Brandon Donnelly

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.

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Author: Brandon Graham Donnelly

  • Utah just chose an urban gondola for Little Cottonwood Canyon

    Every now and then somebody comes forward and proposes an urban gondola. The most recent one that I have heard about here in Toronto was this one from 2016 called the “Don Valley Cable Car.” But like many gondola proposals, it sort of just disappeared. Probably because it wasn’t entirely necessary. (I just checked their website and it is now down.)

    However, there are rare instances where a gondola makes a lot of sense. Medellin, for example, has a very successful urban gondola system that my friend Alex Feldman wrote about, here on the blog, after a visit to the city back in 2014. In this case, the gondola was instrumental in connecting hill-side communities that were previously disconnected from the rest of the city.

    Another less urbanized example is the one that Utah (Salt Lake County) is planning to build in Little Cottonwood Canyon. I wrote about this project back in March when I was there and, today, the Utah Department of Transportation announced their preferred mobility option. It is called Gondola Alternative B and, as far as I can tell, it is still the longest and most expensive urban gondola ever proposed.

    Here are the details in graphic form:

    To summarize, though:

    • The system is being designed to carry 1,050 passengers per hour, with cabins departing every 2 minutes.
    • The gondola itself is expected to cost $370 million, but when you add in a new parking garage for 2,500 cars, tolling infrastructure on the existing State Route, and other improvements, the total all-in capital cost is projected to be $729 million. The route itself is somewhere around 10 miles, so let’s call it $73 million per mile.
    • At the same time, the projected operating costs are relatively low at $8 million per year, so this option actually has the lowest 30-year lifecycle cost out of all the ones that were studied. The other alternatives included widening the existing roadway, enhancing the bus service, and adding rail. There was also one other gondola option, which was presumably called Gondola Alternative A.

    If you’re wondering why this is likely a good idea, check out my post from this past winter.

  • Mail-order homes speak to a simpler time

    There was once a time — generally in the early 20th century — when some people used to order their new home from a catalogue.

    You would pick the model you wanted and then all of the required materials, along with assembly instructions, would get mailed to you.

    Mind you, this was never the most popular way to make a new home. According to Brian Potter, mail-order homes, even at their peak, represented less than 10% of all yearly housing starts in the US.

    So arguably, it was never entirely successful as a model. Building a home is tough work, especially without fancy power tools.

    Still, it’s interesting to think about its relative simplicity: “Here’s a bunch of raw building materials and some instructions. Go figure it out. It’s like an Ikea bookshelf, except it’s your entire house.”

    Contrast this to what it takes to build new urban housing today. There is a litany of new barriers. It’s nowhere near as simple as ordering a kit of parts; so it’s no wonder housing is more expensive.

    For more on “The Rise and Fall of the Mail-Order Home”, check out this recent post from Brian Potter’s Construction Physics newsletter.

  • If it’s cheap, buy it

    Reading Howard Marks’ investment memos is up there with reading Paul Graham’s essays. You just need to do it. Howard’s latest is about “taking the temperature” of the market and I think you’ll find the lessons invaluable for everything from equities to residential real estate.

    Here’s an excerpt that I liked:

    We don’t say, “It’s cheap today, but it’ll be cheaper in six months, so we’ll wait.” If it’s cheap, we buy. If it gets cheaper and we conclude the thesis is still intact, we buy more. We’re much more afraid of missing a bargain-priced opportunity than we are of starting to buy a good thing too early. No one really knows whether something will get cheaper in the days and weeks ahead – that’s a matter of predicting investor psychology, which is somewhere between challenging and impossible. We feel we’re much more likely to correctly gauge the value of individual assets.

    These are investing words to live by. Avoid your own emotionality and value the asset. If it’s not cheap, don’t buy it. If it’s cheap, buy it. Then take a long-term view. It all sounds simple enough, but it’s clearly not so easy. And that’s why we have extreme highs and extreme lows in the market.

    Eighteen months ago, everyone wanted to buy residential real estate. Today, prices are lower, but fewer people want to buy residential real estate. Part of this is obviously because of interest rates. But part of it is also just because of emotion.

  • Rail + property — let’s try it again, okay?

