How the Gordie Howe International Bridge came to be is a city and nation-building story worth telling. The Windsor-Detroit crossing is the busiest commercial border crossing in North America. It handles about one-third of the trade between Canada and the US, or about $1 billion per day, much of which passes over the Ambassador Bridge.

This is problematic for a few reasons.

One, there are concerns about capacity. Two, the bridge is, unfortunately, in the wrong place and doesn't offer direct highway-to-highway access. A truck coming off the Ambassador Bridge in Windsor has to pass through something like 17 traffic lights before reaching Highway 401. And third, and most importantly, the bridge is privately owned.

So, at some point, various people in government got together and said, "Hey, this bridge is pretty critical to our respective economies, it might be in our national interests to have a publicly owned bridge."

The federal government of Canada reportedly tried to buy the bridge in 2009, but the late Manuel Moroun wanted too much for it, and a deal was not struck. So then, in 2012, the Canadian and US governments approved the construction of a new bridge, now nearing completion and called the Gordie Howe International Bridge.

However, a second river crossing meant that Moroun would no longer have a monopoly, and so, an aggressive lobbying campaign was mounted. It was so effective that the bridge almost got canceled and funding for it became a "third rail" in Michigan politics. To save the project, the following deal was struck:

• Canada pays 100% of the ~C$6.4 billion cost to build the bridge.

• From the outset, the bridge is a joint binational asset owned equally by the Government of Canada and the State of Michigan, even though Canada is financing the entire project.

• Construction jobs and materials are sourced from both sides of the border.

• Oversight of the bridge is handled by the International Authority, a board with equal representation (3 members from Canada, 3 from Michigan).

• Canada receives 100% of the toll revenue until it recoups its costs; after that, toll revenue will be shared with Michigan.

In other words, the only way this deal got done was (1) for Michigan not to spend any money on it and (2) for Canada to finance Michigan. This was the solution to dysfunctional politics, where individual interests trump the greater good. I have not looked into and modeled the exact terms under which Canada is financing Michigan, but let's hope that taxpayers are being fairly compensated for bringing this solution.

Regardless, there's no doubt that this is a crucial nation-building project for both Canada and the US. It will be an exciting moment for our countries when it opens and people and goods begin to flow. Based on the current status of construction, my understanding is that this will happen early this year. It's basically ready.

Cover photo from Gordie Howe International Bridge

I have never rented a self-storage unit. I have stored things at my parents' places during certain periods of my life, such as when I moved to the US for grad school, but as a general rule, I never seem to conclude that I have too much stuff and that I should maybe rent some storage. However, I do on occasion fantasize about having a garage or large "man cave" where I could store an assortment of exotic snowboards, bicycles, and other life essentials. I mean, who doesn't, right?

In any event, I seem to be in the minority, because self-storage is a growing real estate asset class:

Investors have dramatically increased their allocation to self-storage over the last several years [in the US]. A rush into the asset class occurred from 2020 to 2022, when transaction volume hit $50 billion, far exceeding the $35 billion spent during the entire seven‑year period from 2013 to 2020, according to Cushman & Wakefield. Transaction volumes are now normalized but remain well above their pre‑pandemic baseline.

Moreover:

It proved to be the best-performing sector in the NCREIF Property Index from 2005 to 2022, with returns since 2010 nearly double that of the overall index.

So what's driving this? Some of the explanations include a frozen housing market, millennials who haven't yet bought a garage and are starved for room, and small-scale entrepreneurs who use it as cheap warehouse space. According to some reports, this latter use case accounts for nearly a third of total demand. And this makes sense to me. But generally, I have tended to apply an egocentric bias to this asset class. My mind discounts it because I don't personally use it.

One way to look at self-storage is that it represents the "unbundling of residential real estate." Housing has gotten so expensive that we continue to search for ways to make it smaller and more efficient. One second-order consequence of this is that storage now needs to be disaggregated and moved to an off-site location where land is cheaper and the build costs are lower. From this perspective, there are strong structural reasons for the sector's growth.

There are also noteworthy differences between Canada and the US. Americans use self-storage at roughly 2 to 3x the rate of Canadians when measured by square footage per capita. Is this because Americans are bigger consumers and have more stuff? Or is it because the industry is more mature and built out at this point? It's likely both of these factors.

According to Avison Young, the supply of new self-storage in Canada is projected to nearly double year-over-year from under 1 million square feet in 2025 to over 1.8 million square feet in 2026. Another specific demographic factor contributing to this growth is Canada's aging population. People are downsizing and then needing to put their stuff somewhere. How long this stuff stays in storage, I don't know, but it's there.

I think the personal tension I have with self-storage is that there's a big part of me that aspires to have less stuff. When I travel, I take great pride in often packing only a carry-on. There's something liberating about having everything I need in one roller. Less is more. But then again, I could really use a new commuter bicycle and I have been meaning to get into splitboarding. How much do those storage units cost again?

Cover photo by Aga Adamek on Unsplash

Back in the fall of 2006, almost twenty years ago, Sam Zell's Equity Office Properties Trust announced that it had entered into a definitive agreement to be acquired by Blackstone Real Estate Partners, in a transaction valued at approximately US$36 billion. This was a massive deal at the time, so much so that Sam Zell would later come to the University of Pennsylvania, where I was in grad school at the time, to talk to real estate students about how smart he was.

The transaction closed in 2007 and, in hindsight, it looked like he had timed the peak of the real estate market perfectly. But in all fairness, when asked about his clairvoyant timing, his response was that he had no idea (probably with a strong expletive somewhere in the middle). His honest answer was that Blackstone simply offered him a price for the portfolio that was greater than their own internal valuation, and so he accepted it.

Another question that he was asked went something like this: "Blackstone is likely going to break up the portfolio, sell off the assets individually or in chunks, and make boatloads of money. Why didn't you just do that?" Despite the peak-market timing, this statement ended up being true. Blackstone generated something like a $7 billion profit on the deal.

But Sam's response was that he couldn't. He cited an esoteric IRS rule that stipulates that once a REIT decides to sell all of its assets and formalizes a liquidation plan, it has a 24-month window to do so, or else get hit with additional corporate taxes. Regardless of the specific IRS section, his reasoning was simple: you never want to be a seller when buyers know you need to sell by a certain time.

This is, of course, intuitively true. Negative leverage is bad in negotiations. In other words, it is highly unlikely that Sam could have generated the same $7 billion profit. I mean, as far as I can tell, Blackstone didn't sell the last office building from the portfolio until 2018, over a decade later.

I was reminded of this principle when reading Prime Minister Carney's speech to the World Economic Forum this week. (This entire post was the best real estate segue I could come up with.) If you haven't read or heard it yet, I would strongly encourage you to do so. Leverage is crucial in negotiations, and it's best to do everything you can to manufacture it.

Cover photo by Kyle Fritz on Unsplash