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

  • Land prices can be weird

    Jeremiah Shamess of Colliers made the claim this week that land values in some areas of the Toronto region are down 25%. He then shared a chart from Alan Leela showing how various factors have increased or decreased land values since 2020.

    Broadly speaking, a revenue increase and/or more development density should increase land values; whereas something like inclusionary zoning, which is a cost to the project, should decrease land values. Indeed, this is one of the arguments in favor of inclusionary zoning: “Don’t worry about the additional cost to the project because landowners will simply pay for it through reduced land prices.”

    In theory, all of this is correct.

    Land is (or should be) the residual claimant in a development pro forma. Start with your revenue, subtract your costs, and then see what is left over for the land. (Though keep in mind that what is left over for the land could be $0 or even a negative number.)

    But as I have argued before in the context of inclusionary zoning, I don’t think things always play out so neatly in the market. Put differently, if the cost impact of inclusionary zoning is something like $44 psf, I don’t think all landowners suddenly drop their prices accordingly — especially in a rising market where developers are competing fiercely for land.

    They don’t care about your residual value model. Many or most will just hang on to their number and wait for someone to pay it.

    So what I am saying with all of this is that, yeah, there are factors that put either downward or upward pressure on land values. But how it all actually plays out in the market tends to depend on the macro environment and what else is going on at the time. And right now we are at a point in the cycle where there is clearly downward pressure on land values.

  • Most new condominiums are not owner-occupied — is that actually a bad thing?

    Here’s some data (via Jeremy Withers) explaining that a large portion — about 61% — of new condominiums built in Ontario between 2016 and 2021 were not owner-occupied. In the case of low-rise houses, the figure is lower — about 24%.

    Now, the premise of Jeremy’s tweet storm is that non-owner-occupied housing is bad and that the government should be doing more to discourage this. Simply taxing and restricting foreign buyers is not enough (and I agree that this is mostly symbolic).

    But is non-owner occupied really such a bad thing?

    First of all, non-owner occupied implies that somebody else is renting the place. I don’t think that a significant chunk of these homes are being left vacant. So isn’t the fact that somewhere around 61% of all new condominium apartments are becoming rental housing something that is potentially positive?

    One counter argument would be that these investors are bidding up new home prices and squeezing out end users. But that brings me to my second point: small-scale individual investors are a critical ingredient in the delivery of new condominium housing in Ontario.

    This point cannot be overstated.

    The lender requirement to pre-sell suites in order to obtain construction financing means that developers rely heavily on buyers who are willing to purchase many many years before occupancy. And this is generally a lot more challenging for end users, as we have talked about many times before.

    So if it weren’t for investors, I am certain that we would see a lot less new housing getting built. And in turn, that would mean a lot less new rental housing getting built.

  • Transparent homeownership

    Yesterday, I asked this on Twitter:

    And then I learned that Victoria-based Aryze is already doing it:

    I was a little surprised by some of the numbers here, namely municipal fees. But that is not the point here. The point is that this is a great idea and that, judging from the comments on Twitter, many people seem to want this.

    The obvious benefit is that it allows consumers to better understand where their money is going. But I also think that by showing people all of the costs that get levied on new housing, it could benefit the overall development industry.

    What do you think? Should developers in Toronto adopt a similar approach? Let me know in the comments below.

  • The case for point access blocks

    We have spoken before about buildings, such as this 6-storey one in Paris, that were allowed to be built with only a single exit stair. This is noteworthy because, here in Canada, if you were to try and build an equivalent 6-storey building on an equivalent 100 square meter site, you would be required to have two exit stairs. And that would create more non-leasable space and make it even more challenging to develop such a small building.

    It is for this reason that single-stair buildings have been getting an increasing amount of attention as of late. They are seen as a way of encouraging more missing middle housing.

    So where are single-stair buildings currently allowed? Below is a map from Seattle-based Larch Lab showing the maximum number of storeys for point access blocks (what they call single-stair buildings) around the world. Based on this, Canada is one of the most conservative countries on the planet when it comes to required exiting (I don’t want to speak for any of the grayed-out countries). It also shows that much of the world allows 6 or more storeys.

    Larch Lab is a major advocate for point access blocks and they have this policy brief outlining the problem and the opportunities. One of their most interesting statistics has to do with minimum project size inflation. As recent as 2000, only about 13% of all multifamily completions in the US had more than 50 units. Today, this number has jumped to more than 55% of all new multifamily buildings, meaning we are quickly losing our ability to build small and intimate.

    Point access blocks can help with this.

    Of course, the reason we have exiting requirements in our building codes is because of life safety. But there’s research to suggest that this level of redundancy may not be needed in certain buildings. According to the above policy brief, the average death rate (caused by a building) in point access block countries like Switzerland, France, Italy and Germany, is significantly lower than that of the US. On top of this, almost no countries in the EU require buildings less than 28m tall to be sprinklered. The US does.

    All of this said, I don’t think that single-stair buildings are a silver bullet for missing middle housing. It is just one important ingredient in a complicated recipe. And as evidence of this, we can look to Seattle. The 2018 Seattle Building Code allows point access blocks up to 6 storeys, which is a rare occurrence in the US. However, the city appears to be still working on missing middle reform. Presumably other ingredients are still — missing.

    Image: Larch Lab

  • Less new housing — for now

    Approving new housing is one thing. And it is an important one thing. But you also need to sell/lease and finance the project. And that is a lot more challenging in today’s environment compared to a few years ago. I think a lot of people look at our cities, see a shortage of housing, and wonder why developers don’t just build more of it. But it’s not that simple:

    “Our industry is now taking a second look at our [calculations] and saying it’s costing more to build, it’s costing more to lend,” he said. “And there is a threshold in regards to what a purchase price or sale price can be. So there’s a bit of a pause in the market right now in regards to starting construction.”

