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.

Category: Development

  • Micro-housing experiment in San Diego’s Little Italy

    San Diego-based Jonathan Segal is a unique kind of builder in that his firm doesn’t have any clients. They act as both the architect and developer for all of their projects. This gives them a lot of control over the building process, but also more freedom to experiment.

    ULI recently interviewed Segal about his micro-housing project on 320 West Cedar Street in San Diego’s Little Italy (called The Continental). And I think it’s a pretty interesting case study for us to discuss here on the blog.

    It’s a 5,000 sf corner site, and Segal developed it with 42 micro units (5 of which are priced at 65% of AMR), two retail spaces at grade, and a separate “single-family townhouse” for his son that sits on top of the retail space at the corner.

    The idea was to create relatively affordable “workforce” housing, which is why there’s also minimal parking. The 37 market-rate units are currently priced between $1,595 and $1,995 per month, and the affordable ones are about $900 per month.

    Segal is forthright in the interview in saying that leasing velocity was slow following completion in December 2019. It was hard to rent these kinds of units in San Diego without any parking. But he viewed the project as an experiment and eventually he did find product-market fit.

    The mix of housing types here is also noteworthy. Presumably his son could have just gone out and built a more typical grade-related home. But why do that when you can build on top of an urban retail space and add 42 other homes to the lot?

  • The infamous 45-degree angular plane

    The Toronto mid-rise housing typology is known for architectural forms that often end up looking something like this:

    The reason for this is the infamous “45-degree angular plane” that gets applied when new developments abut low-rise residential neighborhoods. It is a way to transition down and mitigate some of the impacts associated with this kind of infill development — usually the concerns are overlook, privacy, and shadowing.

    These are, of course, legitimate concerns. But here’s the other side: Should we really be reducing the number of homes that we can build on our main streets by carving away area like this? Is overlook and shadowing more important than additional housing? Stepping buildings like this also makes constructing them more expensive and cumbersome. Are higher costs the goal?

    It is for reasons like these that some people have been paying attention to the new Danforth Avenue Planning Study that went to Toronto City Council this week. Among other things, the study recommended the relaxation of the 45-degree angular plane standard along a portion of the Danforth.

    This is certainly a step in the right direction. But in my humble opinion, it’s not nearly enough for an area that will ultimately sit at the intersection of two subway lines.

  • Destructive development?

    Planner Sean Hertel shared this (embedded above) on Twitter over the weekend. It is a lawn sign from Toronto’s Junction neighborhood that is calling for a stop to demolishing family houses for high rises.

    From what I can tell, this law sign is trying to communicate a few key messages.

    One, high-rises are monstrous beings that enjoy praying on innocent low-rise houses and squashing them with their feet, and sometimes their asymmetric hands.

    Two, it is mostly impossible to conceive of a world in Toronto where families live in high-rises and don’t live in grade-related housing with a backyard.

    And three, there is little value in building more, rather than less, housing in order to help with affordability concerns. Perhaps the thinking is that it needs to be low-rise affordable housing, or nothing.

    With all of this said, let’s do a little thought exercise today on the blog.

    Let’s for a second assume that there aren’t any high-rises proposed in the Junction; only European-scaled mid-rise buildings that sit on the area’s main avenues and back onto low-rise single-family neighborhoods. Let’s also assume that these buildings will be sculpted in complete deference to their rear neighbors so that things like shadows are minimized.

    Let’s assume that more housing is better than less housing.

    Finally, let’s assume that, get this, noble families may actually be able to live in mid-rise and high-rise buildings. And that there are already many successful examples of this taking place in the city, such as over here in CityPlace.

    What key messages would this lawn sign be then communicating?

  • Mass timber construction next?

    We poured the last section of our level 4 slab at Junction House yesterday. As I was leaving the site, I tweeted this photo out from Watkinson Avenue. What you are seeing is the northwest corner of the building where we have seven two-storey towns that front onto our rear laneway. In response to this tweet, Andrew Williamson asked a most excellent question: “timber next?”

    My response was that we would love to do a mass timber building. We have certainly looked at it in the past, and we will continue to look for opportunities to use more sustainable building materials wherever possible. But there are challenges to overcome and a project like Junction House would have been far more difficult to do in mass timber. I’m not an expert when it comes to wood construction, but I will offer up three items that have come up for us in the past.

    The first is trade familiarity. We are in a highly inflationary hard cost environment right now. Everyone is hyper focused on costs and the market is competitive. So switching to a construction method that is less common comes with some additional risks. But this will almost certainly change over time as the market evolves and more people adopt mass timber.

    The second is water. The Junction area, or at least parts of it, have a relatively high water table. That is certainly the case with our site. One of the things you need to do during construction is dewater, or draw down the water level within your site so that you can actually build. In our case, we built a watertight below-grade parking structure, though that isn’t always the case.

    Dewatering comes at a cost and so generally you want to stop dewatering as soon as it is feasible to do so. But you need to make sure that you have enough weight to counteract the buoyancy forces associated with groundwater returning to the site. Generally this means you need to wait until you’ve finished constructing a certain level in the building so that there’s enough mass. The engineers will say things, “we can shut off the dewatering once we complete our level 4 slab.”

