval of its development application. Well today I am thrilled to announce that, after two deferrals, these recommendations were adopted (with some amendments) by Toronto and East York Community Council. Though it will still need to go through City Council on July 28, 2020, this milestone is a big deal for the project. It’s now time for the next chapter in this story. So stay tuned. For those of you who are new to One Delisle and would like a bit of background, here is a good place to start.

  • Project Profile: LR2 Residence

    Homes that are built on or into sloping terrains are fascinating to me because the inconveniences of having to deal with uneven ground create additional constraints. And constraints are good for design. Not only because, I feel, it makes the design process easier, but because it helps to ensure that the moves being made are less arbitrary.

    You are forced to respond to the surrounding context. You have no choice but to find some kind of harmony. And that can make things feel more deliberate, which may be the most important characteristic of good design. You want to know that someone actually thought about the design that they have put forward. You want to know that things were carefully considered.

    Of course, sloping terrains also create opportunities. They usually translate into great views, which is certainly the case with the LR2 Residence in Pasadena, California by Montalba Architects (pictured above). Here, the main “entertaining deck” is located on the upper floor and has a large outdoor terrace. This configuration is not uncommon in slopside houses.

    For more information about the LR2 Residence, including photos and floor plans, click here.

    Photo/Diagram: Kevin Scott / Montalba Architects

  • Grocery and home & garden

    It’s interesting to think about the psychology behind this FT chart outlining consumer spending in the United Kingdom from March to early July. You can see the initial panic buying of groceries in late March (well, food and toilet paper). And you can more or less see the moment where people suddenly realized — after working at home for a few weeks — that their home was in desperate need of a refresh and that planting tomatoes might be a good hobby to take up given that there isn’t much else to do. In case any of you are wondering, I remain well-stocked on the toilet paper front and my tomatoes are doing just fine.

    Image: Financial Times

  • Barton Myers’ California estate is on the market for $8.2 million

    Architect Barton Myers has his home in Montecito, California on the market right now for $8.2 million. In addition to his own residence, the 38-acre site also houses his studio and a guesthouse, all of which have roll-up garage doors so that you can enjoy that perfectly benign California climate. The estate is quintessentially Myers and it’s obviously awesome. Here is the listing from Sothebys. (I tried to street view the address but was only successful at locating what I think is its mailbox. What a natural setting.)

    For those of you who may be unfamiliar with the work of Myers, he is considered one of Toronto’s most influential architects. After graduating from the University of Pennsylvania and working with architect Louis Kahn for a few years, he moved to Toronto in the late 1960s to take up a teaching position at the University of Toronto. He then started his own architecture practice with Jack Diamond (also an alumnus of the University of Pennsylvania) and remained a principal of Diamond and Myers until 1975.

    Myers moved on to start his own firm — Barton Myers Associates — that same year and became known for notable projects such as 19 Berryman Street in Yorkville (Myers’ own residence) and the Wolf House at 51 Roxborough Drive, which was Architectural Record’s House of the Year in 1977. Probably the most distinguishing characteristic of his work is his use of exposed industrial materials, which is, of course, something that is on display in Montecito. But he managed to deploy these materials in a way that made them feel high-brow. His homes also feel very California to me.

    In 1984, he opened up an office in Los Angeles and eventually his practice in Toronto was shutdown. But not before leaving a lasting legacy in Toronto. For a map of all the firm’s North American projects, click here.

    Photo: BMA

  • The dazzling Mira tower

    I have said this before on the blog, but one of my favorite tall buildings is the Mira tower in San Francisco by Tishman Speyer (developer) and Studio Gang (architect). Now that it’s pretty much complete and residents have started to move in, John King, urban design critic for the SF Chronicle, has published this review of the building. It’s behind a paywall, but you should be able to at least see all of the photos, and below is an introductory excerpt.

    Even with today’s grim need for social isolation, San Francisco’s most eye-catching residential tower wants to pull you close.

    From the Bay Bridge or the Embarcadero, the 39-story Mira at the corner of Folsom and Spear streets is a flowing stack of tightly wound white metal bays, frozen in motion. Fragmentary glimpses from nearby blocks defy expectations, whipsawed slivers amid the stodgy norm.

    Finally, there’s the view straight up from the sidewalk — a crisp commotion of stacked angles, precisely arranged but seemingly ready to fly out in a dozen directions at once.

