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.
I like the way that Scott Galloway describes entrepreneurship in this recent post about why he’s bearish on Tesla:
Entrepreneur is a synonym for salesperson, and salesperson is the pedestrian term for storyteller. Pro tip: No startup makes sense. We (entrepreneurs) are all impostors who must deploy a fiction (a story) that captures the imagination and attracts capital to pull the future forward and turn rhyme into reason. No business I have started, at the moment of inception, made any sense … until it did. Or didn’t. The only way to predict the future is to make it.
He then goes on to describe the difference between an entrepreneur and a liar:
This is not the same as lying. There’s a real distinction between an entrepreneur and a liar: Entrepreneurs believe their story will come true, as they are laser-focused on making it true. A liar, well, they know they’re misleading people with false data. Usually for money (i.e., fraud). This is where Tesla turns gray.
Scott continues to say things about Elon and Tesla. But that’s not the point of today’s post.
The point I would like to make is that real estate development is an inherently entrepreneurial endeavor. You need to be a salesperson and a compelling storyteller, because that’s the only way you’ll be able to create the future. And creating the future is what developers do.
We have spoken before about the importance of speed and rapid decision making in real estate development. But in practice, it’s obviously a little more complicated than just being good at making quick and high-quality decisions. And that’s because building a building is complicated and it requires teams of people, all working toward the same goal. Some of these people will be internal to your organization, but many will be external, which is a feature that further complicates matters. Because it means that, to varying degrees, there are critical path items — items that control your overall project schedule — that are not fully in your immediate control. This is one of the things makes development and construction so challenging.
Now, ordinarily, when a team is being assembled people will talk about their project experience, their systems and fancy tech, and perhaps some of the awards they’ve won because of their extreme talent. But what doesn’t often get talked about is the simplest and most basic of things: You want people who will do what they said they would do, when they said they would do it. In other words, you want responsive and reliable people. This sounds pretty banal, which is maybe why it so often goes unspoken, but it’s fundamental to the success of a project. The other nuance to this is that, most of the time, it’s less about the company itself and more about the individual human who will be working on the project. Is that person good?
Just being responsive, reliable, and on top of things goes a long way. These are the kinds of people you want on your team and it’s how you move fast.
Elevate Miami, which I wrote about last month, just announced a number of new speakers and, more specifically, a number of new high-rise development projects that will be discussed at the conference. They are (not an exhaustive list):
Dolce & Gabbana Residences, Miami
Mercedes-Benz Places, Miami
Aman and One High Line Residences, New York
Indian Creek Residences & Yacht Club, Miami Beach
Edition Residences, Miami
AGE360, Curitiba, Brazil
What should be clear from this list is that Miami is like a different planet. It is one of the places where the richest people in the world go to spend their money, much of it on real estate. Because of this, you can think of this real estate as a luxury good, which is why so many of them are now branded.
In economic terms, a luxury good is typically defined as a good where demand increases — more than what is proportional — as incomes rise. For example, if a person’s income goes up by 1%, but their demand for a particular thing goes up by 5%, then this thing would be considered a “luxury good,” as opposed to a “normal good.”
The technical definition is an income elasticity of demand that is greater than 1. More simply, this just means that as someone starts making more money, they will start spending a greater percentage of their income on luxury goods. This is in contrast to “necessity goods,” where it doesn’t matter how much money you make, you only need so much toilet paper, for example.
What all of this suggests is that as people from all over the world get rich, they are likely to want more branded residences in a place like Miami. However, the flip side of this dynamic is that as incomes fall, the demand for luxury goods should, in theory, also fall more than what is proportional. It works both ways.
So I’ll be curious to hear — from the developers at Elevate — how things are going right now. We’re at a time in the real estate cycle where everyone is rethinking their strategies. Or maybe, Miami truly is a different planet.
I was at a dinner recently where the topic of crypto came up. Only two of us at the table were full-on believers, and the rest were generally sceptics. So naturally, the two of us started talking about why we think crypto is important. But in moments like this, it always becomes immediately clear that crypto is really hard to explain in a succinct and compelling way. Like, I don’t know how to do it. Thankfully, venture firm a16z just released their latest State of Crypto report, and so here are a handful of interesting takeaways.
The number of crypto addresses continues to grow. Currently it’s at an all-time high of approximately 220 million, which roughly mirrors the adoption curve of the internet back in the 90s (log scale). It is, however, important to note that one crypto address does not necessarily correspond to one human being. For example, I have many different crypto addresses. So if you dig a little deeper, you’ll see that their net estimate is somewhere between 30-60 million real human beings transacting using crypto every month. This is the estimated active user base and it continues to grow.
The number of mobile crypto wallet users is also growing rapidly outside of the US, namely in countries like Nigeria, India, and Argentina. This is the result of a number of factors: population growth, mobile phone adoption, government support, inflation, and many others. I mean, since 2010, the Argentine Peso has lost basically 99% of its value against the USD. So of course you’d rather put your money somewhere else, such as in stablecoins.
