Brandon Donnelly

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.

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Category: Environment

  • Floodplain homes in the US are overvalued by a total of $34 billion

    This recent paper by Miyuki Hino (University of North Carolina) and Marshall Burke (Stanford) makes the case that US homes situated within floodplains are currently overvalued by a total of $34 billion. And that’s because the associated risks are not being properly accounted for in the value of these homes.

    The problem, it would seem, comes down to information. Because the discount for flood risk was found to be higher (1) for commercial buyers (presumably because they’re more sophisticated and/or have better access to information) and (2) in states where sellers must disclose flood risk (Louisiana is probably the most stringent about this).

    This feels a bit like one of those realtor commercials that tries to scare you into using one. But it does appear to demonstrate just how opaque the market can be and how information asymmetries potentially distort asset prices. Perhaps most importantly, I wonder when climate risk will get fully valued.

  • This is not an art show

    Later this month a new exhibition will open at the Guggenheim Museum called Countryside, The Future. Produced by architect Rem Koolhaas and Samir Bantal (Director of AMO), the focus of the exhibition is on non-urban areas — or, the 98% of the earth’s surface not occupied by cities. The 21st century is being called an urban century. But the argument here is that “the countryside is now the site where the most radical, modern components of our civilisation are taking place.” If you’re going to be in New York, this one should be worth checking out. It’s on my list. Here is a teaser video that was just released by the Guggenheim:

  • A fundamental reshaping of finance

    BlackRock CEO, Larry Fink, published his annual letter to CEOs this week and the title — which I am reusing here — should give you an indication of the tone. The focus is squarely on climate change. Larry argues that, sooner than perhaps most people think, climate change is going to cause a “significant reallocation of capital.”

    Below are a few excerpts from his letter. If you remember the first post that I published this year, you may remember that Larry is not alone in this prediction. Already 2020 is shaping up to be a year where more of us seem to be turning our attention to climate change. I would encourage you to read the full letter over here.

    Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?

    These questions are driving a profound reassessment of risk and asset values. And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.

    Over the 40 years of my career in finance, I have witnessed a number of financial crises and challenges – the inflation spikes of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble, and the global financial crisis. Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature. Climate change is different. Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.

    Photo by Chris Barbalis on Unsplash

  • The re-allocation of capital (and predictions for this decade)

    I have stayed at two hotels over the last month where I did not need to interact with a human as part of the check in process. And in one of those two instances I didn’t even need to interact with a computer at the hotel.

    My room key was issued to me through an app and I used that (and Bluetooth) to open my hotel room door (after the app, of course, notified me that my room was ready).

    This is prediction #2 in Fred Wilson’s annual roundup of what is going to happen next in the world. Automation is reducing the costs associated with operating many businesses. Who is going to be the beneficiary of this consumer surplus?

    The other prediction that should interest most of you — because the impacts would be widespread — is this one here regarding climate change:

    The looming climate crisis will be to this century what the two world wars were to the previous one. It will require countries and institutions to re-allocate capital from other endeavors to fight against a warming planet. This is the decade we will begin to see this re-allocation of capital. We will see carbon taxed like the vice that it is in most countries around the world this decade, including in the US. We will see real estate values collapse in some of the most affected regions and we will see real estate values increase in regions that benefit from the warming climate. We will see massive capital investments made in protecting critical regions and infrastructure. We will see nuclear power make a resurgence around the world, particularly smaller reactors that are easier to build and safer to operate. We will see installed solar power worldwide go from ~650GW currently to over 20,000GW by the end of this decade. All of these things and many more will cause the capital markets to focus on and fund the climate issue to the detriment of many other sectors.

    For the rest of Fred’s predictions, click here. These are always great reads.

  • New York City is testing new “flex gates”

    I spent a good chunk of this morning talking and thinking about underground building details that most people (unless you’re in the industry) would never think to consider. This is not a criticism on most people. I mean, I don’t know how iPhones are made. I just use and enjoy them. But when it comes to buildings, I’m paid to ask questions and understand how things work.

    There’s a lot of risk in the ground.

    You have to think about things like bearing capacity, environmental contamination (usually), hydrostatic pressure and, generally, how you’re going to manage water, particularly if you have a high groundwater table. Usually this last one is about making sure you’re keeping the water out. A pretty important detail both below and above grade.

    So when I came home tonight and saw the below tweet, I felt obligated to write about it.

