Author: Brandon Donnelly

• Long live the megacity

  Azeem Azhar’s recent newsletter, titled “Don’t call time on the megacity: cities will learn and adapt,” is a reminder of the tensions that cities face. There are forces of attraction. And there are also forces of repulsion.

  Cities all around the world continue to create wealth and lift people out of poverty. But they also repulse people through traffic congestion, housing supply shortages, and overcrowding (which is distinct from density). Generally though, the forces of attraction have tended to outweigh the forces of repulsion, which is why the world continues to urbanize.

  As Azeem points out, the first city believed to have reached 1 million inhabitants was Rome. It happened some 2,000 years ago. In the 1930s, New York then became the first city to reach 10 million inhabitants. And today, the 10 largest urban agglomerations in the world look something like this:

  

  Outside of Japan, all of these city regions are expected to add many more people by 2030. Missing from this chart, however, are cities such as Lagos, Nigeria. Between 2018 and 2050, the UN estimates that 35% of the growth in the world’s urban population will come from just three countries: India (+416 million), China (+255 million), and Nigeria (+189 million).

  Long live the megacity.

  2020.05.20

• Form follows what?

  

  Late 19th century and early 20th century architecture and industrial design is known for the axiom, “form follows function.” I think of the German Bauhaus School when I hear this, but supposedly it can be attributed to American architect Louis Sullivan. Either way, it was meant to represent a functionalist approach to architecture and design, which was, as is often the case, a reaction to what had come before it.

  It was Modernist architects eschewing decorative elements or what was referred to at the time as “ornament.” If it didn’t serve a functional purpose, it was to be removed. Nothing was to be superfluous. And similarly, if the function of something didn’t change, there was no need to change its form.

  Of course, if it was truly all about function, one could argue that there should have been a great deal of variation in the resulting forms. But instead, the designs that emerged out of schools, such as the Bauhaus, are some of the most recognizable in the world. That is true even to this day.

  Which is why I think this is a great line from Witold Rybczynski (taken from a recent post about the book iBauhaus): “It is also a quintessentially Bauhaus example of form follows predetermined aesthetics rather than form follows function.” Ouch. The difference here is that Witold obviously isn’t a fan of the Bauhaus or of Modernism, whereas this period of time is what inspired me the most as a student of architecture.

  Photo by Marina Reich on Unsplash

  2020.05.19

• Uber to close 45 of its offices

  On Monday it was reported — by the Wall Street Journal, Tech Crunch, and others — that Uber will be laying off another 3,000 employees and closing 45 of its offices around the world. Here is a quote from TechCrunch:

  “I knew that I had to make a hard decision, not because we are a public company, or to protect or stock price, or to please our Board or investors,” Uber CEO Dara Khosrowshahi wrote to employees today in a memo, viewed by TechCrunch. “I had to make this decision because our very future as an essential service for the cities of the world — our being there for millions of people and businesses who rely on us — demands it. We must establish ourselves as a self-sustaining enterprise that no longer relies on new capital or investors to keep growing, expanding, and innovating.”

  According to this SEC filing, the company expects to pay approximately $110 million to $140 million in severance and other termination benefits, and somewhere between $65 million to $80 million in costs related to closing its offices.

  All of this is, of course, being driven by a steep decline in ride bookings, which is about 70% of the company’s revenue. Ride bookings were down 80% in April from a year earlier. For Q1 2020, they were down about 5% compared to 2019.

  

  Uber Eats has seen a spike in demand with people staying at home. Bookings were up 52% in Q1 2020 from a year earlier. The problem is that, unlike its rides business, their food delivery business is far from profitable. That’s the point of the possible merger with Grubhub.

  The company has said that they are seeing some signs of a recovery in markets that have begun to reopen. But it’s too early to predict what that will really look like. The hole is pretty deep.

  Pre-COVID, ride hailing demand tended to surge on the weekends as people went out to restaurants, bars, and clubs. So presumably those activities will need to return for its revenue to return. But I also think we could see a spike because of people being nervous to take public transit.

  Either way, the company is making some really tough decisions right now. But it seems to be doing what it needs to do in order to get to the other side of this and become a self-sustaining and profitable business. Full disclosure: I own some $UBER.

  Chart: Uber Q1 2020 results

  2020.05.18

• Us versus them — the reallocation of public space

  

  On Saturday, Toronto closed a few of its major roads, including Lake Shore Boulevard West, to provide more space for outdoor activities and social distancing. A number of “quiet streets” were also created last week. These now only allow local vehicular traffic. This, of course, isn’t anything novel. Most cities around the world have been reallocating their public space in the wake of this pandemic, with many hoping that some of these changes will stick.

