Category: Development

• Architecture as a product

  Construction is generally considered to be the world’s largest industry, and yet, it is well known that its productivity levels suck. Over the last half century, the industry has experienced something in between meager and negative productivity growth.

  It is for this reason that, for as long as I can remember, people have been trying to figure out how to turn development and construction into something more repeatable and less custom — something like a product.

  Now, there can be a bit of a stigma associated with this moniker. Architects don’t often like to think of their work as being a product and references to modularity can sometimes evoke feelings of cheapness (think manufactured homes).

  But I think all of this is quickly changing. And at the end of the day, we are going to need to start building like this if we have any hope of making housing more affordable within our cities.

  Here’s an example.

  Back in 2021, I wrote about a new modular housing company called Juno. They had just broken ground on their first project in Austin (a five-story 24-unit building), and they were in the media talking about how they had more or less reduced the building down to 33 standardized parts.

  The multi-family space has since softened in Austin, and I don’t have any inside knowledge of how this project went, but the building is now complete and being leased up. And regardless, I think it’s an important case study to look to. This is where our industry is heading.

  2024.05.06

• Unclear and unknowable

  Development land, as we often talk about on this blog, should be the residual claimant in a pro forma. Meaning, start with your revenue, subtract your costs and required margin, and then see how much money is leftover to pay for the land. This is, in theory, how you should value land.

  It’s also the most disciplined way to go about your underwriting. In fact, it can be beneficial to not know the asking price or broker guidance for a new site until you’ve completed this exercise. That way you won’t bias yourself.

  However, in practice, it can be difficult to do all of this. In a rising market, you might find that there’s always some other developer who is willing to be more aggressive on their assumptions, which means they will be willing to pay more for the same piece of land.

  And so if you want to be in the game, you might find yourself doing the exact opposite: starting with the land price and then trying to figure out how to make the rest of your model work. We’ve all been there.

  During this stage of the cycle, you get punished for being conservative and disciplined — you don’t win sites. But when the market turns, discipline and conservatism get rewarded handsomely. You then become thankful for the deals you didn’t do. And I’m sure that many prudent risk managers are feeling this way right now.

  It is very challenging to underwrite new sites today. Many of the assumptions that go into a pro forma are unclear and unknowable. And so the spread between what developer’s models are telling them to pay and what landowners want to sell for is often significant. That is why everyone is trying to find “creative deal structures” that can be used to close this gap.

  At some point, though, the gap will actually close; things will once again feel clear and knowable. I have absolutely no idea when that will happen, but I do know that when it does, it will then be too late from a maximum opportunity standpoint.

  Because that’s how risk works. Once the uncertainty is gone, it’s no longer a risk. And if it’s no longer a risk, then you’re not going to be paid for bearing it.

  2024.05.04

• Toward more rental housing

  The Greater Toronto and Hamilton Area is expected to see 6,821 new rental homes completed this year. This is a “multi-decade high”, according to Urbanation’s latest rental report. Indeed, you need to go back to the 1970s to get rental supply figures of this magnitude.

  A big part of this has to do with the fact that we are now taxing rental housing less. Toward the end of last year, the federal government removed their portion of the HST on new rental housing and, then in November, the province of Ontario followed with theirs.

  This was “a big first step” for the industry, according to leading apartment developers like Fitzrovia.

  But there’s another reason that many developers are now looking to purpose-built rentals: fewer people are buying new condominiums. And if you can’t presell condos, well then you’re going to need to find another path forward for your land.

  However, flipping over to rental is not necessarily a panacea. The margins are generally razor thin (+/- 50 bps). It requires more and different capital (typically). And you need to believe in some fairly non-consensus assumptions (high rent growth, low cap rates, etc.).

  It’ll be interesting to see how many developers are able to successfully flip over to rental and how sustained this rental supply number will be.

  2024.04.30

• Open-air corridors and exterior exit stairs

  Montreal is, in many ways, a city of winding exterior stairs. If you’ve been there, then you know. The city is overwhelmingly a city of low-rise apartments (less than five storeys). And with these, comes lots of exterior circulation. But this tradition doesn’t just apply to older buildings. Here is a contemporary tall-building example which follows a similar approach.

