Author: Brandon Graham Donnelly

• 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.

  2023.11.18

• 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.

  2023.11.17

• 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.

  2023.11.16

• 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.

  2023.11.15

• 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.

  2023.11.14

• 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.

  2023.11.13

• 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.

  2023.11.12

• 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.

  2023.11.11

• That time Anthony Bourdain visited Toronto

  

  I’m a big fan of Anthony Bourdain and I have seen a lot of his shows. However, up until last night, I was under the impression that he had never done an episode about Toronto. Turns out I was wrong. Yesterday I discovered that, back in 2012, he did one as part of his two-season show, The Layover.

  As a born and raised Torontonian and as a fervent supporter of this city, I’m always a combination of excited and nervous before I watch a show like this. I’m excited because I love Toronto and I like seeing it showcased. But I’m nervous because, what if they don’t do a good job showing it off?

  Maybe it’s hometown insecurity, or maybe it’s just my inner desire to want to properly sell Toronto to the rest of the world. Either way, my mixed feelings were not unfounded.

  The episode opens with Bourdain coming into downtown from the airport and immediately saying, “It’s not a good looking town. They sort of got the worst of the architectural fads of the 20^th century. It looks like every public school in America, every third-tier city library, Soviet chic, butt-ugly, glass box.”

  Things get generally more positive after this initial impression, and eventually Bourdain does admit that the city has great food, nightlife, diversity, etc. But there is this interesting moment in the middle of the episode where a bunch of Torontonians are asked: What one thing would you say best describes Toronto?

  Most didn’t know how to answer it.

  This got me thinking:

  Vancouver has mountains and nature.
  
  Montréal has the euro thing.
  
  Toronto has what?

  — Brandon Donnelly (@donnelly_b) November 10, 2023

  What is our thing? There are, of course, the obvious answers. We are diverse. We have great ethnic foods. We have numerous sports teams. And people are generally nice. But these are a little too generic and boring for me. There are also truly unique features like our ravine network, but I wouldn’t call this our single most notable feature.

  The right answer, in my view, is that Toronto is the economic and cultural capital of Canada. It used to be Montréal (which you all know I love deeply), but that’s no longer the case today. Broadly speaking, there’s only one global city in this country and, like it or not, it’s Toronto.

  I think it’s important to recognize this ranking because economic opportunity is one of the principal reasons that people live in cities in the first place. And if we are to compete globally, we are going to need to be both confident about our place in the world and insanely ambitious about our goals.

  So that’s my answer: Toronto has global city status. But clearly we need to be much better at recognizing and building on it.

  Photo by Mvrkle on Unsplash

  2023.11.10

• BC has proposed building more housing near transit

  These days, it is cool to be pro housing.

  Unaffordability has apparently gotten so bad that we are now seeing a groundswell of support for increasing overall housing supply. So politicians are doing things. And this week, the Province of British Columbia proposed some new legislation related to transit hubs.

  As proposed, the legislation will require BC municipalities to designate Transit Oriented Development Areas (TOD Areas), mandate minimum heights and densities within certain radii (broadly 800m in the case of rapid transit stations), and remove parking minimums.

  Not surprisingly, a lot of people are excited about this and, there’s no question, that this is directionally the right thing to do. But I have two immediate thoughts.

  The first is that the devil is always in the details. This all sounds good, but: Are the proposed minimum densities and heights going to be enough to stimulate development? For example, is 4 the right minimum FAR for 300m from a transit station?

  The second thought has to do with the level of excitement surrounding this announcement. (I’m going strictly based on Twitter, which admittedly could just be my bubble). The fact that city builders are so excited about this announcement tells us a lot about the current state of affairs.

  Because what this proposed legislation is more or less saying is the following: “Hey, here’s a great idea! Let’s build more housing around higher order transit and not force the market to build unnecessary parking.”

  Is this really something that should be considered novel? I thought this was just how cities should work.

  2023.11.09