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: Real Estate

  • Down payment assistance through co-ownership

    A close friend of mine is part of a company here in Toronto called Ourboro. They are a home financing company that offer up to $250,000 toward down payments on homes. In exchange for this, they take a stake in the home and their pro-rata share of any future appreciation. So they are really co-owners. And they make their money on the gains. The maximum hold period is 10 years, but the principal owner is free to buy out Ourboro and stay in the home if they want.

    It’s an interesting model (and I have written about analogous ones before on the blog). Because in expensive housing markets like Toronto, saving up enough of a down payment is usually the biggest barrier to homeownership. But the question that I continually ask my friend is this: Does a model like this actually end up hurting overall affordability by increasing people’s buying power? Similar to what happens when interest rates go down. People can now afford more home.

    Perhaps. But Ourboro’s roots are in social enterprise and their focus is on helping people who might not otherwise be able to buy a place. They also see their approach as addressing the “fundamental imbalance of housing supply and demand in Canada.” We know that more supply would help with affordability, but so does this I guess. And it’s easier to implement.

    I suppose another way to look at this model is that it’s allowing individual homeowners to bring on co-investors, which is, of course, normal practice in the world of commercial real estate and development. Most developers don’t have all the equity needed to finance their own projects. They raise it from outside investors (and prosper through the magic of carried interest). Now end-users can do that too (but sorry, no carried interest per se).

    So if you’re in the market for a new home in the Greater Toronto Area and are looking for a little help with the down payment, Ourboro might be an option for you to consider.

  • Stable low-rise residential neighborhoods are the be-all and end-all

    Toronto city council has decided to defer its decision on legalizing rooming houses across the city one more time. Some of you may remember that this item went to council in the summer and was deferred to this fall. So now a new report is going to be drafted and the item will then make its way back to council sometime in the new year. Perhaps a decision will be made at that point. We will see.

    This is an interesting debate for many reasons, one of which is its divisiveness. Shawn Micallef wrote a searing piece in the Toronto Star over the weekend talking about how city council is showing its contempt for renters in this city and how council’s inaction is both “insulting and cowardly.” Article, here (paywall).

    At the same time, we know that many/most councillors don’t want this to happen. Which is why you get comments like this (taken from Micallef’s article): “…fundamentally what we need to talk about is what we don’t talk about enough at this council … homeowners’ rights. People who invest in this city and who live in stable residential neighbourhoods, the people that pay the taxes in this city.”

    I have already shared my views on this topic in past posts, but these are annoying comments. I live in a multi-family building. I build multi-family buildings as my job. And my next home is already planned to be in a multi-family building. Does that make me a second class citizen because I don’t live in a “stable residential neighborhood?” Am I not adequately investing this city?

  • Making River City

    My good friends over at Urban Capital recently released a short film about the making of their River City project here in Toronto. (If you can’t see the embedded video above, click here.)

    For those of you who aren’t familiar, River City is a 4-phase development on the east side of downtown that was really the first project in what was known as the West Don Lands area. Urban Capital secured the right to develop the then government-owned lands in 2008 through a public tender process that was run by Waterfront Toronto.

    It’s a tricky and unobvious kind of site in that it’s surrounded by infrastructure and it came with a whole host of development challenges, including flood risk. But the team figured it out and River City has gone on to win a number of awards including the Ontario Association of Architect’s Lieutenant Governor’s Award for Design Excellence.

    River City is an important project for Toronto in that it dared to be different. It’s like no other project in the city, and I’m not just saying this because they’re my friends. I’m saying it because I want our city to be a global leader in architecture, design, and development, and to continue to push the envelope.

    River City did exactly that.

  • The Petra Cortright NFT Collection at One Delisle

    My two week photo blogging experiment has come to an end. We are now back in Toronto. France was incredible, and I thoroughly enjoyed practicing my French and messing up which nouns are masculine and feminine. Expect some follow-up posts in the coming week(s). I was jotting down notes throughout the trip.

    I must say that the experience of getting back to Canada was far easier than I was expecting. Besides having to run around to a few different places for our PCR tests (sante.fr gave us some addresses that wouldn’t take us), it was relatively painless.

    I am now swimming through my inbox (butterfly stroke kind of thing). There’s a lot to catch up on and a lot that I want to write about. But here’s something pretty special. Today I am excited to share that Slate Asset Management just announced an NFT digital art collection by Los Angeles-based artist Petra Cortright.

    The collection consists of 8 works of digital art that are exclusive to each of the 8 penthouse residences at One Delisle (1/1). We believe that this is one of if not the first example of this — NFTs being commissioned by a developer for future condominium residents.

    Since the beginning, we have wanted to make One Delisle a “project of firsts.” We wanted to create something remarkable and usually that means you have to do something for the first time. We are fortunate to have been able to partner with Studio Gang for both the architecture of the building and its interiors.

    The Petra Cortright NFT Collection is the next step in this commitment to new ideas. And on October 6th the team will be revealing both the One Delisle Penthouse Collection and hosting a one-time gallery viewing of the eight digital art pieces. If you would like to attend here in Toronto, please send an email to info@onedelisle.com.

    For more information about what all of this means (including a bit about NFTs), here’s the full press release from earlier today.

  • 🙌 La Bovida

    Paris 1e

  • Productizing the delivery of new housing

    One of the co-founders of Juno — a new mass-timber and modular housing company — was recently interviewed by Dezeen. Prior to cofounding Juno, BJ Siegel was Apple’s design director and spent 19 years designing and working on their stores. And so this is the lens that he and his partners are bringing to the real estate development space. (I also just learned this morning that their head of real estate is a former classmate of mine from Penn.) Here is an excerpt from the Dezeen article that speaks to their goal of productizing the delivery of new housing:

    The third is Apple really challenged us to think about the way we deliver the project more like the way they deliver products through a kind of owner-furnished direct source supply chain model.