  Designed by MSDL Architects, the project, called The Laurent & Clark, consists of two tower volumes. They read as two separate towers, but they’re connected and share egress paths. On the east side is a conventional “scissor stair” tucked behind two elevators. And on the other end, connected by an open-air corridor, is an exterior exit stair that runs all the way up the tower.

  Here is a circulation diagram via Azure:

  

  This is novel (at least in this part of the world). The suites in the west tower are all dual aspect; meaning, they have windows on both ends.

  They also have direct elevator access (see cores above), which means a lot less non-revenue generating circulation space. I mean, if you think about it, the open-air corridor on the north side of the west tower is akin to building a simple balcony. Extend the slab and add a guard rail. And so you could argue that this portion of the building has a near 100% efficiency factor.

  However, the downside is that you need more elevators. Here, it looks like they have 6 for their 356 suites. That’s an overall ratio of just under 60 suites per elevator, which is lower (i.e. better) than what you’d typically find in a conventional tower. The crude rule of thumb is 1 elevator for every 100 suites. That said, these direct-access suites would be premium.

  But perhaps the most important takeaway is this: If cold and snowy Montreal is cool with open-air corridors and exterior exit stairs, then maybe your city should be as well.

  2024.04.25

• How big (or small) are your parking spaces?

  There is an ongoing architecture/development joke that the way you design a building is by first starting with the parking. Once you’ve figured out how the parking will work, you can then move on to, you know, the secondary stuff, like figuring out how actual humans will occupy your development. I’m calling it a joke, but there’s obviously some truth to this. Parking is almost always a challenge, especially if you’re developing in a city that still has parking minimums.

  Previously, I’ve talked about the benefits of “unwrapped” above-grade parking. This is generally counter to how most cities like to think about parking. But for a few reasons, it can make a lot of sense. However, to be clear, I’m not advocating for more parking. My point was simply that — if you absolutely have to build parking — then maybe you should look at spaces that give you some flexibility in the future.

  At the same time, there’s another more nuanced thing to consider: how big are your actual parking spaces? Here in Toronto, a standard parking space is 2.6m wide x 5.6m deep (about ~157 sf). This is larger than some apartments. But these minimum dimensions can vary greatly by municipality. Oftentimes you’ll hear planners say, “well, people here like their big cars.” The problem with this is that these dimensions will dramatically change your parking design.

  So today I thought it would be interesting to gather a few data points from all of you. What are the minimum parking space dimensions in your city? Please leave a comment below so that everyone can see. As far as I know, there isn’t a globally accepted set of dimensions for parking spaces. Perhaps because some places like big cars and other places don’t care. But maybe there should be.

  2024.04.23

• New York’s first all-electric tower

  Here’s the thing:

  Nationwide, the biggest single source of emissions is transportation, dominated by low-occupancy cars and trucks. But in New York, most people use mass transit instead of driving. That means buildings “are by far the largest source” of climate pollution in the city, said Christopher Halfnight, senior director of research and policy at the Urban Green Council, a nonprofit focused on energy efficiency in buildings. Gas- and oil-burning furnaces and water heaters are together responsible for 40% of NYC emissions, according to Halfnight.

  In response to this, New York City has been passing laws that restrict greenhouse gases and that by and large incentivize electrification. One of these is Local Law 97, which will generally require buildings over 25,000 sf to reduce their GHG emissions by 40% (relative to 2005) by 2030.

  Already the market is responding. Alloy Development has just completed the city’s first all-electric tower at 505 State Street in Brooklyn. Tenants began moving in on April 5.

  When team members asked what the complex would look like absent gas, the answers were fairly straightforward. “Instead of a gas boiler, an electric boiler; instead of a gas cooktop, it was an induction cooktop. And literally that was it,” said Pires, noting that they had to revise the design of the electrical room to allow for higher amperage, since more incoming electricity would be needed for a larger electrical load.

  Some, or perhaps many, in the industry are fighting these new laws. In 2022, a co-op in Queens apparently went to the New York Supreme Court. But directionally, this certainly looks to be where we are headed. So you can either fight it, or you can try and get ahead of it, as Alloy has done here.