    The Eglinton Crosstown line is going to open, here in Toronto, sometime next year — I think. And I’m sure that it is going to be a massively beneficial addition to Toronto’s transit network. But at the same time, we should be talking about this:

    Urban transit stations shouldn’t look like this. It’s a missed opportunity, both in terms of the foregone housing (and other uses) that could be on top of these stations and the additional value that could have been captured from these air rights. Transit is a crucial lever for land values and development overall, and so it’s no wonder that many of the best transit authorities around the world think in terms of “rail + property”.

    So what happened here?

    I don’t know exactly. But I do know that nearly a decade ago I called up Metrolinx and said, “Hey, so I’m a developer who can build things. I see that you’re building a number of exciting transit stations along Eglinton. Want me to build on top of them for you?” Now obviously Metrolinx wasn’t going to be able to sole-source to Brandon, but regardless, I thought it should happen and I just hoped to be in the mix.

    In 2015, things did start to happen. Avison Young, on behalf of Metrolinx, issued a request for proposal to developers for 4 sites/stations along the line. There were two at Keele Street, one at Weston Road, and one at Bathurst Street. And at the time, it was thought that these sites could generate somewhere between $14-22 million (speaking of reasonable).

    I think it was also being viewed as a bit of a pilot. If things went well with these 4 initial sites, then this same approach was going to be rolled out across all suitable sites on the line. I’m not sure what happened with the RFP or the broader intent — maybe some of you know — but it clearly didn’t pan out as planned.

    That’s too bad. But I suppose done is better than perfect. Plus, now we’re building the Ontario Line and so we have another opportunity to get it right. And right means lots of density on top of stations — both directly on top and all around it.

  • Real estate investors are outbidding people who own strollers

    Here’s a potential scenario:

    “When you have investors competing with first-time buyers who walk in with a couple of [baby] strollers, typically the investor is going to win,” Mr. Pasalis says. “They are well capitalized. They can pay a higher price. And this is why our home ownership rate is declining, because more and more homes are actually going into the hands of investors who rent them out, and amplifying home and amplifying condo prices. We are seeing that.”

    But let’s break this down a little.

    Where are these first-time buyers walking into? Is it a resale home showing or is it a pre-construction showroom? If it’s the latter, then we know it’s going to be difficult / atypical for them to make a buy decision so far in advance. They already have multiple strollers in hand, do they want to wait 4-7 years for their pre-construction home to be ready?

    I would also add that in our current environment — where investor demand for pre-construction homes has waned significantly — the development industry has not seen a marked uptick in end-user demand. Why are they not stepping up now that they’re not being outbid by investors? In my opinion, it’s an ideal time to buy!

    One reason could be that people who own strollers still largely prefer low-rise housing. Maybe it’s for reasons of affordability, maybe it’s a cultural bias, or maybe it’s a genuine preference. Either way, let’s turn our attention to resale homes. In this scenario, who is likely to pay the most?

    If you’re an investor, then you are looking for a specific yield. And so in theory, it should be a mostly dispassionate decision: “Here’s the most that I can pay in order to meet my minimum returns. Do not exceed.” But the question is whether is this is going to be more or less than what a stroller-owning group of people would pay.

    The answer is probably that it depends. However, if the answer is that the investor wins and they then turn around and rent it to people who own strollers, is this actually a problem? And if this same investor happens to own 25 other rental homes and they’re all rented to people who own strollers, is this an even greater problem?

    I suppose it is a problem if you’re worried about Canada’s homeownership rate, which has in fact declined from about 69% (in 2011) to 66.5% (in 2021). But what does this even mean? Is a higher homeownership rate always better? Does Canada have a target number? As of February of this year, the homeownership rate in Switzerland was only about 36.3%. And the last time I checked, it was still a rich country.

    There is nothing wrong with renting. I know wealthy people who have opted to rent their entire life because they enjoyed the flexibility and/or had better places to put their money.

    All of this said, the argument in the above scenario is that, but for investors outbidding people with strollers, these homes would be more affordable and that would in turn increase the homeownership rate. It’s a similar argument to, but for foreign buyers or but for Airbnbs, these homes would be more affordable.

    But in a city like Toronto, we are building very little in the way of new low-rise houses. New supply is virtually non-existent. Similarly in Seattle, they are now building more accessory dwelling units than they are single-family houses. So it is any wonder that demand is constantly outstripping supply and that prices are being bid up?

    In my opinion, a better solution is to rethink how we build our low-rise neighborhoods. And here and here are two good places to start.

  • Every home is for sale; it’s just a question of price

    Over the last few weeks, a number of people have told me that, when it comes to their current home, they have a number in mind. They more or less said, “I’ve already spoken with my husband/wife about it and, if someone were to offer us $X, we would sell and move immediately.”

