Category: Development

• Three-legged stool

  

  A good friend of mine, who is also in the industry, once described real estate development as a three-legged stool. In order to develop, you really need three things: expertise, capital, and a site (i.e. land). This probably seems fairly obvious. I mean, you need to know what you’re doing, you need the money to do it, and then you actually need a place to build. But as simple and as obvious as this may seem, there are barriers to entry. Real estate is a capital intensive industry. And despite what the general public seems to believe about the pockets of developers, most are raising outside capital.

  The thing about this three-legged stool is that you don’t necessarily need to have all of the legs at once, and in many cases you won’t. If you have two of them in place, it’s usually feasible to figure out and get the last one. For example, if you know what you’re doing (expertise) and you have a site (owned or “under control”), then presumably you have a development pro forma that makes some economic sense. And with those things, you generally should be able to find the capital that you need to execute on your project.

  I’ve also met people who have managed to build this three-legged stool starting with only one leg. They didn’t have much development experience or capital connections, but they learned enough to figure out how to value development land. They then went out and started knocking on doors, eventually putting together a development assembly. They then took this assembly to developers (people with expertise) and the stool eventually got built. Starting with only one leg just means you’re going to have to work harder to fill in the others.

  A one or two-legged stool won’t stay upright on its own. But hustle will hold it up temporarily while you figure out a creative way to attach the missing leg(s).

  Photo by John Boatile on Unsplash

  2020.06.28

• Views from the Junction

  

  

  

  Shot on DJI Mavic Mini

  2020.06.26

• Supertall drawings

  The submission documents for 1200 Bay Street — the supertall being designed by Herzog & de Meuron and Quadrangle Architects — are now publicly available through the City of Toronto’s development applications website. I went through the plans today out of curiosity. Below are the typical residential floors. The three tranches shown here are floors 19-46, 48-79, and 81-84. Note the side elevator core and the east-west shear walls — both of which I was expecting to see.

  

  And here are some of the main project stats:

  • Site area after laneway widening: 890.1 square meters
  • Total gross floor area (residential & non-residential): 54, 898 square meters
  • Floor space index: 61.67
  • Building height (excluding mechanical penthouse): 324 meters
  • Number of residential suites: 332
  • Vehicular parking spaces proposed: 0
  • Bicycle parking spaces proposed: 673

  As a rule and out of professional courtesy, I do not comment on other people’s projects on this blog (other than to occasionally point out awesome and ambitious projects). But I do enjoy going through drawing sets to see what others are doing and to see what I might learn. And I am similarly happy to collaborate with others who may want to learn from what we are doing.

  If you’d like to download a copy of the submission package, you can do that by entering the address over here.

  2020.06.10

• First shoring rig arrives at Junction House

  Our first shoring rig was delivered and setup today at Junction House. A second one is on the way shortly.

  It will take a couple of months to complete all of our caisson piles. If you’d like to learn about how shoring is constructed, check out this “explainer” from UrbanToronto.

  It was also an absolutely beautiful day here in Toronto — not a cloud in the sky. So here are a few photos from site.

  

  

  

  

  

  2020.06.08

• Masterplanning a successful main street

  I had a discussion with a friend of mine over the weekend about what it takes to masterplan a successful retail main street. We talked about street networks, storefront sizes, the impact of Toronto’s PATH on ground level experiences, and a bunch of other things. Ultimately, we both agreed that this is really not an easy feat to accomplish. More often than not, we screw it up. Many of the most cherished retail spines in this city rely on buildings that were primarily built during a different era. They’re old stock.

  All of this got me wondering:

  What is the best retail street in Toronto comprised of buildings that were all or mostly built in the last 10-15 years?

  — Brandon Donnelly (@donnelly_b) June 7, 2020

  Some people responded by saying it doesn’t exist. Hmm. Is our track record that bad? Let’s dig a bit deeper and expand the scope of this question. What are some of the best retail streets around the world that comprise of buildings that were all or mostly built in the last 50 years? I would love to hear from you. Please leave any responses and/or thoughts in the comment section below. I plan to look at this topic in more detail and share specific examples in the coming weeks.

  2020.06.07

• Urbanation releases May 2020 condo market update

  The latest condo market data from Urbanation is encouraging. As I reported last month, April was a very slow month, which isn’t surprising given that it was the first full month of lockdown. Residential resales across the Greater Toronto Area were down 67% year-over-year.

  In May, we have seen resale condominium sales increase by almost 60% compared to April, though they are still down by a wide margin compared to last year. The average sale price also increased by 7.9% compared to April and by 3.4% compared to last year. This puts resale condominium prices in line with what we were seeing in Q4-2019.

  The rental condo market (that is, condos being rented out via MLS) also showed signs of stabilizing. Leases increased by 75% compared to April, outpacing the number of new listings (66%). Rental rates remained more or less flat (0.3%) compared to April, but they are down by about 5% compared to their Q3-2019 high.

  On the new construction side, we have only really seen a handful of new launches/releases. Units are selling, but it still feels a bit early, at least for me, to really determine where we’re at in terms of pricing and velocity. Nevertheless, I suspect that we will see a significantly stronger fall market come September.