  I rode my bike out to the Humber Bay Shores on the weekend (where I took the above photo) and it was clearly the fix that we needed. Our current waterfront trails simply cannot safely accommodate the volume of people who are out right now on the weekends. I reckon that, under normal circumstances, a good percentage of these runners, cyclists, and rollerbladers would probably be on a patio drinking. That’s not possible right now, so demand for outdoor activities is way up. (Entirely unproven theory.)

  But as is always the case, changes like this make a lot of people grumpy. Traffic got backed up on Lake Shore and the regular “war against the car” narrative flared up. I’m not sure where all these cars were going, but they were out in the sunshine trying to go places. So we have a situation where the reallocation of public space has flipped the supply and demand imbalance to another user — drivers. Now it’s us versus them: “Isn’t there already more than enough room on those big bike trails?”

  I’m frankly tired of this never ending debate, which is why I have argued before that we could use better data and better metrics. How many people are we moving with the decisions we are making? How many people are we accommodating per square meter of space? Where are users of this public space coming from? What performance standards are we trying to meet and/or maintain? What is the most equitable allocation of a finite amount of space?

  But perhaps I’m naive to think that people might listen to facts.

  2020.05.17

• 24514 Malibu Road

  

  The story of the Hunt House in Malibu, California — as recounted here by Soho House — has me wanting to serendipitously stumble upon an underpriced midcentury architectural gem along the coast of the Pacific Ocean so that I can spend my weekends fastidiously restoring it to its former splendor.

  I have already started looking.

  Originally built in 1957, the Hunt House at 24514 Malibu Road was designed by California modernist Craig Ellwood. It was the 1,400 sf weekend home of Dr. Hunt and his wife Elizabeth. Like many of the homes on this street, the minimalist entrance and front facade ultimately step down into a grand waterfront space. Photos and video tour, here.

  The current owners, architect Diane Bald and her husband Michael Budman, discovered the house while driving the coast in search of a rental. The Hunt House was marked as for rent or for sale. They rented it immediately.

  After four years in the house, an evil developer ended up buying the house with the intent of knocking it down and building something new. But he allowed them to remain living there during entitlements.

  Turns out it’s hard to build in Malibu, and so after another four years, he gave up and said, “you know what Diane? You’re the rightful owner of this house, I will never be able to build what I want.” (Quote from Soho House.) It is at this point that Diane bought the house and began restoring it.

  That process was documented here on Instagram.

  Top Image: Richard Powers via Soho House

  2020.05.16

• The America we need

  The New York Times is running an opinion series right now called, The America We Need. It is all about how the US might emerge from this crisis “with a fair, resilient society.” This piece by Carol Galante covers many of the topics that we discuss on this blog. Carol is a former city planner and nonprofit housing developer. She is now the faculty director of the Terner Center for Housing Innovation at UC, Berkeley. Here are a couple of excerpts from her article that I think will resonate with many of you:

  There are two things we know: The U.S. economy will recover. And the recovery will start in and be strongest in the same cities that were thriving before the pandemic. Economies in places like Seattle, San Francisco, New York and Boston are driven by the innovation, technology and biotech sectors, which are proving to be remarkably resilient to the impacts of Covid-19.

  We have an obligation to ignore the short-term reactionary impulse to blame density for the spread of the coronavirus and instead use this opportunity to rethink the policies that impede the construction of new housing, at more price levels, in the places where housing is most needed.

  In my subsequent career as a nonprofit housing developer working in prosperous coastal California communities, I spent far too many nights in City Council meetings working to get apartment buildings for lower-income older people and families approved. Underlying the “density” battle was almost always a battle over who has access to the opportunities of a place and who doesn’t, cloaked in arguments about neighborhood character and traffic impacts.

  2020.05.15

• Acquisition price vs. current market value — which should be your land input?

  If you’ve bought land with the intention of developing it and you now think the value of that land has either gone up or down, there comes the question of what number you should plug into your development pro forma. Do you input what you paid for the land or do you input the current market value of the land? The former is probably more common than the latter, but in my view it’s important to consider both scenarios.

  If the value of the land has gone up, it means that you think you could turn around and sell it for that price today. And that would mean you would be making a profit without doing anymore work and without taking on any additional risk. That’s an option that exists right here and right now (t = 0). What you want to get at in your pro forma, or at least understand, is the incremental profit margin from taking on the risk and brain damage of actually doing and completing the development project.