    What’s fascinating about this is that it’s a form of housing supply that generally doesn’t exist anywhere right now. Sure, the people I was speaking with would sell and move for a price, but how does something like this actually happen? How do buyers find them?

    I suppose it could happen through word of mouth. I now know their prices and so if someone I know were interested in such homes, I could tell them. It is a low probability, but it’s still a possibility. Alternatively, someone (an agent or otherwise) might just show up on their doorstep and make them an offer. My dad actually sold his last home this way.

    But again, how likely is this to happen? It doesn’t seem scalable. And this is why Zillow used to have something called a “Make Me Move” listing. Rather than a traditional listing, it was a listing for, “I don’t necessarily need to sell, but if you offered me $X, I would move.” For whatever reason, though, Zillow no longer offers this service. Presumably, it’s because it wasn’t working. Hmm.

    Here’s how I’m thinking about it.

    Today, most housing markets are binary. A home is either for sale or it’s not. Sometimes enterprising people manage to secure an “off-market home”, but generally speaking the market is binary. If a home isn’t for sale, most people don’t usually bother with it. Mostly because they can’t easily find it.

    But market conventions aside, the conversations I’ve been having suggest that it’s actually more of a gradient. On the one side are people who really don’t want to sell. Maybe they’re never sellers. Let’s pretend that the home has been in their family for generations and so to convince them to sell you’d probably have to offer them an absurdly high price and that might not even do it.

    On the other end of this gradient are people who are ready to sell today. In an extreme example, they might even need to sell by a certain date, or else. In this case, a below-market price could get them to sell. They are highly motivated and one sure-fire way to increase speed is to lower price.

    But for everyone else in between, it is a big unknown gray area where price and desire to sell are, I would think, inversely correlated. As desire to sell increases, expectations around price probably need to come down until they reach a point where the market can bear it and a transaction will occur. This is my hypothesis at least.

    But if it’s true, and there’s a big untapped gray area, then the housing market is a lot bigger than we think it is.

  • Main street, second street, and beyond

    I think the most important point of this post (by Alfred Twu) about “corridor zoning”, is that it is the result of a political compromise. By corridor zoning, I’m talking about the tradition in many North American cities of putting lots of density on main streets, and then almost nowhere else. It is indeed the result of a compromise.

    We knew we needed to build more housing, but we didn’t want to disturb any of the low-rise housing that forms the majority land use in most North American cities. So we said “look, we’re going to build some taller buildings; but don’t worry, they’re only going to go here and maybe here. You’re probably not even going to notice them that much.” The result is a very spiky city, which is in many ways a suboptimal form.

    I guess that is slowly starting to change with things like laneway housing and smaller-scale multi-family developments like this one here. But these housing typologies are still rooted in the above compromise. In this particular case, though, they are the answer to the question: “What could we build in our low-rise communities that still respects their “character” and doesn’t piss off too many people?” The solution is still a spiky city.

    What Alfred proposes in the above post it something called “second street housing.” And it is what it sounds like. It is about going one street beyond main corridors and adding more, or perhaps the most, density there. Directionally, this starts to break the above compromise. It is recognition that maybe we shouldn’t always respect neighborhood character; maybe we sometimes need to rethink it.

    But compared to Alfred, I would say I’m less fussed about housing and density on main streets. In fact, there’s something to be said about corridors with the right kind of urban grandeur. Instead, I think the important point is that “second street housing” breaks the status quo and proposes going beyond single corridors.

    So I would take it even further. We know that cities work really well as circles, versus lines. And so what we really should be doing is encouraging more than a second interior corridor. What we should be doing is encouraging higher density circles around, at the very least, our transit nodes. That’ll take us beyond just a second street and, yeah, that’s a good thing.

    Photo by Jackson Case on Unsplash

  • Any wear, anywhere

    Yeah, I can’t say I’m excited to try this. Japan Airlines has just launched a new year-long pilot allowing its passengers to reserve and rent clothes. The way it works is that you tell them what you’re traveling for and then you get something like a “spring/fall x smart casual” variety pack delivered to your hotel or Airbnb.

    The clothes, which look something like this, are a mix of excess stock and second-hand stuff, and so it is being positioned as a more sustainable choice. You’re both using clothes that might otherwise go to waste and you’re reducing the amount of weight that you’re traveling with. (You still need to bring your own underwear.)