    Though Mira has been in the works since 2014, the architectural show still feels fresh as the first residents begin to unpack. But this 392-unit residential complex was also conceived as a celebration of triumphant urbanism — a far cry from the mood of this troubled summer.

  • What will our customers think? Condo vs. rental.

    Condo developers are merchant builders. They build a project and then move on. Because of this, there’s a belief that there’s little incentive to build for durability, in comparison to say purpose-built rental buildings where the developer might continue to own over an extended period of time. While it is true that putting on an operations hat will make you hyper-focused on everything from garbage collection to how you’re going to manage all of your suite keys, there are a few things to consider in this debate.

    One, as developers we certainly think and care a lot about our brand and our reputation, both with our customers and with Tarion (warranty program). We ask ourselves: “What will our customers think if we do this?” Irrespective of the tenure we’re building, we want our projects to be carefully considered. And in the case of condominium projects, we would like our customers to feel excited and comfortable about buying in one of our future projects. That’s the goal. This is no different than any other product that you might buy that doesn’t come along with some sort of ongoing subscription.

    Two, there’s often a spread between condominium and rental values. For example, let’s consider a brand new 550 square foot condominium in a central neighborhood of Toronto and let’s say it would cost you $1,300 psf to buy it today. (Obviously it could be more or it could be less depending on the area and the building.) Now let’s start with a rent and back into a value, using some basic assumptions.

    Unit Size (SF)550
    Monthly Rent$2,400
    Rent PSF – Monthly$4.36
    Rent PSF – Annual$52.36
    NOI Margin72%
    NOI$37.70
    Exit Cap3.75%
    Value PSF$1,005

    Here I’m assuming that same suite would rent for $2,400 per month. I’m converting that to an annual PSF rent. And then I’m assuming that if you were managing a whole building of these kinds of units, your operating costs might be somewhere around 28%. Crude back-of-the-napkin math to get to a Net Operating Income (psf). Finally, I’m capping this NOI at 3.75%. We can debate my assumptions and if this were in a development pro forma you might “trend” the rents. But I find this comparison helpful. Here we are getting to a value of around $1,005 per square foot. Less than our $1,300 psf above.

    The point is that the margins are tighter, which helps to explain why for a long time we saw very few purpose-built rentals being constructed in this city. So even though you might argue that the incentives are in place to build for durability, you do have to weigh that against the realities of what you can actually afford to build. Development is filled with all sorts of these tradeoffs. But if you and/or your investors really want a consistent yield, this strategy can work just fine. Personally, I’m a fan of the long-term approach.

    Three, rent control policies can have an impact both on the feasibility of new projects and on people’s ability to actually perform maintenance. If you have a scenario where your operating costs — everything from taxes to utilities — are rising faster than your allowable rent increases, then you’re in a bad situation and you have zero incentive or financial ability to actually invest in the building, despite being a long-term owner.

    Finally, there is nothing stopping a purpose-built rental developer from also being a merchant builder. i.e. Selling the entire rental building once it is done and it has been stabilized. So you could argue that we’re right back at my first point. Whether you’re selling to individual condominium owners or the entire building to one entity, you as the developer have to sit back and ask yourself: “What will our customer(s) think if we do this?”

  • Our ambient computing future

    I noticed this week that Google has started to overlay augmented reality-type place markers onto Street View. The markers are designed to help surface the kind of local business information that you might otherwise find in search — phone number, hours of operation, and so on. Apparently not everyone is seeing them, but the feature is starting to roll out in certain cities. Above is a photo of Dundas Street West in the Junction.

    This transforms Street View into even more of a wayfinding tool, but it also offers up a glimpse of how the world might look with augmented reality. But to make this ultimately happen, you really do need to figure out how to get people to start wearing smart glasses. Lots of companies, including Google and Snap, have been trying. None of their products have really stuck — though Snap’s Spectacles are easily the best looking ones.

    However, last month Google did announce that it had acquired Canadian smart glasses company, North. I was invited to try out a pair of North Focals 1.0 glasses, which I wrote about over here. They were exceedingly cool, but definitely not ready for mainstream and daily usage. The sides were thick and you had to wear a ring joystick in order to navigate through its menus. Too much work. Too nerdy.

    But that’s okay because Google didn’t buy North for the Focals product. They bought them for talent, patents, and for probably a bunch of other things. They bought them to help Google invest in its “hardware efforts and ambient computing future.” The little markers you might now be seeing on Google Street View are likely part of that.