When I was in grad school studying real estate, I remember one of my professors once making a joke about the lifecycle of developers. He said that developers usually start by first doing a small project. Then they take the profits from that project and roll them into a bigger project. Once that is done, they take those profits and roll them into an even bigger project. And then they go bankrupt.

The point he was trying to make was that development is a risky business. One of the reasons for this — and there are countless reasons — is that projects take a long time. This means that during the regular course of a project, it is not unusual to be faced with a handful of very different markets. And during these varied market conditions, you are likely going to make different decisions (and wish you had made different decisions).

Take, for example, land.

One of the customary ways to buy development land in Toronto during the last cycle was to pay for it with the help of a land loan. Land loans are not based on any sort of debt service coverage ratio because, typically, there isn't enough (or any) income to actually service the loan. It's all based on the land's future potential.

Instead what happens is that you forecast how long you'll need to hold the land, you budget for the interest costs during this period, and then you convince yourself that you'll be able to "take out" this loan in the future — typically by way of a construction loan or by selling the land to someone else. Unless you have the resources to land bank, you are implicitly making the assumption that there will be a market in the future.

This assumption works great in a rising market because the land often continues to appreciate (sometimes regardless of your actions) and usually you or someone else can create a productive use for it. But if the music stops during this period, it can be problematic, because now you may only have one way out:

Cover photo by amirgraphy on Unsplash

Yesterday, we spoke about a slender single-stair apartment building on a small 60-square-meter site in Tokyo. Today, let's talk about a different kind of proposal. Earlier this month, the Park City Planning Commission heard a redevelopment proposal from the Kensington Investment Company for a site near Old Town at 1500 Kearns Boulevard. The site is 2.71 acres, and the existing building houses 48,000 sf of office and retail space.

The proposal is for a new mixed-use development including:

• 117 residential apartments (97 market-rate and 20 affordable)

• Over 9,400 sf of commercial/retail space

• Over 20,000 sf of amenity space (including a rooftop terrace and patios)

• 210 underground parking spaces

Some of the key development approvals being asked for include:

• Master Planned Development approval & Conditional Use Permit

• A reduction of the north setback from 25 feet to 10 feet

• A building height exception to 49.5 feet (from the 35 feet currently allowed)

A formal vote has yet to take place, though apparently, the project is somewhat controversial. The developer is asking to increase the maximum height from three storeys to four. Ordinarily, the Planning Commission would want to see an increased setback accompany this ask, as opposed to a reduction.

But here we have a classic development trade-off. The developer could, in theory, build more density under the existing permissions, but the ground plane and the overall development wouldn't be as pleasant. So, the request is to build incrementally higher, but then open up the site more.

Here's a comparison between the developer's proposal and what is permissible by-right:

It'll be very interesting to see how Park City votes on this one.

Images via Building Salt Lake

It's fun to examine projects that I could never underwrite or build in Toronto. Here's another one from Tokyo — a 10-storey, single-stair apartment building on a busy street, next to a metro station.

The site itself is only 59.49 m2 (~640 ft2), and the building footprint is 47.97 m2 (~516 sf), for a total of 388.28 m2 (~4,179 ft2). There's retail on the first and second floors, one home per floor on levels 3 through 8, and then a two-storey home on levels 9 and 10. All of this is serviced by a single elevator, and a single open-air egress stair off the back.

The building itself uses a simple structural system involving 6 columns (which you can see evenly placed on the plans). According to the architect's notes, they started with a simple 4-column design, but apparently the columns were too large and compromised the suite layouts.

Tokyo is a unique city and this kind of housing wouldn't work everywhere. But there's a universal lesson here: removing barriers and allowing small infill projects is a good thing for cities. Until these projects are feasible, we won't know exactly what the market actually wants and could support.

Photos from Hiroyuki Ito Architects