    And this could add up:

    The site handling the clothing rental system claims that a 10kg reduction in a flight passenger’s luggage results in an estimated 7.5kg reduction in carbon dioxide emissions. A 7.5kg reduction in CO₂ emissions, it adds for reference, is the equivalent of forgoing using a hairdryer for 78 days (based on an average use of 10 mins per drying session).

    I suppose this could also be positioned as a convenience: why lug a suitcase full of clothes around when you can just reserve what you want and have it waiting for you at your hotel? But I also suppose that you need to be okay wearing well-used clothes. Maybe this matters less, though, if the clothes are really nice and fashionable?

    I don’t know. It’ll be interesting to see if there’s a market for this.

    I would also say that even though I may not be excited about rental clothes, I take great pride in packing efficiently for travel. Unless I’m going snowboarding, I basically do not check a bag. I can do 2 weeks just fine with a carry-on and, to be honest, there’s something liberating about reducing your belongings to only what is necessary.

    So who knows, maybe bringing only underwear and toiletries would be even more liberating.

  • Doing great work

    Paul Graham just published his latest essay and it is a recipe for “how to do great work.” I highly recommend it, but you should know two things: (1) it assumes that you’re “very ambitious” and (2) it’s quite long. It’s possibly his longest essay.

    However, this second feature acts as a kind of filter. Because if you do actually make it to the end, his assumption is that it says something about both your level of ambition and your overall commitment to doing great work. You are presumably not the majority.

    As I read through it (albeit relatively quickly), I immediately started copying and pasting excerpts that resonated with me. Eventually I stopped this because there were just too many of them. But as a preview, here are some of the ones that I did pull out:

    • Four steps: choose a field, learn enough to get to the frontier, notice gaps, explore promising ones. This is how practically everyone who’s done great work has done it, from painters to physicists.
    • Develop a habit of working on your own projects. Don’t let “work” mean something other people tell you to do. If you do manage to do great work one day, it will probably be on a project of your own. It may be within some bigger project, but you’ll be driving your part of it.
    • The educational systems in most countries pretend it’s easy. They expect you to commit to a field long before you could know what it’s really like. And as a result an ambitious person on an optimal trajectory will often read to the system as an instance of breakage.
    • The trouble with planning is that it only works for achievements you can describe in advance. You can win a gold medal or get rich by deciding to as a child and then tenaciously pursuing that goal, but you can’t discover natural selection that way.
    • To the extent you can, try to arrange your life so you have big blocks of time to work in. You’ll shy away from hard tasks if you know you might be interrupted.
    • There may be some jobs where it’s an advantage to be cynical and pessimistic, but if you want to do great work it’s an advantage to be optimistic, even though that means you’ll risk looking like a fool sometimes. There’s an old tradition of doing the opposite. The Old Testament says it’s better to keep quiet lest you look like a fool. But that’s advice for seeming smart. If you actually want to discover new things, it’s better to take the risk of telling people your ideas.
    • People who do great things don’t get a lot done every day. They get something done, rather than nothing.

    You really should read the entire essay, though. It’s worth it.

  • Self-driving cars, plugs, and electrical grids

    This is going to be old news to many of you, but this past week I experienced Tesla’s self-driving capabilities for the first time. And I must say that I was very impressed. It did everything from navigate stop-and-go city traffic to navigate lane changes on the highway. Overall, it makes my five-year old car feel pretty quaint. The software is that much more sophisticated and one has to assume that all of this autonomy stuff will only get significantly better as LIDAR becomes common place in production vehicles.

    In other car news, North America appears to be narrowing in on an EV charging plug standard. It is Tesla’s plug, but it is now appropriately called the North American Charging Standard (NACS) plug. And last week, Electrify America — which is the largest non-Tesla, fast-charging network in the US — announced that it would be adding the plug to its network. The company also happens to be owned by Volkswagen. So big and important companies seem to be coalescing around this plug type.

    Lastly for today, here’s a post by Fred Wilson talking about (1) bi-directional EV charging, (2) the apartment buildings he and his wife are developing, and (3) our ongoing transformation away from a centralized electrical grid to a decentralized one. What he talks about in his post is something that we are actually piloting in a few of Slate’s office buildings right now. It’s still early days, but I think it’s really exciting. Tech seems to be enabling a broader shift toward decentralization. And in the case of our electrical grid, it’s going to lead to a more resilient one.