    The thing to consider with all of this is that concrete is heavier than wood, which means that you may need to run your dewatering program for longer (increasing your costs). Or, if your building isn’t all that big, maybe you’ll never have enough weight to offset the below-grade water forces and so you have to look at other methods for keeping your building from floating away. Again, this will increase your costs.

    The last thing I’ll mention is that mass timber buildings generally have higher floor-to-floor heights compared to cast-in-place concrete. What this means is that a 9 storey building in timber is going to be taller, in meters, compared to a 9 storey building in concrete — even if the clear heights within the suites are the same. This is a massive deal when you’re operating in an environment that is highly sensitive to building height.

    In the case of Junction House, we were negotiating our final height in centimeter increments — literally arguing whether it could be 50cm to 1.3m taller than some perceived maximum height. This is, in my mind, absurd, but it became a hill that people were willing to die on. The result is that our laneway towns (pictured above) went from having an entrance that was a few steps up off the lane to having an entrance that is now a few steps down off the lane. That is how we ultimately solved our centimeter problem.

    This wounded me to my core because, at the end of the day, what are people going to remark: The additional meter at the top of the building or the relationship that these towns will now have to the street? It will, of course, be the latter. So please know that our hearts were in the right place. But what this also means is that had we been trying to build in wood, we likely would have lost a floor during this negotiation and that would have killed the entire project.

  • Shrinkflation in the housing market

    We all know that inflation is a thing right now. Prices are rising. One way businesses can choose to respond to this is through something called “shrinkflation”, which the Financial Times writes about here. The idea behind shrinkflation is that, instead of just raising end prices to absorb higher costs, you instead shrink or reduce your product or service offering. Of course, you could also do a combination of both things: increase your price and shrink your offering.

    This shrinking can take many forms. A few less chips in your bag. A slightly smaller chocolate bar. Smaller food portions at the restaurant. Or maybe opt-in room service for your hotel room. It can also take the form of less space. Average apartment sizes in most big cities have trended downward over the years for this exact same reason. Developers are working to maintain some kind affordability in the face of rising costs.

    I think a lot of people like to scoff at these sorts of practices. Why can’t we just build bigger family-sized suites? But the reality is that it is being driven by real market constraints. Without something giving, like suite sizes, urban housing would be multiples less affordable compared to current levels. The developers I know don’t have any sort of deep-rooted philosophical aversion to selling 5,000 square foot estates in the sky. The problem is simply that most buyers and renters won’t like the sticker price.

  • Per buildable square foot

    Let’s say that you were comparing and thinking about buying two different pieces of development land. Both are about 25,000 square feet in size, but one is priced at $5 million and the other is priced at $50 million. If you were to calculate how much you were paying per square foot of actual dirt, you might conclude that the $5 million parcel is the cheaper one.

    But as we have discussed many times before on the blog, the value of development land depends on what you can build on top of it. So what matters more is the price per buildable square foot. And to calculate this, you simply divide the purchase price by the allowable gross floor area (GFA) on the site (or, in many cases, the GFA that you believe is likely achievable on the site).

    For example, if you could build 50,000 sf on the $5 million parcel and 500,000 sf on the $50 million parcel, both sites would have a price per buildable square foot of $100. This makes them, in theory, equal, assuming all other things are equal. That said, one could argue that 50,000 sf is maybe too small of a build, and so the $50 million lot is actually a better buy because you can hope to achieve some economies of scale.

    Of course, if you could build even more than 500,000 sf on the one lot, then your price per buildable square foot would come down even further and that would make it the more attractive site (again, assuming all other things are equal).

    There are a lot of other details to consider when evaluating a development site. Maybe the $5 million one actually has a bunch of environmental contamination that will cost you an additional $5 million to clean up ($10 million in total costs). In that case, your price per pound would actually be double the other lot, assuming the other parcel doesn’t have any contamination or other factors that might impair value.

    Permitted uses also greatly affect value, with residential often being the most valuable kind of urban density. And so this is ultimately why you need to create a full and detailed pro forma in order to properly evaluate a new development opportunity. But even before you get to that stage, you can tell a lot with just the price per buildable square foot. If you know the market, you’ll usually know right away if it’s too high or if it’s an opportunity that may be worth exploring.

  • 6-unit missing middle site for sale in Toronto

    Marty over at Laneway Housing Advisors published this listing in his newsletter today. It’s for an entitled lot at 78 Gladstone Avenue in Toronto that has been approved (by way of a minor variance) for 6 units. Five units in the front where a house currently sits and one unit at the back in a standalone laneway suite. Though it also happens to be a corner lot and so the laneway suite isn’t really “in the back”.

    It’s listed for $2.5M. And according to the description, you can build about 5,500 square feet (4,200 sf in the front with a 1,300 sf laneway suite). This ask translates into a land cost that is just over $450 per buildable square foot, which is far more than what high-density land typically trades for in the city right now. This is usually the case for smaller low-rise sites.

