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I was just introduced to a development firm based in Los Angeles called SuperLA. They are focused on sustainably built infill apartments and last year they completed what is the first ever mass-timber multifamily housing project in Southern California. Located at 3520 Marathon Street in Silver Lake and called the "Bungalows on Marathon", the project is 3-storeys (with parking underneath that takes advantage of the slope of the site) and has 9 homes.
Six of the homes are one-bedroom (~660 sf of interior space) and three of the homes are two-bedroom (~1,320 sf of interior space). It's a beautiful project. And because it's LA, all of the building's circulation is outside and tucked toward the back of the site. It's also not a huge site -- my rough Google Map take-offs have it at approximately 12m x 40m. So let's call it the equivalent of two Toronto single-family lots.
Based on suite count, this is similar to the kind of density that you could get in single-family neighborhoods throughout Toronto. However, the built form here on Marathon is decidedly more urban. Despite its horizontality, LA is not as low-density as many might think. For more on SuperLA, here's their website. They've also done a great job with their brand and identity.
Photos via SuperLA
Before 2022, being a land developer was a perfectly reasonable business to be in. In fact, it was a lucrative business to be in. What this business entailed was buying development land, getting it rezoned for some higher-and-better use (which here in Toronto usually takes a few years), and then selling it to another developer who would then build the thing that you got approved (or something close to it).
This kind of business practice is sometimes looked down upon by the general public, presumably because it feels like a speculative endeavor that doesn't actually result in anything physical. But another way to look at it is that it's just dividing up the same required work across multiple firms. Projects can take a long time and sometimes investors want their money back.
It is also good practice to look at this option even if you aren't a land developer, per se. One way you do this is by plugging in the market value of your land in your pro forma (not book cost). This way you can tell if your development margin is coming from your land uplift or from the build out. If most of your margin is coming from the former, then it may not be worth taking on the risk of construction.
In any event, the problem with this business is that it no longer works. (At least not in Toronto.) Land prices are moving in the opposite direction. Without a clear understanding of potential revenues (such as condo sales), it's very difficult to value development land. And if you can't accurately value land, then it's pretty challenging to run a business predicated on selling it.
What this means is that the development margin, if any, has shifted away from land toward the full build out (or whatever else your strategy may be). It's not enough to just entitle land. There's lots of entitled land out there right now. That is not the constraint. The constraint is figuring out how to actually make sites feasible. And to do that, you have to roll up your sleeves and really work each project and each asset.
Those who know how to do that will be the ones who come out ahead in the next cycle.
"Modern luxury is the ability to think clearly, sleep deeply, move slowly, and live quietly in a world designed to prevent all four." -Justin Welsh
Here's a question for you: Would you rather have the car of your dreams or would you rather live longer? (Maybe you don't care at all about cars and so this is an easy question, but bear with me, I'm sure you get the point.) This is a question that was posed to the audience at Elevate earlier this week and the entire room responded by saying that they would choose the latter. This is perhaps obvious. What good are material possessions if you don't have your health? But it's still an important frame of reference. And it's why Brazil-based developer AG7, who was at the conference, has centered their entire practice around "building wellness." Forget the fancy brands. Their buildings are focused on one thing: to help you live better and longer. This, to me, is a compelling value proposition. Because I think there's an easy argument to be made that there's no greater luxury than our own health and wellness.
Cover photo by Alex Perri on Unsplash
I was just introduced to a development firm based in Los Angeles called SuperLA. They are focused on sustainably built infill apartments and last year they completed what is the first ever mass-timber multifamily housing project in Southern California. Located at 3520 Marathon Street in Silver Lake and called the "Bungalows on Marathon", the project is 3-storeys (with parking underneath that takes advantage of the slope of the site) and has 9 homes.
Six of the homes are one-bedroom (~660 sf of interior space) and three of the homes are two-bedroom (~1,320 sf of interior space). It's a beautiful project. And because it's LA, all of the building's circulation is outside and tucked toward the back of the site. It's also not a huge site -- my rough Google Map take-offs have it at approximately 12m x 40m. So let's call it the equivalent of two Toronto single-family lots.
Based on suite count, this is similar to the kind of density that you could get in single-family neighborhoods throughout Toronto. However, the built form here on Marathon is decidedly more urban. Despite its horizontality, LA is not as low-density as many might think. For more on SuperLA, here's their website. They've also done a great job with their brand and identity.
Photos via SuperLA
Before 2022, being a land developer was a perfectly reasonable business to be in. In fact, it was a lucrative business to be in. What this business entailed was buying development land, getting it rezoned for some higher-and-better use (which here in Toronto usually takes a few years), and then selling it to another developer who would then build the thing that you got approved (or something close to it).
This kind of business practice is sometimes looked down upon by the general public, presumably because it feels like a speculative endeavor that doesn't actually result in anything physical. But another way to look at it is that it's just dividing up the same required work across multiple firms. Projects can take a long time and sometimes investors want their money back.
It is also good practice to look at this option even if you aren't a land developer, per se. One way you do this is by plugging in the market value of your land in your pro forma (not book cost). This way you can tell if your development margin is coming from your land uplift or from the build out. If most of your margin is coming from the former, then it may not be worth taking on the risk of construction.
In any event, the problem with this business is that it no longer works. (At least not in Toronto.) Land prices are moving in the opposite direction. Without a clear understanding of potential revenues (such as condo sales), it's very difficult to value development land. And if you can't accurately value land, then it's pretty challenging to run a business predicated on selling it.
What this means is that the development margin, if any, has shifted away from land toward the full build out (or whatever else your strategy may be). It's not enough to just entitle land. There's lots of entitled land out there right now. That is not the constraint. The constraint is figuring out how to actually make sites feasible. And to do that, you have to roll up your sleeves and really work each project and each asset.
Those who know how to do that will be the ones who come out ahead in the next cycle.
"Modern luxury is the ability to think clearly, sleep deeply, move slowly, and live quietly in a world designed to prevent all four." -Justin Welsh
Here's a question for you: Would you rather have the car of your dreams or would you rather live longer? (Maybe you don't care at all about cars and so this is an easy question, but bear with me, I'm sure you get the point.) This is a question that was posed to the audience at Elevate earlier this week and the entire room responded by saying that they would choose the latter. This is perhaps obvious. What good are material possessions if you don't have your health? But it's still an important frame of reference. And it's why Brazil-based developer AG7, who was at the conference, has centered their entire practice around "building wellness." Forget the fancy brands. Their buildings are focused on one thing: to help you live better and longer. This, to me, is a compelling value proposition. Because I think there's an easy argument to be made that there's no greater luxury than our own health and wellness.
Cover photo by Alex Perri on Unsplash
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