  To do that, you need to consider the current market value of the land. That way you isolate your land margin from your build-out margin. The one problem with this approach is that the numbers may then tell you not to develop. In a hot market (which is not right now), it is not uncommon for land to get bid up beyond current fundamentals. There’s always someone else who is willing to be more aggressive.

  In this case, you may find that most of the development margin is in the land. And you will start thinking to yourself, “How can anyone afford to pay this much? It doesn’t make sense.” This doesn’t necessarily mean that you shouldn’t develop. But at least it gives you a better understanding of the risk and reward trade-off that you’re about to take on. It might also tell you some things about the market.

  2020.05.14

• The price of leadership

  Like many of you, I have been watching The Last Dance. It is a powerful reminder of just how competitive, disciplined, and emotional Michael Jordan was, and still is, about winning at the game of basketball. But the most powerful moment so far has easily been his monologue on leadership at the end of episode 7. Here is that scene. If you can’t see it below, click here.

  https://twitter.com/ZekeHealy/status/1259884600769331205?s=20

  Watching this brought tears to my eyes. Over the years, I have had teachers, professors, and bosses who have subscribed to this philosophy of leadership. I’m sure many of you have as well. It’s never fun at the time. In fact, it sucks. But usually in hindsight it becomes clearer what that person was trying to accomplish. And you realize how they pushed you to grow.

  My own view is that there are ways to win without resorting to emotional bullying. But then it begs the question, if you’re not being extreme, does that reduce performance? Would it have been better for Jordan to be a bit nicer to his teammates, if it meant winning fewer championships? Depends on who you ask.

  When you’re determined to move a mountain, win a championship, or create something that has never been done before, it can be incredibly frustrating when you feel as if the team isn’t on the same level or that they don’t care as much as you. So you push. And that’s what Michael did. Winning has a price.

  We all need to be challenged. Some people, like Michael, are good at pushing themselves to be the best that they can be. Others need more external help. How best to do that is the great debate. But as Fred Wilson said on his blog earlier this week: “Leadership is not being liked. Leadership is being respected and followed.”

  2020.05.13

• Building size matters

  If you’re trying to figure out how to make housing more affordable, it should be fairly obvious that it’s probably a good idea to actually understand the costs associated with building new housing. That is, more or less, the title of this recent series by Brookings about innovation in design and construction. The four-part series is based on the findings of a report that was written by Hannah Hoyt and published by Harvard’s Joint Center of Housing Studies and NeighborWorks America.

  Now, costs vary by geography. Each city has its own nuances when it comes to development. And this should not be construed as a silver bullet. But what they are trying to do is identify design and construction savings to help the overall equation. Part of their argument is that building typology matters. Build smaller — hopefully out of wood — and you can bring your hard costs down. The problem with this thinking is that the trend lines are moving in the opposite direction.

  Here is a chart from the same Brookings article:

  

  In 2000, about 23%, or almost a quarter, of all multifamily units completed in the US were in a building with fewer than 10 units. As of 2018, that number had dropped to somewhere around 5%. At the same time, the number of completed units in buildings with 50 or more units has gone from 14% in 2000 to about 61% in 2018. Things got a little wonky after the global financial crisis, but generally the trend lines are pretty clear.

  Some of this likely has to do with our “return to cities.” But I think the bigger part of this story is that development cost structures are pushing the market in this direction. For more on this topic, check out: Demystifying the development pro forma.

  2020.05.12

• 85 years of US advertising

  

  There’s an argument out that there this pandemic isn’t necessarily going to precipitate new changes, it’s simply going to accelerate changes that were already underway. Benedict Evans begins to illustrate this point in a recent blog post called, COVID and cascading collapses.

  In it, he starts by looking at US print advertising revenue. In the first decade or so of the consumer internet, newspapers and magazines actually managed to hold their own. It’s not until after 2008 that they really start to fall off and lose significant market share to internet advertising (most of which belongs to Google and Facebook).

  Intuitively this makes sense. During a crisis, budgets invariably get cut. And then when the market comes back, as it always does, you have people actually thinking about where those dollars should be spent: “Hey, maybe we should put some more money toward that Facebook thing.” It’s a reset moment.

  The other interesting thing about the decline of print advertising is that if look at a longer time horizon — say 85 years, as Benedict did — you can see that its share has been declining for a very long time thanks to television. Of course, now television is changing. US consumers are “cord-cutting” faster than they’re moving to buy things online.

  Cascading collapses, as he calls it.

  2020.05.11