  For more information on 505 State Street, go here (Bloomberg) and here (project website).

  2024.04.22

• Investors vs. end users

  Over the years, we have spoken a lot about the role that investors play in Toronto’s pre-construction condominium market. In the media, they are often spoken about pejoratively. They are seen as being a well-capitalized group that outbids end-users for a limited supply of new housing.

  But on the other hand, we know that (1) they have been a major contributor to new rental housing in this city (they filled the gap after we decided in the 1970s that we didn’t like purpose-built rentals) and that (2) they play an important function in getting new housing financed.

  For better or for worse, we know that, without an investor market, there would have been far fewer new homes constructed over the last cycle. Pre-sales are generally always a prerequisite for a construction loan. And the fastest, and therefore safest, way to get pre-sales is/was to target investors.

  But the world has changed since then. Investor demand has diminished. So much so that you could argue that the opposite is now true.

  I was speaking to my friend Christopher Bibby this morning and he reminded me that end-users, who are passionate about specific projects and neighborhoods, are the more resilient demand base during a downturn. Because if you need a place to live, you need a place to live.

  Perhaps it’s no coincidence that every single sale that we have had at Junction House this year has been to an end-user who moved in.

  2024.04.20

• More sellers than buyers

  This week, Urbanation released its condominium market update for Q1-2024. And I’d like to point out two data points. Firstly, across the Greater Toronto & Hamilton Area (GTHA), there were 1,461 new condominium sales for the quarter.

  This is the lowest quarterly total since Q1-2009 (the global financial crisis) and the second lowest total since the mid-1990s. (Remember when we spoke about right now being the toughest market since the early 90s?)

  Secondly, during this same time period, 2,361 new condominiums began construction across the region. This represents a 52% annual decrease. So all in all, fewer people are buying new homes and fewer new homes are starting construction.

  What is obvious is that the market is slow right now. What is not obvious is what happens next. It’s unknowable. There’s risk. My gut is that the market will come back more slowly than many people are expecting, or perhaps hoping. There’s inventory that needs to work its way through the system first.

  But ultimately it will come back. Toronto is one of the greatest cities in the world and there remains a need for more homes. Which is why I continue to believe that, if you are in the market for a new one, now is arguably a wonderful time. You get to buy when most others aren’t.

  2024.04.19

• Grit and resilience in Detroit

  Earlier this month, the new Hudson’s tower in Detroit “topped out.” Meaning, they laid the last steel beam at the top of building. This, to me, is fantastic news. (Here’s the official project website in case you’re interested.)

  The tower, which was designed by New York-based SHoP Architects, is just over 685 feet tall. This makes it the second tallest building in the state of Michigan, after the Renaissance Center. And when it’s complete, it will house 1.5 million square feet of office, retail, food, residential, hotel, and event space.

  This week it was also announced that General Motors will be moving its headquarters and its 5,000 downtown employees to this new tower. I don’t know who will backfill their old space in the Renaissance Center, but that’s a topic for a different day. Today, I think we should be talking about the grit and resilience of Detroit.

  This is a city that reached a peak population of approximately 1.85 million people in 1950, had its population decline by more than 65%, and then became the largest city in the US to declare bankruptcy (2013). Now they’re building a big ass mixed-use tower in the center of downtown.

  👊

  2024.04.16

• Lisbon Hotel

  

  

  

  

  My friend David Wex recently opened up a new bar called Lisbon Hotel, and this evening I went to check it out with him. It’s not in Lisbon. And it’s not a hotel. But it is deliberately designed to feel like a hotel lobby bar, and it is a great place for drinks and snacks. I recommend both of the dishes pictured above — especially the cucumber and dill one.

  It’s also housed in the River City community, which his firm Urban Capital developed. And I think that’s something. Developers are often criticized when they put in boring (yet profitable) uses in the ground floors of their buildings. And this is not that (though hopefully it’s still profitable). This is him and his partners wanting to do something cool and help create a “place.”

  Who said new ideas need old buildings? Rhetorical question. It was Jane Jacobs who said this.

  For more on Lisbon Hotel, check out this profile in Toronto Life.

  2024.04.11