  2020.06.06

• Neon and space

  

  At this point, it is well known that I am a big fan of neon. It is something that we have obviously worked to incorporate into our Junction House project through things like our rooftop placemaking sign (it’s actually LED), our collaboration with local artist Thrush Holmes (his work incorporates neon), and the neon popup gallery that we hosted last year in collaboration with the Downtown Yonge BIA and Neon Demon Studio. So it was no surprise that a friend of mine sent me an ArchDaily article this morning talking about how neon lighting shapes architecture.

  What I like about the piece, and the pictures it includes, is that it emphasize the spatial qualities and potential of neon. For a lot of us, neon has come to represent brash advertising. Neon is bright. That was and is great for advertising. But that association has been changing. Even cities like Hong Kong, which have for so long been synonymous with neon, are starting to lose that form of advertising. I’m not saying that loss is a good thing. But I do think that we are now seeing neon being used in completely different ways. It has become more creative. It has become architectural.

  Below is an excerpt from the ArchDaily article that speaks to this same idea. But what you really want to do is shoot over and look at all of the photos.

  Yet because neon is so fundamentally associated with signage, which can feel limiting or kitschy for some architects, it is often neglected. Rudi Stern writes further that “Unfortunately for many architects, neon is the last shoddy pink ‘pizza’ sign they have seen, and they summarily reject a medium that offers great promise as a spatial and environmental element.” Thus, despite its historical and commercial associations, neon has the potential to be even more than retro symbols or cosmopolitan phrases. Abstract designs, atmospheric colors, and the kinetic properties of light combined can completely alter a space even without references to a historical aesthetic or explicit messages. In the images of the With.It Home below, BodinChapa Architects have used neon in a non-representational way to create a stunningly memorable James Turrell-esque room that is simultaneously tranquil and radiant. Neon light has the power to completely transform a room even if used in as simple a way as lining the corners of the ceiling, due to the unique properties of light in conversation with the sense of space itself. If architects can move past its commercial associations and investigate its relationship to architectural space, neon can become an even more powerful atmospheric element than it is already.

  Photo by Yuiizaa September on Unsplash

  2020.06.01

• Acquisition price vs. current market value — which should be your land input?

  If you’ve bought land with the intention of developing it and you now think the value of that land has either gone up or down, there comes the question of what number you should plug into your development pro forma. Do you input what you paid for the land or do you input the current market value of the land? The former is probably more common than the latter, but in my view it’s important to consider both scenarios.

  If the value of the land has gone up, it means that you think you could turn around and sell it for that price today. And that would mean you would be making a profit without doing anymore work and without taking on any additional risk. That’s an option that exists right here and right now (t = 0). What you want to get at in your pro forma, or at least understand, is the incremental profit margin from taking on the risk and brain damage of actually doing and completing the development project.

  To do that, you need to consider the current market value of the land. That way you isolate your land margin from your build-out margin. The one problem with this approach is that the numbers may then tell you not to develop. In a hot market (which is not right now), it is not uncommon for land to get bid up beyond current fundamentals. There’s always someone else who is willing to be more aggressive.

  In this case, you may find that most of the development margin is in the land. And you will start thinking to yourself, “How can anyone afford to pay this much? It doesn’t make sense.” This doesn’t necessarily mean that you shouldn’t develop. But at least it gives you a better understanding of the risk and reward trade-off that you’re about to take on. It might also tell you some things about the market.

  2020.05.14

• Building size matters

  If you’re trying to figure out how to make housing more affordable, it should be fairly obvious that it’s probably a good idea to actually understand the costs associated with building new housing. That is, more or less, the title of this recent series by Brookings about innovation in design and construction. The four-part series is based on the findings of a report that was written by Hannah Hoyt and published by Harvard’s Joint Center of Housing Studies and NeighborWorks America.

  Now, costs vary by geography. Each city has its own nuances when it comes to development. And this should not be construed as a silver bullet. But what they are trying to do is identify design and construction savings to help the overall equation. Part of their argument is that building typology matters. Build smaller — hopefully out of wood — and you can bring your hard costs down. The problem with this thinking is that the trend lines are moving in the opposite direction.

  Here is a chart from the same Brookings article:

  

  In 2000, about 23%, or almost a quarter, of all multifamily units completed in the US were in a building with fewer than 10 units. As of 2018, that number had dropped to somewhere around 5%. At the same time, the number of completed units in buildings with 50 or more units has gone from 14% in 2000 to about 61% in 2018. Things got a little wonky after the global financial crisis, but generally the trend lines are pretty clear.

  Some of this likely has to do with our “return to cities.” But I think the bigger part of this story is that development cost structures are pushing the market in this direction. For more on this topic, check out: Demystifying the development pro forma.

  2020.05.12

• Brutalist wine warehouse for sale near Bordeaux

  

  I am sure that many of you have been eagerly waiting for an old Brutalist wine warehouse to come on the market near Bordeaux, and so here is a listing from Espaces Atypiques. The site is over 1 hectare. The ground floor is about 2,000 square meters. And the central atrium space is some 25m tall. It’s listed for €550,000 and I reckon it needs a bit of work.

  I don’t know where exactly it’s located in Saint-Émilion, France (nor have I ever been) and I can’t vouch for the condition of the existing building in any way shape or form, but I do think it would be a lot of fun to turn a Brutalist structure like this into a hotel, restaurant, and creative event space. Public gathering space(s) in the atrium; private rooms along the perimeter.

  Image: Espaces Atypiques

  2020.04.28