    To help put this figure into some kind of context, Bullpen Consulting published in their latest insights report that the average high-density land price in Q4-2021 was $135 per buildable square foot in Toronto (416 area code only). Of course, averages only tell you so much. To truly evaluate the feasibility of a site like this, you’d need to create your own pro forma and do your own residual land value calculation. The value of development land depends on what you can build on it.

    If you were to do that, I suspect that you would discover at least two things: 1) you would find it challenging to make the numbers work, particularly for rental housing, and 2) you would quickly realize that this sort of “missing middle” housing isn’t, in its current form, some undiscovered bastion of housing affordability.

    Part of the problem is that these 6 units are not being delivered on an as-of-right basis. Somebody had to go out and entitle the land in order to secure these permissions. That means that time and money were spent and that the current owner is now rightly seeking a margin for their efforts. But if we collectively believe that this is an appropriate and sensible form of housing, then this should not be a necessary step in the whole process. Especially for only 6 units.

    All of this being said, we know that Toronto and many other cities around the world are taking a hard look at this issue. And that there is a groundswell of interest in allowing more housing in our low-rise communities. It’s going to be a battle — just look at how Toronto’s new garden suite policies have now been appealed by various resident’s groups. But I’m certain that we’ll get there, just like we are getting there with laneway housing and other types of ADUs.

  • Construction update: Junction House

    This is a photo of Junction House that I took this morning after our weekly construction meeting. The team is currently preparing for the first concrete pour of level 4 (each floor has been split up into three pours). We’re now flying our forms, which means that we’re able to move a lot faster. This is the exciting part of a new build mid-rise like Junction House. The underground garage part is like watching paint dry.

    We’re scheduled to be topped out by this summer, so expect some gratuitous view photos on the socials.

  • Columns vs. shear walls in residential and office construction

    If I were to make a broad generalization for the way that we typically design the structural systems for residential buildings and office buildings here in Toronto it would be as follows: office buildings tend to have a big structural core with perimeter columns and residential buildings tend to have a smaller core accompanied by both columns and shear walls (long structural walls essentially). There are a myriad of other differences, but for the purposes of this post, I’m going to run with this broad classification.

    When something is typically done a certain way it often means that it is generally what the market wants and it is a cost effective solution. In the case of office buildings, this sort of structural system is essential for maintaining open plans and future flexibility. You can’t have shear walls interrupting your floor plates. And because big office buildings also tend to have a lot of elevators, the structural core is usually what provides lateral stability to the building (or at least this is what the structural engineers tell me).

    But this same imperative for open plans isn’t usually there for residential buildings. In this case, the unit demising is often fairly fixed and the individual resident/tenant spaces tend to be smaller than in office buildings, which makes frequent structural elements a lot more palatable. And since the elevator cores also tend to be smaller (fewer elevators), there is usually a need to introduce other structural elements that can provide the building with lateral stability. (Again, this is what the engineers tell me.) So enter all the shear walls.

    But every now and then, somebody in Toronto will ask: Is this the right way to be building? Other cities don’t build their residential buildings with all of these shear walls and so should we really be limiting the future flexibility of our multi-family housing supply by constructing in this way? These are good questions. The short answer is that it tends to be easier/cheaper to build this way. Our market is used to it. And generally end-users are just fine with it.

    However, this method of building isn’t necessarily a universal truth. The structural system for One Delisle, for example, is far closer to that of an office building than it is to that of a typical residential tower. Much of this was driven by the building’s architecture and its continually changing floor plates. I have also heard of instances where purpose-built rental developers are choosing to go column over shear wall so that there’s greater flexibility in the future. There’s certainly a case to be made for this.

    As developers, it is impossible to know all there is to know about any one discipline. You need the right team in place for that. But we do have to look at the bigger picture, weigh all of the constraints, and then hopefully make a reasonably good decision. This is one example of that.

    Image: Bay-Adelaide Centre North, Toronto

  • Sensible, balanced, affordable, and livable

    I just discovered a new alliance of non-partisan, non-profit resident and ratepayer groups in the Greater Toronto Area that have come together in opposition of what they see as “unregulated overdevelopment and the lack of sensible growth vision for the GTA.” If you’d like to read through their public letter to the Premier of Ontario, Doug Ford, you can do that over here.

    In it you will learn that the Toronto region is vying desperately for the title of the most densely populated place on earth by trying to compete with already established locales like the slums of Mumbai and Monk Kok in Hong Kong. One has to admire ambition.

    But what is not clear to me is what exactly “sensible, balanced, affordable, and livable developments” should look like. Should we quash our low-rise “Neighbourhood” designations (the majority of our land area) and instead blanket the region with mid-rise buildings similar to Paris? This is one option and, by the way, Paris is far denser than Toronto (relevant reading here and here).

    Or should we maintain our low-rise “Neighbourhoods” exactly as they are and simply reduce overall housing supply by limiting height and/or density at our transit stations? Is this the ask? I’m not sure. But this is a good question for city builders: What should sensible, balanced, affordable, and livable development look like? Is the 33-storey building that I live in sensible?