    Throughout this last development cycle and, in particular, during the pandemic, development costs increased dramatically. But the revenue side was also increasing — meaning you could sell and/or lease space for more. That kept development going. You could still successfully underwrite new projects.

    But now the cost of debt has increased and the revenue side has expectedly slowed both in terms of pricing and velocity. This dramatically changes the feasibility of new projects, which means the market is going to need time to adjust to this new environment. This, of course, will happen. But in the interim (i.e. right now), it is going to mean a lot less new housing.

    This should not come as a surprise.

  • Vacation rentals in Park City

    We spent his morning meeting with prospective property managers for Parkview Mountain House. Here’s what we learned about the short-term rental market in Park City, Utah:

    • Property management fees generally range from 20-35% of revenue (these are turnkey solutions)
    • Airbnb is somewhere around 80% of the market here; though it does tend to skew toward slightly smaller rentals, whereas VRBO skews larger
    • Sundance Film Festival and New Year’s Eve are the two busiest times in Park City (demand greatly exceeds the available vacation rentals — 120%?)
    • Many Sundance guests tends to be people on expenses accounts: not price sensitive, but apparently very demanding
    • Winter is obviously peak demand because of snowboarding and skiing, but demand is still strong in the summer because of cycling, hiking, golfing, fishing, etc.
    • The two slowest times are spring (mud season) and fall
    • Many PMs will track booking lead times, which is the period of time between booking and check-in
    • This past winter season, demand was strong but average lead times were way down — meaning people were booking last minute and responding to snowstorms
    • During heavy snowfall seasons, like the one Utah had this past winter, you’ll likely need to budget for roof snow clearing (a few thousand for the season)
    • Heated driveways are a very good idea in the mountains
    • The most popular / most searched amenity is by far a hot tub; servicing one will run you about $125 per month

    I always find it fascinating to dig in and learn about a new industry and/or market. And that’s exactly what we did this morning.

  • Parkview Mountain House starts construction

    I am in Park City for the weekend because we just started site works for Parkview Mountain House (PMH).

    When you’re building in the mountains, there are generally two types of sites: sites that are uphill from the road and sites that are downhill from the road.

    The latter is significantly harder to build on because you have to first create access to the lot, which means bringing in soil and creating a ramp. You may also end up craning in materials.

    Thankfully, our site is on the uphill side. You bring in an excavator, dig into the mountain, and then you have a flat workable site.

    That’s what we’re doing on site right now and it’s what you’re seeing above — a big hole in the side of a mountain. And it’s pretty exciting.

    Photos: Isaac Silvera

  • Canada is about to pass 40 million people

    I learned this morning that Statistics Canada publishes a real-time population counter and that it is currently hovering at just below 40 million people:

    So by the time that many of you read this post, Canada will likely be over the 40 million mark. If you’d like to see for yourself, you can do that here.

  • Paris just banned tall buildings

    So, Herzog and de Meuron are building this trapezoidal-shaped tower in Paris right now.

    It’s 158m tall and about 40 storeys (which makes it comparable in height to One Delisle). It’s extremely narrow in one direction (see above), and so from central Paris it is intended to be read as a kind of thin pencil tower. But when viewed in the east-west direction, you get the full width of its trapezoidal shape (see above, again).

    Not surprisingly, this has been a highly contentious development — which is why it was 15 years in the making. It is now under construction, though, and it is expected to be completed sometime in 2026. But this is likely to be the last tower in Paris for quite some time.

    Partially because of this Triangle Tower, Paris has just decided to ban tall buildings in the city. The new height limit is now back to 37 meters (or 12 storeys), which is essentially the same height cap that was put in place in 1977 following completion of the Tour Montparnasse.

    So this is seemingly how things work in Paris. Somebody builds a tall tower. People mostly hate it. And then the city bans tall buildings for a number of decades. The previous height cap was relaxed in 2010. (Also, for those of you who are wondering, La Défense, which is generally where Paris puts its tall buildings, is outside of the city limits.)

    Regardless, I think there’s no question that this new Triangle Tower is destined to become an iconic punctuation in the city’s skyline. Which means that we’re probably going to have to update our thinking. If Paris, today, is sometimes thought of as a city with two principal towers — the Eiffel Tower and the “awful tower” — it will soon be a city with three principal towers.

    Perhaps the only question that remains is: Will people learn to love it like the Eiffel Tower or will it end up as another Tour Montparnasse?

    Image: Herzog and de Meuron

  • Retractable balcony glazing system — what do you think?

    This morning I toured a site/project that is using a balcony glazing system from a company called Lumon. The product looks like this from the outside:

    Like this from the inside (from on the balcony):

    And it retracts/opens up like this (the glass panels stack neatly to one side when you want to create a traditional balcony and guard condition):

    Obviously the idea here is to create outdoor spaces that can be enjoyed for more months of the year. In the summer it opens up so you get a typical balcony condition. And then in the cooler months or on a windy or rainy day, you get a solarium. Maybe it even works in the winter with the right sun exposure.

    But obviously there is a cost to adding something like this to new projects. So my development question to all of you today is: Would you be willing to pay a premium for a balcony glazing system like the one shown here? And if so, how important would you rank a feature like this for multifamily buildings?

    If you have a few minutes, please let me know in the comment section below.