    If you read the reply from NYC’s Metropolitan Transportation Authority, you’ll see that this is them testing something they call a “flex gate.” It is a flood barrier that allows them to seal off subway entrances in the case of a storm surge and they run these tests (shown above) for 4 hours at a time to make sure they’re installed property. This one was.

    Managing water is a big part of city building. New York City, Miami, Venice, and countless others know this all too well right now.

  • Anthropocene

    Edward Burtynsky is a Canadian photographer who is known for his images of industrial landscapes. In 2018, he released a documentary film called Anthropocene: The Human Epoch. It was the third in a trilogy of films that he directed alongside Jennifer Baichwal and Nicholas de Pencier. In this one, the group tries to draw attention to the way in which us humans have (negatively) reengineered the planet and created a new geological epoch known as the Anthropocene. I think many of you will find it interesting and eye-opening. Here’s a trailer (it debuted at the Toronto International Film Festival in 2018):

  • Mapping auto emissions in America

    This morning the New York Times published what they are calling the most detailed map of auto emissions in America. In it, they remind us that transportation is the largest source of greenhouse gases in the US today and that most of it comes from our driving habits within metro areas. See below charts.

    Not surprisingly, if you look at total on-road emissions, the biggest cities — New York and Los Angeles — are at the top of the list. But you also have car-dependant regions like Dallas-Fort Worth that punch above their (population) weight in terms of total emissions.

    Now, here’s where it gets interesting. The story flips as soon as you adjust for population.

    On a per capita basis, New York is pretty much at the bottom of the list. It is yet another reminder that one of the most sustainable ways to live is in a dense urban environment where it is possible to get around without the use of a car. New York is, of course, one of the best places in the US to do exactly that.

    Charts: New York Times

  • The Central Arizona Project

    Phoenix is the 5th largest city in the United States. It has a city proper population of about 1.6 million people and a metro area population of close to 5 million. It is also one of the fastest growing cities in the US.

    But being the desert city that it is, its population consumes more water than its natural aquifers can support. Which is why there is something called the Central Arizona Project (CAP).

    Approved in 1968, the CAP diverts water from the Colorado River into the state of Arizona. The system is 336 miles (or 541 km) and it runs from Lake Havasu to Tucson, via Phoenix.

    Here is an aerial image of the canal from Wikipedia Commons:

    And here is a system map from CAP:

    Today, it is the single largest water source (and consumer of power) in Arizona, serving about 80% of the state’s population. This obviously makes it invaluable. It delivers on average about 1.5 million acre-feet of water per year. (Acre-foot = Acre of area x one foot in depth.)

    I was reading about this project today and I found it fascinating. Maybe some of you will too.

  • Snøhetta completes energy positive building in Norway

    Snøhetta has just completed an office building in Trondheim that produces more than double the amount of electricity that it consumes. If you recall my recent post on Norway’s new coastal highway, you may remember that Trondheim is the northern terminus of highway E39. I mention this because of access to sun. Latitude 63.43.

    The office building is about 18,000 square meters and it is wrapped with about 3,000 square meters of solar panels. The roof is angled at 19 degrees in order to maximize sun harvesting, and any excess electricity is fed back into the city’s grid / neighboring facilities. Large batteries also help to help carry the building through the winter months (again, latitude 63.43).

    Here are a few photos of the roof (via Dezeen):

    I wish I had more of the details so that I could see how the numbers pencil. Hard costs, utility costs, office rents, government incentives/disincentives, embodied energy in the batteries, and so on. Because this looks like an extraordinary accomplishment for a city that is remarkably north.

    Images: Dezeen

  • Every major hurricane in the North Atlantic and Eastern North Pacific

    I came across this map while reading up on Hurricane Dorian:

    It is a map showing the tracks of every known hurricane in the North Atlantic (1851-2013) and in the Eastern North Pacific (1949-2013). Major hurricanes (category 3 or higher) are shown in yellow and tropical cyclones (intensity less than category 3) are shown in red.

    The map is from the National Hurricane Center. Some of their other maps include the points of origin for tropical cyclones (here is August 21-31 from 1851-2015) and the total number of hurricane strikes by U.S. county (here is Florida from 1900-2010).

    What has happened is a catastrophe. UBS is already estimating the insured damages in the Bahamas to be between $500 million and $1 billion. But as is usually the case, the total economic losses will likely exceed the insured losses.