Stablecoins are cryptocurrencies that have their value pegged to something else, such as a fiat currency. Today, they are one of the most popular crypto products and virtually all of them (more than 99%) are pegged to the USD dollar. This is viewed by some as an opportunity to strengthen the dominance of the US dollar at a time when it’s waning (see above). But more importantly, stablecoins already serve two important functions in the market: one, it’s as stable as the US dollar; and two, the cost of sending a stablecoin anywhere in the world is now basically free. Say goodbye to bank wire transfers.
It’s worth reiterating that a16z is a venture capital firm that is heavily invested in the crypto space. And so reports like this are naturally a form of marketing and a form of lobbying. Still, there’s a lot of great information in here that you can use to form your own opinions about the sector. It may not be succinct, but if you take the time, I think you’ll find it compelling.
Today, the government of Ontario announced legislation that, if passed, would require municipalities to receive approval from the province beforeinstalling any bike lane that would result in the removal of lanes for traffic. And in order to receive such an approval, municipalities would need to demonstrate that the proposed bike lane(s) won’t have a negative impact on vehicle traffic. To be clear, municipalities should still be free to remove lanes for other purposes — such as on-street parking — but not for bike lanes.
There’s a lot that can and will be said about this announcement. I’m also aware that I have my biases. I’m an urbanist. I live in a walkable neighborhood. And I enjoy biking, a lot — both to get around and for fun. So I think it’s clear that this announcement was designed to appeal to a specific audience: those that drive in from the suburbs and who are deeply frustrated. This is somebody doing something. Never mind that the new Eglinton LRT line isn’t open yet and nobody knows when it will actually open, look over here at these annoying cyclists.
The problem with this line of thinking is that it’s not going to fix our traffic. The way you make things better in a big global city with lots of demand for road space is to reduce car dependency. This is not a popular thing to say, but it’s the reality. And broadly speaking, this is done in two ways. One, you provide great alternatives. And two, you price roads accordingly, through things like congestion charges. Incidentally, this also creates a virtuous cycle, because the latter raises money for the former.
In many ways, we’ve been getting better at number one. In 2015, Bike Share Toronto recorded 665,000 trips. Since then, ridership has increased every year. In 2023, the network recorded 5.7 million trips. And this year, the number is expected to exceed 6 million. This is not nothing. This is a lot of people riding around on bikes, some of whom may have instead opted to drive or take an Uber. And I think there’s no question that this continual increase in ridership is at least partially supported by the fact that we’ve been creating more bike lanes.
That said, I think it’s clear that to continue to move forward as a city we’re going to need to start collecting far better urban data. We need to know things like how many cars and bikes are on every street and how fast they’re moving. (AI can do this, right? ) This way we can continually optimize for moving the most number of people as efficiently possible. And if it turns out that I’m wrong, and clamping down on bike lanes and having more people drive is the most efficient, I’ll of course accept that. Just show me the data.
It’s in Google My Maps and what he has done is pin every project according to status: under construction, under renovation, approved, proposed, and recently delivered. For each pin, you’ll also find information like the expected completion date, the use(s), the area, the architect(s), and photos. It is unbelievably detailed and, according to Google, it was last updated 8 hours ago.
Here’s the full map with all statuses shown:
And here’s what it looks like if you filter by only projects under construction:
It’s interesting, but not surprising, to note that the majority of construction projects seem to be taking place outside the boundaries of Paris proper. However, if you alternate to projects under renovation, it more or less flips, with most of the projects being within Paris:
This tells you something about the city.
Sometimes when I’m looking at or for information like this, I think to myself that I must be in the minority of people who are interested in tracking development projects with this level of detail. So I find it interesting that this map has been viewed nearly 300,000 times. Clearly, I’m not actually alone.
As we have talked about many times before, the best answer to this question is that it’s worth whatever money is left in your pro forma once you’ve accounted for everything else. This is what is called the “residual claimant” in a development model. And it means you start with your revenue, you deduct all project costs, including whatever profit you and your investors need to make in order to take on the risk of the development, and then whatever is left can go to pay for the land.
This is the most prudent way to value development land; but of course, in practice, it doesn’t always work this way. In a bull market, the correct answer to my question might be, “whatever most market participants are willing to pay.” And sometimes/oftentimes, this number will be greater than what your model is telling you, meaning you’ll need to be more aggressive on your assumptions if you too want to participate. (Not development advice.)
Given that determining the value of land starts with revenue, one way to do a very crude gut check is to look at the relationship between land cost and revenue. This is sometimes called a land-to-revenue ratio. And historically, for new condominiums in Toronto, you wanted a ratio that was no greater than 10%. Meaning, if the most you could sell condominiums for was $1,000 psf, then the most you could afford to pay for land was $100 per buildable square foot.
However, this is, again, a very crude rule of thumb. I would say that it’s only really interesting to look at this after the fact. Because in reality, things never work this cleanly. For one thing, there is always a cost floor. Don’t, for example, think you can buy land in Toronto for $80 pbsf and sell condominiums for $800 psf, because this will not be enough to cover all of your costs. You will lose money.