    And that actually spurred a lot of investigation as to how to translate that work from a product into this industry [real estate development], which is really kind of not focused on that.

    So that really was a big, big focus.

    The company recently announced that they have broken ground on their first project in Austin, Texas. It is a five storey 24-unit residential project that is being positioned as “middle-income, market-rate” housing. They’ve reduced the building down to about 33 standardized parts and are using a secret type of mass timber that is manufactured in the US. Supposedly it’s better than cross-laminated timber, but the company is keeping it as part of their secrete sauce right now.

    Juno is not the first company to identify this gaping problem in the development and construction space. The typical construction process is antiquated, inefficient, and filled with far too much waste. Which is why modular / pre-fabricated housing has been a goal of architects, builders and others for generations. Eventually we will figure out how to better productize the delivery of new housing and bring down its costs. And in my view that will be a great thing for consumers.

    Rendering by Engraff Studio via Dezeen

  • Jimmy the Greek Reopening Index

    Since the summer, I have been using the lunch line at Jimmy the Greek (in First Canadian Place) as a crude measure for the reopening of the CBD in downtown Toronto. It is partially a joke. Those of you who know me will know I am a fan of Jimmy the Greek (and large filling lunches in general). But at the same time, it is a probably a fairly decent (but again crude) proxy for the utilization rate of the offices that sit above and around Jimmy. Pre-COVID the lunch lines were always long and there was usually nowhere to sit. In the spring of this year, I was often the only person there, single-handedly keeping Jimmy alive. But things picked up throughout the summer months and there was a significant spike this week, following Labor Day (see above tweet). This was the spike that many/most of us were predicting and it showed through in the Jimmy the Greek Reopening Index.

  • US expects to deliver more than 330,000 new rental units this year

    Here’s some recent data from RENTCafe looking at the supply of new multifamily rental apartments in the US. About 334,000 rental units are expected to be completed and occupied this year, which is a decline from the 2018 peak of 357,000 units, though still a relatively high number. This year is expected to be the fifth consecutive year where supply is greater than 330,000 units. Below you can also see how this breaks down across the largest MSAs (metropolitan statistical areas).

    For this study, RENTCafe looked at new apartment construction data for buildings with 50 or more units (so no smaller infill projects). It covers 109 US metro areas. To determine whether a building is likely to be completed in 2021, they looked at confirmed certificate of occupancies and also used some sort of fancy algorithm to predict the likelihood that an under construction project will get one before the year is out.

    For more on their study, click here.

  • From mail-order catalogues and e-commerce to brick-and-mortar retailing

    It was recently announced that Amazon plans to start opening large brick-and-mortar retail stores that are akin to department stores. They won’t be quite as big. Supposedly they will be around 30,000 square feet. But this is still a meaningful commitment to physical retailing. The first stores of this type are expected to be in California and Ohio.

    On the one hand, this move probably appears counterintuitive. I mean, Amazon is a machine built around e-commerce (though it does already have other physical stores). But on the other hand, you could argue that they are simply following a retailing playbook that was developed over a century ago by companies like Montgomery Ward and Sears.

    Both of these companies disrupted traditional retailing in the late 19th century through mail-order catalogues. Why pay for physical space when you can just mail people catalogues? (Your margin is my opportunity, right?)

    But as we know, eventually these mail-order catalogue businesses turned into brick-and-mortar stores, and they then thrived this way for many years. If you consider e-commerce to just be the 21st century equivalent of the mail-order catalogue, then perhaps this next move by Amazon was always destined to happen.

  • South Korea’s idiosyncratic and counterintuitive home rental system

    Over the weekend I learned about a unique feature of South Korea’s housing market. It’s called jeonse. And the way this housing contract works is that, instead of tenants paying a monthly rent to their landlord, they pay a huge lump-sum amount up front. Usually this “key money” is equal to somewhere around 50% of the value of the home, but oftentimes it’s even higher (60-90% range). In 2014, the average cost of a jeonse deposit in Seoul was somewhere around US$300,000.

    In exchange for this huge lump-sum amount, jeonse tenants are able to live in the property for a period of time (usually 24 months) without having to pay any rent. Because what they are actually doing is paying via the opportunity cost of having their money tied up during their occupancy. Jeonse landlords are free to invest these lump-sum deposits however they see fit. The money they make from investing is their “rent” on the property. (The deposits are secured through a lien on the home, but of course that isn’t without some risk.)

    At first glance, this seems entirely counterintuitive. If you have hundreds of thousands of dollars available to you, why not buy? Why hand it over to a landlord so that they can go invest in things? Well, usually when there’s a marketplace for something it is because both sides stand to benefit. And in this case, the jeonse system supposedly emerged as the country was developing and people were rapidly urbanizing. Credit wasn’t widely available and so the jeonse system grew to help both tenants and landlords.

    For tenants, it was cheaper than owning a place outright and the “rent-free” period allowed them to more easily save up so that they could eventually buy. And for landlords, it was access to low-cost capital and the opportunity to invest in other money-making stuff. Some even credit the jeonse system with being instrumental in South Korea’s rapid rise in the second half of the 20th century.

    But is it still relevant today? Good question.

    The data suggests that it could very well be on the way out. Jeonse deposits have been declining for years and, based on this, it was overtaken in 2012 with more people choosing to pay rent on a monthly basis. As of 2019, it had grown to over 60% of tenancies in Seoul. And so it feels like the end could be near. But if any of you have first-hand experience with renting in South Korea, I would love to hear from you in the comment section below.

    Photo by Cait Ellis on Unsplash