Secondly, there are countless variables that have a huge impact on the value of development land. Things like a high required parking ratio, development charges and other city fees, inclusionary zoning, and so on. All of these items are real costs in a development model, and so they will need to be paid for somehow.
Typically this happens by way of higher revenues (in a rising market), a lower land cost (in a sinking market), or some combination of the two. But in all of these cases, it means your land-to-revenue ratio must come down to maintain project feasibility. This is why suburban development sites typically have a lower ratio — too much loss-leading parking, among other things.
Of course, there are also instances where the correct answer could be a land-to-revenue ratio approaching zero, or even a negative number. In this latter case, it means your projected revenues aren’t enough to cover all of your other costs, excluding land. For anyone to build, they will require some form of subsidy. And this is basically the case with every affordable housing project. They don’t pencil on their own. (For a concrete example of this, look to the US and their Low-Income Housing Tax Credits.)
So once again, the moral of this story is that the best way to think about the value of development land is to think of it as “whatever money is left in the pro forma once you’ve accounted for everything else.” Because sometimes there will be money there, and sometimes there won’t be.
I watched Tesla’s We, Robot event last night. As many of you know, Elon and his team showcased a Cybercab, Robovan, and a humanoid robot that dances funny, all of which will be available in the market for purchase at some unknowable date in the future. What was obvious is that Elon himself has no clear idea of when this will be.
What I will say, though, is that the designs look cool. The Cybercab looks like a Porsche and a Cybertruck had a love child, and the Robovan looks like an Art Deco rendition of what the future is supposed to be like. I first wondered why they’d create a robotaxi with only two seats. But thinking about it now, most Uber rides probably only have 1-2 passengers.
Despite these pretty designs, the overwhelming reaction to the event seems to be one of disappointment. We’ve heard what was said before. Public transportation is bad (I disagree). Autonomy will free up your time and remove unnecessary parking spaces from our cities (allowing for more public space). And soon you’ll be able to put your under-utilized car to work and earn extra cash.
Cool, but when?
Waymo and Uber are not, as far as I know, hosting similarly flashy events. But as far as I can tell, they’re making meaningful progress in advancing toward full autonomy. As of June of this year, Waymo had already logged over 22 million rider-only miles. And in September, they announced a partnership that would bring AVs to Austin and Atlanta by way of the Uber app.
At this point in the hype cycle, I don’t think anyone is interested in hearing promises about what the future of autonomy will be like, especially without any firm dates. They want to know: Are we there yet? So I think it’s no surprise that people, including investors, weren’t all that pumped up by the event.
On a more important note, Tesla had bicycles with brightly illuminated wheels circulating around their event set (at Warner Bros.) to presumably demonstrate that their Cybercabs can successfully navigate around moving objects (when brightly illuminated). If you missed them, look at the 29 second mark in the below video:
I can’t be the only one who thought: “What are those? Now, that’s what I want!” So I’ve asked Elon when they’ll be available and when I can buy one. I’ll keep you all posted on his response.
Prices continued to rise in most luxury ski towns this past year, but none grew as much as Park City, a former silver mining town 32 miles east of Salt Lake City. The average home sale price there grew 35% in 2023 from 2022, compared with a 9.4% increase at Vail and Beaver Creek and 3.2% at Aspen, according to the resort report by Summit Sotheby’s International Realty.
The main point of the article is this: Park City has gotten really expensive, and so people are now looking and buying homes further out in places like Heber City, Midway, and Kamas. Here’s how expensive expensive is:
Over the last four years, Covid has stoked demand for western resort real estate. In Park City, single-family homes have sold for a median price of $4 million year-to-date, up from $1.996 million in 2019, according to Redfin, which averaged the monthly median sales prices weighted for the number of homes sold. One home was listed in September for $65 million, which could set a record for the state. It’s now under contract, according to listing agent Paul Benson of Engel & Völkers, who declined to disclose the sale price.
This, of course, isn’t a novel phenomenon. It’s the whole “drive until you qualify” thing. But what’s interesting about this particular mountain example is that it’s not centered around access to a CBD or downtown; it’s centered around “how fast can I get to a ski and snowboard resort?”
For example, Deer Valley has a new East Village that is expected to open up in 2025. This brings the cities mentioned above closer in. And buyers seem to be doing that math: “It’s a 25-minute drive today, but next year I’ll be able to get on a lift in 15 minutes. Score.”
Given that Deer Valley also doesn’t allow snowboarders, it’s interesting to think about how these trends could be bifurcating the region between skiers and snowboarders. I don’t have any data on this, but I bet if you mapped it out, there would be some sort of clustering happen.
The article also goes on to talk about transportation. Because you can’t talk about new development and real estate without talking about traffic. But I think Bill Ciraco (Park City Council) gets it exactly right in the article: This is a car problem, and less of a people problem.
In my mind, the Wasatch Range is destined for something like this ONE Wasatch concept, which is/was a proposal to link seven resorts through a handful of new skiable connections. This is similar to what you’ll find in Europe, and it means less driving and more time on the mountain.
